Ravi KanthKuthadi V. The Union of India

WP/4507/2021

AI Insights

The case revolves around the disqualification of Ravi Kanth Kuthadi, a director, under Section 164(2)(a) of the Companies Act, 2013, for failing to file financial statements or annual returns for three consecutive years. The Registrar of Companies deactivated Kuthadi's DIN, which led to the filing of a writ petition under Article 226 of the Constitution. The petitioner argued that the action was arbitrary, illegal, and violated principles of natural justice, as it was applied retrospectively. The court examined whether the provision had retrospective effect and found that it did not, leading to the setting aside of the disqualification and the activation of the DIN.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 721669 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 26-02-2021
• Assessment Year: misc
• Other Referred Cases: COMMISSIONER OF INCOME TAX (CENTRAL)-I, NEW DELHI v. VATIKA TOWNSHIP PRIVATE LIMITED, YASHODHARA SHROFF vs. UNION OF INDIA, GAURANG BALVANTLAL SHAH S/O BALVANTLAL SHAH VS. UNION OF INDIA, BHAGAVAN DAS DHANANJAYA DAS VS. UNION OF INDIA
• Laws Referred To: Companies Act, 2013, Companies (Appointment and Qualification of Directors) Rules, 2014, Constitution of India
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: NAMAVARAPU RAO
• Assessee Lawyers: K VENKATA RAMANA
• Keywords: Deactivation; Director Identification Number; Disqualification; Natural Justice; Writ of Mandamus
• Section: 164(2); 226; 92(4); 403; 455; 248(1)(c)

Judgement Text

"HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD (Special Original Jurisdiction) FRIDAY, THE TWENTY SIXTH DAY OF FEBRUARY TWO THOUSAND AND TWENTY ONE PRESENT THE HON'BLE SRI JUSTICE ABHINAND KUMAR SHAVILI Between: Ravi KanthKuthadi, S/o. Gopala Krishna Kuthadi, Aged about 40 years, Occ. Business, R/o. 16-1-553/1, Saidabad, Near Hanuman Temple, Saidabad, Hyderabad - 500059. TS State. ...PETITIONER AND 1. The Union of lndia, Rep,by it's Secretary l /inistry of Corporate Affairs, Government of lndia, 'A' Wing, ShastriBhawan, Rajendra Prasad Road, New Delhi, Delhi 1 10001 . 2. The Registrar of Companies, (Hyderabad) (For the State of Telangana) 2ndFloor, Corporate Bhawan, GSI Post, TattiannaramNagole, Bandlaguda Hvderabad - 500 068' ...RES'.NDENTS Petition under Article 226 of the Constitution of lndia praying that in the circumstances stated in the affidavit filed therewith, the High Court may be pleased to pass an order or direction or any other proceedings one in the nature of Writ of Mandamus declaring the action of the respondents in so far as deactivating the Director ldentification Numbers 03465245, of the Petitioner, and restricting the Petitioner from filing statutory returns i.e. the annual returns and financial statements of the company in which they are Director, as arbitrary, illegal, without .jurisdiction, contrary to the provisions of the Companies Act, 2013 and Rule '1 1 of the Companies (Appointment and Qualification of Directors) Rules 2014, violative of the principles of natural justice besides violating the Petitioner rights guaranteed under Article 14 and Article 19 (1)(g) of the Constitution of lndia and to allow the petitioner to continue as director in the company by unlocking the DIN Number 03465245, of the petitioner and permit the petitioner to be continued as Director/ get reappointed or appoint as a director in new company or any company without any hassle. Petition under Section 151 CPC praying that in the circumstances stated in the affidavit filed in support of the petition, the High Court may be pleased to Stay operation of the d isq ua lificatio n of the Director ldentification Ravi Kanth Kuthadi (DlN. 03465245 of Petitioner No.1) in so far as the Petitioner are concerned and be pleased to direct the 1st Respondent to stay the disabling and restore the Director ldentification Numbers 03465245, of the Petitioner 1, and enable them to join as a director in New Company or enable them to submit the annual returns and financial statements of the companies in which they are Directors and pass such further or other orders as this Honourable Court may deem fit and proper in the circumstances of the case and thus render justice. Counsel for the Petitioner: SRI K. VENKATA RAMANA Counsel for the Respondents: SRI NAMAVARAPU RAJESHWAR RAO, ASST. SOLICITOR GENERAL The Court made the following: ORDER WRIT PETITION NO: 4507 OF 2021 lA NO: 1 OF 202'l HON'BLE SRIJUSTICE ABHINAND KUMAR SHAVILI r.P,NO.4507 of2 a21 ORDER Vhen the matter is taken up for hearing' leamed counsel on either sid e fairly concede that the issue involved in this writ petition is squarely covered by the colrunon order dated 18.07.2019 passed by this Court in V'P'No'5422 of 2018 and batch. Following the conunon order dated t8'07'2079 in 'V.P.No.5422 of 2018 and barch, this Writ Petition is allowed' No costs. Pending miscellaneous petitions, if a;ny' shall stand closed. SD'. K.AMMAJI ASSISTANT REGISTRAR //TRUE COPY' SECTION OFFICER IOPUC] Two CD CoPies (A long with a coPY of order dt:18/7/2019 in W.P No 5422 of 20'18 and Batch) to'', . -rn\" secretary Ministr ,fl #3*'ffi:[;4{$*[..rry]{#ggiiflff *'ffili{'\"lt*:*rl[:; Hvd'erabad - 500 068 s. o'.l\"cci; s,]k' v\"ixutt Ramana' Ad\":9?*\"tgusc\"licitor General, Advocate ;. 5;; cc io sri Namavarapu Rajeshwar Rao' Ass SM L HIGH COURT OATEDI261021202'I ORDER WP.No.4507 ol 2021 % ALLOWING THE WE WITHOUT COSTS. 18 MAR 2021 ai * 16 osa ( HE SIA z 6 -):. 'Jtr!i:1.- c) o o 0 TH HON' LE SRI ]USTI EA. ASHE ER RE DY P. N 7 7 35. 12040. 120 69. L2 08. 12 44. t2 a6. L2 94. 11991. 12018. 120 4L co MON O DER Since, the issue involved in all the writ petitions is one and the same' they are heard together and are being disposed of by this common order' 2. The petitioners are the directors of the private companles' registered under the Companies Act, 2013 (18 of 2013) (for short'the Act')' Some of the such companies are active, and some of them have been struck off from the register of companies under Section 248(1)( c ) of the Act' for not carrying on any business operation for the specified period mentioned in the said provision, and for not making any application within the specified period, for obtaining the status of a dormant company under Section 455 of the Act. 3. The petitioners, who were directors of the struck off companies' and who are presently directors of active companies' during the relevant period in question, failed to file financial statements or annual returns for a continuous period of three years. Therefore, the 2nd respondent passed the impugned order under Section 164(2) of the Act' disqualifying them as directors, and further making them ineligible to be re-appointed as directors of that company, or any other company, for a period of five years from the date on which the respective companies failed to do so' The Director Identification Numbers (DINs) of the petitioners were also deactivated' Aggrieved by the same, the present writ petitions have been filed' 4' This court granted interim orders in the writ petitions directing the 2nd respondent to activate DINs of the petitioners, to enabre them to function other than in strike off companies. Heard the rearned counser appearing for the petitioners in aI the writ petitions, Sri K.Lakshman, Iearned for the respondents _ Union of India. Assistant Solicitor General appearing 6. Learned counsel for the petitioners, contend that before passing the impugned order, notices have not been issued, giving them opportunity, and this amounts to vioration of principres of naturar justice, and on this ground alone, the impugned orders are liable to be set aside. 7. Learned counsel submits that Section 164(2)(a) of the Act empowers the authority to disquarify a person to be a director, provided he has not fired financiar statements or annuar returns of the company to which he is director' for any continuous period of three financial years. Learned counser further submits that this provision came into force with effect from 7.4.20L4, and prior thereto i.e., under Section 2l+(t)(g) of the Companies Act, 1956 (1 of 1956), which is the analogous provision, there was no such requirement for the directors of the private companies. They contend that this provision under Act 18 of 2013, will have prospective operation and hence, if the directors of company fail to comply with the requirements mentioned in the said provision subsequent to the said date, the authority under the Act' is within its jurisdiction to disquarify them. But in the present cases, the 2nd respondent, taking the period prior to L4.2OI4,i.e., giving the provision retrospective effect, disquarified the petitioners as directors, which is illegal and arbitrary. 8. With reqard to deactivation of DINs, learned counsel for the petitioners submit that the DINs, as contemplated under Rule 2(d) of the Companies (Appointment and eualification of Directors), Rules, 2OL4 (for J short'the Rules), are granted for life time to the applicants under Rule 10(6) of the said Rules, and cancellation of the DIN can be made only for the grounds mentioned in clauses (a) to (f) under Rule 11 6f the Rules, and the said grounds does not provide for deactivation for having become ineligible for appointment as Directors of the company under Section 164 of the Act' Learned counsel further submits that as against the deactivation, no appeal is provided under the Rules, and appeal to the Tribunal under Section 252 of the Act is provided only against the dissolution of the company under Section 248 of the Act. 9. Learned counsel further submits that 1't respondent - Government of India represented by the Ministry of Corporate Affairs, has floated a scheme dated 29.72.20L7 viz., Condonation of Delay Scheme - 2018, wherein the directors, whose DINs have been deactivated by the 2nd respondent, allows the DINs of the Directors to be activated. However, such scheme is not applicable to the companies which are struck off under Section 248(5) of the Act. In case of active companies, they can make application to National Company Law Tribunal under Section 252 of the Act, seeking for restoration, and the Tribunal can order for reactivation of DIN of such directors, whose DIN are deactivated. However, under Section 252 only the companies, which are carrying on the business, can approach the Tribunal and the companies, which have no business, cannot approach the Tribunal for restoration. They submit that since the penal provision is given retrospective operation, de hors the above scheme, they are entitled to invoke the jurisdiction of this court under Article 226 of the constitution of Ind ia. 10. With the above contentions, learned counsel sought to set aside the impugned orders and to allow the wrlt petitions. 11. On the other hand learned Assistant Solicitor General submits that failure to file financial statements or annual returns for any continuous period -1 of three financial years, automatically entall their d isq ua lification under Section 164(2)(a) of lhe nct and the statute does not provide for issuance of any notice. Hence, the petitioners, who have failed to comply with the statutory requirement under Section 164 of the Act, cannot complain of violation of principles of natural justice, as it is a deeming provision. Learned counsel further submits that the petitioners have alternative remedy of appeal under Section 252 of the Act, and hence writ petitions may not be entertained. 12. To consider the contention of the learned Assistant Solicitor General with regard to alternative remedy of appeal under Section 252 of the Act, the said provision is required to be considered, and the same is extracted as under for better appreciation: 252. Appeal to Tribu na I (1) Any person aggrieved by an order of the Registrar, notifying a company as dissolved under Section 248, may file an appeal to the Tribunal within a period of three years from the date of the order of the Registrar and if the Tribunal is of the opinion that the removal of the name of the company from the register of companies is not justified in view of the absence of any of the grounds on which the order was passed by the Registrar, it may order restoration of the name of the company in the register of companies; Provided that before passing an order under this section, the Tribunal shall give a reasonable opportunity of making representations and of being heard to the Registrar, the company and all the persons concerned: Provided further that jf the Registrar is satisfied, that the name of the company has been struck off from the register of companies either inadverten y or on basis of incorrect information furnished by the company or its directors, which requires restoration in the register of companies, he may within a period of three years from the date of passing of the order dissolving the company under Sectjon 248, file an application before the Tribunal seeking restoration of name of such com pany. (2) A copy of the order passed by the Tribunal shall be filed by the company with the Registrar within thirty days from the date of the order and on receipt of the order, the Registrar shall cause the name of the company to be restored in the register of companies and shall issue a fresh certificate of incorporation. (3) If a company, or any member or creditor or worker thereof feels aggrieved by the company having its name struck off from the register of companies, the Tribunal or an application made by the company, member, creditor or workman before the expiry of twenty years from the publication in the Official Gazette of the notice under sub-section (5) of Section 248, if satisfied that the company was, at the time of its name being struck off, carrying on business or in operation or otherwise it is just that the name of the company be restored to the register of companies, order the name of the company to be restored to the register of companies, and the Tribunal may, by the order, give such other directiona and make such provisions as deemed just for placing the company and all other persons in the same position as nearly as may be as if the name of the company has not been struck off from the register of companies. ) A reading of above provision goes to show that if the company is dissolved under section 248 of the Act, any person aggrieved by the same, can file an appeal. Thus the said provision provides the forum for redressal against the dissolution and striking off the company from the register of companies' It doesnotdealwiththedisqualificationofthedirectors,anddeactivationof their DINS. In the present case, the petitioners are only aggrieved by their d isqua lification as directors and deactlvation of DINs' but not about striking off companies as such. Hence, Section 252 of the Act' cannot be an alternative remedy for seekihg that relief, and the contention of the learned Assistant Solicitor General, in this regard, merits for rejection' 13. Under Section 16a(2)(a) of the Act, if the Director of a company fails to file financial statements or annual returns for any continuous period of three financial years, he shall not be eligible to be re-appointed as a director of that company or appointed in other company for a period of five years from the date on which the said company fails to do so' The said provision under the Act 18 of 2013, came into force with effect from 01.04.2014, and the petitioners are disqualified as directors under the said provision. At this stage, the issue that arises for consideration is - whether the d isqua lification envisaged under Section 164(2)(a) of the Act, which provision came into force with effect from 01,04.2014, can be made applicable with prospective effect, or has to be given retrospective operation? In other words, the issue would be, from which financial year, the default envisaged under Section 164(2)(a) of the Act' has to be calculated' to hold the director of the company liable? In this regard' the learned counsel broughttothenoticeofthisCourt,theGeneralCircularNo'08/14dated 4.4.2Ot4 issued by the Ministry of Corporatlon affairs' which clarifies the applicability of the relevant financial years' The relevant portion of the said circu la r is as under: \"A number of provisions of the companies Act' 2013.including those rel-ating to maintenance of books or accou-nt, -preparation, adoption and filing of financial statements (and documents t\"qrit\"a io Le attacned thereto), Auditors reports and ;;;;;;;JJi Directors report Ceouia't '\"pott) have been brought into force with 6 effect from 1't April, 2014. Provisions of Schedule II (useful lives to compute depreciation) and Schedule lll (format of financial statements) have also been brought into force from that date. The relevant Rules pertaining to these provisions have also been notified, placed on the website of the Ministry and have come into force from the same date. The Ministry has received requests for clarification with regard to the relevant financial years with effect from which such provisions of the new Act relating to maintenance of books of account, preparation, adoption and filing of financial statements (and attachments thereto), auditors report and Board's report will be applicable. Although the position in this behalf is quite clear, to make things absolutely clear it is hereby notified that the financial statements (and documents required to be attached thereto), auditors report and Board's report in respect of financial years that commenced earlier than 1't April shall be governed by the relevant p rovisions/sched u les/ ru les of the Companies Act, 1956 and that in respect of financial years commencing on or after 1't April, 2014, the provisions of the new Act shall apply. \" A reading of the above circular makes it clear the financial statements and the documents required to be attached thereto, auditors report and Board's report in respect of financial years that commenced earlier than 01.O4.2014, shall be governed by the provisions under the Companies Act, 1956 and in respect of financial years commencing on or after 07.04.2OL4, the provisions of the new Act shall apply. 14. At this stage it is required to be noticed that the analogous provision to Section 16a(2)(a) of the Act 18 of 2013, is Section 27aG)G) of Act 1 of 1956. The said provision under Act 1 of 1956 is extracted as under for ready reference: Section 274(1) A person shall not be capable of being appointed director of a com pany, if - (g) such person is already a director of a public company which, - (A) has not filed the annual accounts and annual returns for any continuous three financial years commencing on and after the first day of April, 1999; or (B) Provided that such person shall not be eligible to be appointed as a director of any other public company for a period of five years from the date on which such public company, in which he is a director, failed to file annual accounts and annual returns under sub-clause (A) or has failed to repay its deposits or interest or redeem its debentures on due date or pay dividend referred to in clause (B). A reading of the above provision under Act 1 of 1956, makes it clear that iF a person capable of being appointed director of a company and such person is already a director of a public company, which has not filed annual accounts and annual returns for any continuous three flnancial years commencing on 7 and after the first day of April 1999, shall not be eligible to be appointed as a director of any other public company for a period of five years from the date on which such public company, in which he is a director, failed to file annual accounts and annual returns. So the statutory requirement of filing annual accounts and annual returns, is placed on the directors of a 'public company'. There is no provision under the Act 1of 1956, which places similar obligations on the directors of a'private company'. Therefore, non- filing of annual accounts and annual returns by the directors of the private company, will not disqualify them as directors under the provisions of Act 1 of 1956. 15. Under Section 164(2) of the new legislation i.e., Act 18 of 2013, no such distinction between a 'private company' or a 'public company' is made and as per the said provision goes to show that no person who is or has been a director of a 'company', fails to file financial statements or annual returns for any continuous period of three financial years, will not be eligible for appointment as a director of a company. As already noted above, the said provision, came into force with effect from 0L.O4.20L4. 16. Coming to the facts on hand, the 2\"d respondent has disqualified the petitioners under section 164(2)(a) of the Act 18 of 2013, for not filing financial statements or annual returns, for period prior to 01.04.2014' The action of the 2nd respondent runs contrary to the circular issued by the Ministry of the corporate AFfairs, and he has given the provisions of Act 18 of 2013, retrospective effect, which is impermissible. t7. The Apex Court in COMMISSIONER OF INCOME TAX (CENTRAL)-[, NEW DELHI v. VATIKA TOWNSHIP PRMTE LIMITEDL has dealt with the general principles concerning retrospectiv ity. The relevant portion of the judgment is thus: 27. A legislation, be it a statutory Act or a statutory Rule or a statutory Notification, may physically consists of words printed on papers. However, ' (2015)r sccl 8 ffil*H*q'*trffuffi*ffiffi :rri{;minirh:x tr;!trft?}ffi i,'{\",.,' *.il',:,1**ff ti,,::,}r,*Hr*#: m*t*-*Nffi {*r*r*#*#mN$*ffi li::*\"\" :.\" i.::,,,-:.= ;,i.x l:' ,$***iffi*?::.:T*[:d[i:;.*;\"ni,*;q[?j]1i+Tr\"r# ,*.-#i#,i-ffi y$*n*i-it+E+ut trilftiiilffi jf 'ffi $Ir**,r*lin*,.\"r\"d N**'ru*HN+*ffi mffi*ggffi--ffi *m**rtmH**mroffi 9 ! For example, Explanation to section 158-BB is stated to be clarificatory in nature. Likewise, it is mentioned that amendments in Section 145 whereby provisions of that section are made applicable to block assessments is made clarificatory and would take effect retrospectively from 1st day of July, 1995 When it comes to amendment to section 113 of the Act, this very circular provides that the said amendment along with the amendments in Section 158-BEr would be prospective i.e., will take effect from 1.6.2002.\" 18. Thus, the Apex Court in the above judgment, has made it clear that unless a contrary intention appears, a legislation has to be presumed to have prospective effect. A reading of Section 164 of the Act does not show that the legislation has any intention, to make the said provision applicable to past transactions. Further, the Apex Court in the above judgment at paragraph No.43, found that the circular issued by the authority after passing of the legislation, clarifying the position with regard to applicability of the provisions, has to be construed as an important piece of evidence, as it would clarify the provision beyond any pale of doubt. In the present case, as already noted above, the Ministry of Corporation affairs has issued the circular No.0B/2014 dated 4.4.2014 clarifying that financial statements commencing after 01.04.2014, shall be governed by Act 18 of 2013 i'e', new Act and in respect of financial years commencing earlier to 01'04'2014, shall be governed by Act 1 of 1956. At the cost of repetition, since in the present cases, as the 2nd respondent / competent authority, has disqualified the petitioners as directors under Section 16a(2)(a) of the Act 18 of 2013, by considering the period prior to Ol.O4.2Ot4, the same is contrary to the circular, and also contrary to the law laid down by Apex Court in the above referred judgment. 19. If the said provision is given prospective effect, as per the circular dated 4.4.2014 and the law laid down by the Apex Court, as stated in the writ affidavits, the first financial year would be from 01-04-2014 to 31.03.2015 and the second and third years flnancial years would be for the years ending 31.03.2016 and 31.03.2017. The annual returns and financial statements are to be filed with Registrar of Companies only after the conclusion of the annual general meeting of the company, and as per the first l0 proviso to Section 96(1) of the Act, annual general meeting for the year ending 31.03.2017, can be held within six months from the closing of financial year i.e., by 30.09.2017. Further, the time rimit for filing annuar returns under section 92(4) of the Act, is 60 days from annuar generar meeting, or the last date on which annual general meeting ought to have been held with normar fee, and within 270 days with additionar fee as per the proviso to section 403 of the Act. Learned counsel submit that if the said dates are calcurated, the rast date for firing the annuar returns wourd be 3O.77.20t7, and the balance sheet was to be filed on 30.10.2017 with normar fee and with additionar fee, the rast date for firing annuar returns is 27.O7.2018. In other words, the d isq ua lification could get triggered only on or after 27.07.2019. But the period considered by the 20d respondent in the present writ petitions for crothing the petitioners with d isquarification, pertains prior to OL.04.20L4. Therefore, when the omission, which is now pointed out, was not envisaged as a ground for d isq ua rification prior to 7.4.20t4, the petitioners cannot be disqualified on the said ground. This analogy is traceable to Article 20(1) of the constitution of India, which states that \"lvo person shart be convicted of any offence except for vioration of a raw in force at the time of the commission of the act charged as an offence, nor be subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the commission of the offence,,. In view of the same, the ground on which the petitioners were disqualified, cannot stand to legal scrutiny, and the same is liable to be set aside. 20. A learned Single Judge of the High YASHODHARA SHROFF vs. UNION OF Court of Karnataka in INDIA2 considering section L6aQ)Q) of the Act and other provisions of the Act, and various judgments, passed an elaborate order and held that the said provision has no retrospective operation. The observations of the learned Judge, pertaining to 2 W.P.No.529l I of 2017 and batch dared 12.06.2019 ll private companies, which are relevant for the present purpose' are extracted as under: 2OB. In view of the aforesaid discussion, I have arrived at the following conclusions: (a) lt is held that Section 164(2)(a) of the Act rs.not,u/tra vlrus Article 14 of the constitution. The saio provls-i'o'n is not manifestly arbrtrary and also does notfall within the scope of the oott'lni oipropo'tionaltty Neither does the said provision violate Article 19(1)(g) of th; i;\"iit\"tit; \"s it is made. in the interest of general DUbltc and a reasonable r\"=iiitttn -on the exercise of the.said right The object #; 'd;;\" \";i-ir,,\" -t\"o' p-r*i=ion 'it to stipulate . the consequence of a dtsqualificatron on account or in-\"- tJtt\"ttunces siated therein and the same is rn order to acnieve prourti, 'ui''ntuOitity' and transparencY in corporate 9OVernance (b) That Article (sic) Sectron 164(2) of the Act applies by operation of law on the basis of the circumstances stated'Ifieiein, the said provision does not envisage any hearrng, neither pr.\"-oi'quujirtuliin ' nor post-alsquatification and this is not in violation of the princrptes \"i'\"\"'i\"\"r juttil\"' it nol ult'u vires Article 14 of the Constitution. (c) That Section 164(2) of the Act does not have retrospective operation and is therefore, nerther unreasonlul*\"- Jtuii.\".v' in view of the interpretatton placed on the same. (d)... (e) Insofar as the prlvate companies are concerned' disqualification on account of the circumstances .,u,\"0 ,noJr-i\"tii\" io+izlt\"l of the Act has been brought into force for the first time '\"0* i-n\" nct inO'tie consequences of disqualification couldnothavebeen..p\"'\"o\"\"oirecto,sorprivate,,companiesby.takinginto consideratton unv pu'ioo\"-pili to or'o+ zor+ for the DUrpose of reckoning continuous perrod of $'r-\"\"'ii'ianilt y\"t\" 'no\"' the said provision The sard conclusion is based on tr',lt p'i\"ip'i O'l*\" Ly way or analogy from Artrcle 20( 1) of the constitution, ut ut no\"poln[orl'me p'ior. to the enforcement of the Act' a disqualification based on in;1i't\"tttnt\"s under Section 164(2) of the Act was ever envisased under the 1;5;;;i ;l;-;:;\" directors of private companies such a disqualification couro uisii-a\" Ji'\"itoior onrv a publlc company under section 27a(r)(g) of 1956 Act \"\"4-*\"!i-1 Jir.\"ttot oi :-lliuut\" companv such dtsqualificatton of tne petii'o-nets who are dlrectors of private companies is hence quashed. (0... (g) Consequently, where the drsqualifrcatron under Section-164(2) of the Act is based on a continuous p\"''oo o-f-ih|.\"u financial years commencing from 01 04 2014' wherein financial 'tut\"'u\"ntt 'oil nn'ur i\"t'int have not been filed bv a public or private companv, th\" d;;:t;;t\";i ;tn-u iornpunv stand disqualified and the consequences or tire saro d]]quatrrrcaiion woutd apply to them under the Act' r r/Special Civil Application No 22435 of20l7 and batch dated 18 12 2018 21. A learned Slngle of the High Court of Gujarat at Ahmedabad in GAURANG BALVANTLALSHAH S/O BALVANTLALSHAH VS. UNION OF INDIAL expressed similar view as that of the leaned single ludge of High Court of Karnataka (1 supra), and held that Section L64(2) of the Act of 2013, which had come into force with effect from !'4'2014 would have prospective, and not retrospective eFfect and that the defaults contemplated under Section 16a(2)(a) with regard to non-filing of financial statements or t2 annual returns for any continuous period of three financial years would be the default to be counted from the financiar year 2014-15 onry and not 22. A learned single Judge of the High Court of Madras in BHAGAVAN DAS DHANANJAYA DAS VS. IINION OF INDIA4 AISO CXPTCSSCd SiMiIAr view. The relevant portion is as under: ')? In view of the above facts and circumstances and the judgments referred to supra, as the impugned orders in present writ petitions disqualifying the petitioners as directors under Section 16a(2)(a) of the Act, have been passed considering the period prior to 01.04.2014, the cannot be sustained, and are liable to be set aside to that extent. sa me 24. As far as the contention regarding issuance of prior notice before disqualifying the petitioners as directors is concerned, Section 16a(2)(a) is required to be noticed, and the same is extracted as under for ready reference: 164. Disqualification for appointment of director: n W.P.No.25455 of 20 t7 and batch dated 27.07.2018 2073-14. 29. In fine, (a) When the New Act 2013 came into effect from 1.4.2014, the second respondent herein has wrongly given retrospective effect and erroneously disqualified the petitioner _ directors from 1.1.2016 itself before the deadline commenced wrongly fixtng ihe first financial year from 7.4,2013 to 31.3.2014. (b) By virtue of the new Section 164(2)(a) of the 2013 Act using the expression 'for any continuous period of three financial y\"ur; und in the light of section 2(41) defining \"financial year,,as well as their own General circular No.Og/14 dated 4.4.2OI4, the first financial year would be from L.4.2014 to 31.3.2015. the second financiil year would be from 1.4.2015 to 31.3.2016 and the third financial year would be from 1.4.2076 to 31.3.2017, whereas tne seconJ respondent clearly admitted in paras 15 and 22 of the counter affidavit that the default of filing statutory returns for the final years commences from 2073-74, ZOl4_lS and 2015-16 i.e, one year before the Act 2013 came into force. This is the basic incurable legal infirmity that vitiates the entire impugned proceedings. l3 (2) No person who is or has been a director of a company which- (a) has not filed financaal statements or annual returns for any continuous period of three financial years; or (b)... Shall be eligible to be re-appointed as a director of that company or appointed in other companies for a period of five years from the date on which the said company fails to do so. A reading of the above provision makes it clear that it provides d isq ua lification on happening of an event i.e., if a person who is or has been a director of a company has not filed financial statements or annual returns for any continuous period of three financial years, shall be ineligible to be re- appointed as a director of that company or appointed in any other company for a period of five years from the date on which the said company fails to do so. The provision does not provide for issuance of any prior notice or hearing. A learned single Judge of the High Court of Karnataka in Yashodara Shroff v. Union of India (1 supra), as well as the learned single Judge of the High Court of Gujarat at Ahmedabad in Gaurang Balvantial Shah s/o Balvantlal Shah vs. Union of India (2 supra), after analyzing various provisions of the Act and Rules framed thereunder, and by relying on various judgments of the Apex Court, held that Section 16a(2)(a) of the Act applies by operation of law on the basis of the circumstances stated therein, the said provision does not envisage any hearing, neither pre-disqualification nor post-d isq ua lificatio n and this is not in violation of the principles of natural justice and hence, is not- ultra vires Article 14 of the Constitution. I concur with the said reasoning. 25. Thus, from the above, it is clear that Section 16a(2)(a) of the Act is a deeming provision and the d isq ua lification envisaged under the said provision comes into force automatically by operation of law on default and Legislature did not provide for issuance of any prior notlce, but the respondents notified disq ua lificatio n even before it incurred, and deactivated DINs, which is illegal arbitrary and against provisions contained in Sectlon 16a(2)(a) of the Act. l1 26. The next grievance of the petitioners is with regard to deactivation of their DINs. The contention of the learned counsel for the petitioners is that except for the grounds mentioned under Rule 11 (a) to (f) of the Rules, the DINs cannot be cancelled or deactivated, and the violation mentioned under Section 164(2)(a) of the Act, is not one of the grounds mentioned under clauses (a) to (f) of Rule 11, and hence for the alleged violation under Section 16a(2)(a) of the Act, DIN cannot be cancelled. 27. Rule 10 of the Rules provide for allotment of DIN and under sub rule (6) of Rule 10, it is allotted for life time. Rule 11 provides for cancellation or deactivation. Rule 11, which is relevant for the present purpose, is extracted as under for ready reference: (a) (b) (c) (d) 11. Cancellation or surrender or deactivation of DIN: The Central Government or Regional Director (Northern Region), Noida or any officer authorized by the Regional Director may, upon being satisfied on verification of particulars or documentary proof attached with the application received from any person, cancel or deactivate the DIN in case - the DIN is found to be duplicated in respect of the same person provided the data related to both the DIN sha be merged with the vatidty retained num ber; the DIN was obtained an a wrongful manner or by fraudulent means; of the death of the concerned individual; the concerned andividual has been declared as a person of unsound mind by a competent Court; if the concerned individual has been adjudicated an insolvent; Provided that before cancellation or deactivation of DIN pursuant to clause (b), an opportunity of being heard shall be given to the concerned individual; on an application made in Form DIR-s by the DIN holder to surrender his or her DIN along with declaration that he has never been appointed as director in any company and the said DIN has never been used for filing of any document with any authority, the Central Government may deactivate such DIN; Provided that before deactivation of any DIN in such case, the Central Government shall verify e-records. Explanation: for the purposes of clause (b) - The terms \"wrongful manner\" means if the DIN is obtained on the strength of documents which are not legally valid or incomplete documents are furnished or on suppression of material information or on the basis of wrong certification or by making misleading or false information or by m isrep resentation; (ii) the term \"fraudulent means\" means if the DIN is obtained with an intent to deceave any other person or any authority including the Central Government. 28. Clauses (a) to (f) of Rule 11, extracted above, provides for the circumstances under which the DIN can be cancelled or deactivated. The said grounds, are different from the ground envisaged under (e) (0 (i) 15 Section 16a(2)(a) of the Act. Therefore, for the alleged violation under Section 164 of the Act, DINs cannot be cancelled or deactivated, except in accordance with Rule 11 of the Rules. 29. Learned Single Judge of the Gujarat High Court in the decision cited 2 supra, held as under: \"29. This takes the Court to the next question as to whether the respondents could have deactivated the DINs of the petitioner as a consequence of the impugned list? In this regard, it would be approprrate to refer to the relevant provisions contained in the Act and the said Rules. Section 153(3) provides that no person shall be appointed as a Director of a company, unless he has been allotted the Director Identification Number under Section l54 Section 153 requires every individual intending to be appointed as Director of a Company to make an application for allotment of DlN to the Central Government in such form and manner ai may be prescribed. Section 154 states that the Central Government shall within one month from the receipt of the application under Section 153 allot a DIN to an applicant in such manner as may be prescribed. Section 155 prohibits any individual, who has already been allotted a DIN under Section 154 from applying for or obtaining or possessing another DIN. Rules 9 and 10 of the said Rules of 2014 prescribe the procedure for making application for allotment and for the allotment of btn, and further provide that the DIN allotted by the Central Government under the said Rules would be valid for the life time of the applicant and shall not be allotted to any other person. 30, Rule 11 provides for cancellation or surrender or deactivation of DIN' Accordingly, the Central Government or Regional Director or any authorized officer of negionai Director may, on being satisfied on verification of particulars of documlntary proof attached with an application from any person, cancel or deactivate the DIN on any of the grounds mentioned in Clause (a) to (f) thereof' The said Rule 11 does not contemplate anY suo motu powers either with the Central Government or with the authorized officer or Regional Director to cancel or deactivate the DIN allotted to the Director, nor any of the clauses mentioned in the said Rules contemplates cancellation or deactivation of DIN of the Director of the \"struck off company\" or of the Director having become ineligible under Section 164 of the said Act. The reason appears to be that once an individual, who is intending to be the Director of a particular company is allotted DIN by the Central Government, such DIN would be valid for the life time of the applicant and on the basis of such DIN he could become Director in other companies also Hence, if one of the companies in which he was Director, is \"struck off\", his DIN could not be cancelled or deactivated as that would run counter to the provisions contained in the Rule 11, which specifically provides for the circumstances under which the DIN could be cancelled or deactivated. 31. In that view of the matter, the Court is of the opinion that the action of the respondents in deactivating the DINs of the petitioners - Directors along with the publication of the impugned list of Directors of \"struck off\" companies under bection 248, also was not legally tenable. Of course, as per Rule 12 of the said Rules, the individual who has been allotted the DIN, in the event of any change in his particulars stated in Form DIR -3 has to intimate such change to the central Government within the prescribed time in Form DIR-6, however, if that is not done, the DIN could not be cancelled or deactivated. The cancellation or deactivation of the DIN could be resorted to by the concerned respondents only as per the provisions contained in the said Rules.\" 30. In view of the above facts and circumstances and the judgment referred to supra, the deactivation of the DINs of the petitioners for alleged violations under Section 164 of the Act, cannot be sustained. l6 31. For the foregoing reasons, the impugned orders in the writ petitions to the extent of disqualifying the petitioners under Section 16a(2)(a) of the Act and deactivation of their DINs, are set aside, and the 2nd respondent is directed to activate the DINs of the petitioners, enabling them to function as Directors other than in strike off companies. 32. It is made clear that this order will not preclude the 2nd respondent from taking appropriate action in accordance with law for violations as envisaged under Section L6aQ) of the Act, giving the said provision prospective effect from 01.04.2014 and for necessary action against DIN in case of violations of Rule 11 of the Rules. 33. It is also made clear that if the petitioners are aggrieved by the action of the respondents in striking off their companies under Section 248 of the Act, they are at liberty to avail alternative remedy under Section 252 of the Act. 34. All the writ petitions are accordingly allowed to the extent indicated a bove. 35. Interlocutory applications pending, if any, shall stand closed. No order as to costs. A.R.AJASHEKER REDDY,J DATE: 18-07-2019 AVS "