Sailaja Chalasani V. Union of India

WP/7803/2020

AI Insights

The case involves Sailala Chalasani, the petitioner, who was disqualified as a director and had her DIN deactivated by the Registrar of Companies under Section 164(2)(a) of the Companies Act, 2013, for not filing financial statements or annual returns for three consecutive years. The petitioner challenged this decision, arguing that the action was taken retrospectively and without proper notice, violating principles of natural justice. The respondents, representing the Union of India and the Registrar of Companies, contended that the disqualification was automatic under the statute and did not require prior notice. The court examined the applicability of the law and the rules governing DIN, ultimately ruling in favor of the petitioner.

• Counselvise Citation: [2020] 140 COUNSELVISE.COM (IT) 721877 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 08-06-2020
• Assessment Year: misc
• Other Referred Cases: COMMISSIONER OF INCOME TAX (CENTRAL)-I NEW DELHI V. VATTKA 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 Act, 1956, Constitution of India
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: NAMAVARAPU RAO
• Assessee Lawyers: VANGA ANITA
• Keywords: Director Identification Number; Disqualification of Directors; Natural Justice; Writ of Mandamus
• Section: 455; 248(1)(c); 164(2)(a); 16a(2)(a)

Judgement Text

"PRESENT THE HON'BLE SRI JUSTICE A. ABHISHEK REDDY Betwee n: Sailala Chalasani, D/o. Balarama Potluri Krishna Age 59 Years, Occ- Business, 1-19- 69/32, Thyagaraya Nagar, Near Reliance Foot Print, Kapra, Ranagareddy, Hyderabad Telangana - 500062. ...PETITIONER AND 1. Union of lndia, Rep by its Secretary, IVinistry of Corporate Affairs, Shastry Bhavan. Dr. Rajendra Prasad lt4arg, New Delhi. 2. The Registrar, Office of Registrar of Companies, ROC, 2nd Floor, Corporate Bhavan, Near Central Water Board, GST Post, Bandlaguda, Nagole, Hyderabad - sooo.B ...RESP.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 issue any writ, order of direction more particularly one in the nature of writ of It4andamus to permit the Petitioner to continue as a Director of the Company and/or get appoint or reappointed as a Director of any Company without any interference. lA NO: 1 OF 2020 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 of the disqualification of directorship of the petitioner by activating the DIN No. 00537021 and digital signature of the Petitioner, in so far as the Petitioner herein is concerned, pending disposal of the above writ petition. Counsel for the Petitioner: Mis. VANGA ANITA The Court made the following: ORDER Aggrieved by the action of the 2\"d respondent - The Registrar, Office of the Registrar of Companies, in disqualifying the petitioner as Director of the Company under Section l6aQ)@) of the Companies Act, 2013, and deactivating her Director Identification Number (DIN), the present writ petition is filed. 2. With the consent of both the parties, the present writ petition is disposed of at the admission stage itself. 4 HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD (Special Original Jurisdiction) IVONDAY, THE EIGHTH DAY OF JUNE TWO THOUSAND AND TWENTY WRIT PETITION NO: 7803 OF 2020 Counsel for the Respondents: SRl. NAMAVARAPU RAJESHWAR RAO, ASSISTANT SOLICITOR GENERAL 3. The learned (lounsel appearing for the petitioner has contended that the matter. is squarely < overed by the common order, dated 18.O7.2019, passed by this Court in W.P.N-:;.5422 ol 2018 and batch. Therefole, the u,rit petition may be allowed in terms of the above referred common order. 4. Sri N. Raje shwar Rao, the learned Assistant Solicitor (]eneral appearing on behalf of the respondents, has fairly concede,l that the common order of the learned Sirgle Judge passed in W.P.No.5422 o{ 2Ol8 and batch, dated i8.07.2019, cove 's the lis in question. 5. A reading of the common order, dated 18.07.2O19, passed in W.P.No.5422 of 20 1B zr-rd batch, reveals that this Court while dealing ''ith the issue in question, has t elcl as under: \"23. ht uieu of the aboue facts and ctrcumstarrces and the judgments rekrred to supra, as the tmpugned orders in present wit petitions disqualfuirry th( petitioners as Directors urLder Section 16a(,1)(a) of the Act, haue been passed consideirq the peiod pior to 01.04.2()14, the sarrc cannot be s stqired, and are tiable to be set aside to that extcnt. 30. In uiew tf the aboue facts and circumstarlces otld the Judgtlent rekrred to supr(, tle deacttuation of the DINs of the petitiotrcrs for aLLeged uiolations under .Section 164 of the Act, cannot be sustained. 31 . For the J )regoing reasons, the impugned orders in thc urit petitions to the extent of rlisqualifuing the petitioners under Sectiotl 161(2)(a) of the Act and deactiu( ttotL of their DIN9, are set aside, and the 2\"' respondert is directed to actiutie the DINi of the petttioners, enabling thent to function as Directors other tlLatt in stike off cornpanies. 32. It is mad: clear thot this order tuill not preclude the .2\"'1 respondent from taking apl ropidte action tn accordance with laLU for uiolations as enuisagled under Section 16a(2) of the Act, giuing the said prouision prospectiue effect from 01.04.2014 and for necessary oction against DIN itt case of uiolation:; of Rule 1 1 of the Rules. 33. /t is also l ode clear that if the petitioners are aggieueC bA the actiotL of the resporLdelts in stiking off their companies under Sec'ion 218 of the Act, thelJ are at tibertA to auatl alternatiue renedg under Sectiatl 252 of the Act. 34. AIL the wit petitions are accordinglg ollowed to the e. terlt indicated ctboue. \" I 6. In vieu,of the above, the present writ petition is allowed in terms of the common order, dated 18.07 .2019, passed in W.P.No.5422 of 2Ol8 and batch. The miscellaneous petitions pending, if any, shall stand closed. There shall be no order as to costs. Sd/. SRI JUSTICE A. ABHISHEK REDDY ,TRUE COPY// ( / . LL^,-^l/9r--- REGISTRAR (JUDrcIAL) *r.to SEcTloN oFFlcER To, t{b P- 1. The Secretary, l ,4inistry of Corporate Affairs, Union of lndia, Shastry Bhavan, Dr. Rajendra Prasad I ,4arg, New Delhi. 2. The Registrar, Office of Registrar of Companies, ROC, 2nd Floor, Corporate Bhavan, Near Central Water Board, GST Post, Bandlaguda, Nagole, Hyderabad - 500068 3. One CC to M/s. Vanga Anita Advocate IOPUC] 4. One CC to Sri. Namavarapu Rajeshwar Rao, Assistant Solicitor General [OPUC] (Alongwith a copyof order, dated 18.07.2019 inW.P.No.5422of 2018 and batch) 5. Two CD Copies CHR 1L{ 4- HIGH COURT AAR,J DATED:081061202A ORDER W.P.No.7803 of i2020 A 9 {i*\" &c rH + ALLOWING THE WRIT PETITION AT THE STAGE OF ADMISSION WITHOUT COSTS //, f^, )-1}....-'- t ..s$ .s. <^.' lq ll ? .l ., ./ THE HOII'BLE SRI ]USTICE A.RAJASHEKER ]1E8-D]t W.P,NOs.5422, lr:144, 13520, 13743, 13855, 14166 2445L, 30993, AND 40953 oF 20L4, 5547. 5542. 5669. 5647. 578tt. 6047. 6047, 6t40, 64A4,675i 685a. 695a. 69a1. 7001 700a, 7 0t4, 1, 046, 7 069, 7 07 3, 7 tO', 7 432, 7 454, 7 57 2. 7 595, 7 7 32, 7 7 65. 7 7-6a. 7 A24. 7 97 A, 111 I 2 8586 8590, 9333, 9340, 9381, 9468, 9563 9584 9623 922_6J_92_37Jl.OA 1253, 11489, 11991, 1201a, 12036, 12040, L2069,12108, 12144, 12186, 12194, t2200, L2209, L22l5_ L22L7 L224 L2260 L2262 12288, 1 2342, ? 12350, L24t7,124 32. t2 72 1249A 12506 12574 4 L259a, L262t, 12702, 12735, L2 L3730. t3749. 13 L3945, LAtOt, t4 12a6 12866 13013 13618 770 1?7RR 1?R?o 1 ?85 13878 q 13912, 139L7, w_L4392.t4397. Since, the issue involved in all the writ petitions is ore and the same, they are heard togetl,er and are being disposed of by this ct,mmon order. 2, The petitioners are the directors of the pr vate companies, registered under the Companies Act, 2013 (18 of 2013) (for short 'the Act'), Some of the such cornpanies 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 t,usiness operation for the specified period mentioned in the said provision, and for not making any application within the specified period, for obtaining -he status of a dormant company undr:r Section 455 of the Act, 3. The petltio rers, who were directors of the struc< off companies, and who are presently directors of actlve companies, du,.ing the relevant period in question, fa led to file financial statements or annual returns for a continuous period of lhree years. Therefore, the 2nd resporrdent passed the impugned order und,:r Section L6aQ) of the Act, disqualifying them as directors, and further making them ineligible to be re-appo rted as directors of that company, or . ny other company, for a period of fivr: years from the date on which the respective companies failed to do so. The Director Identification Number s (DINs) of the petitioners were also deactivated. Aggrieved by the samr:, the present writ petitions have been filed. 1,1409. 14582 AND 14597 0F 2019 COMMON ORDER 2 5. Heard the learned counsel appearing for the petitioners in all the writ petitions, Sri K.Lakshman, learned Assistant Solicitor General appearing for the respondents - Union of India. 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 violatlon of principles of natural justice. and on this ground alone, the impugned orders are liable to be set aside. 7. Learned counsel submits that Section l6aQ)@) of the Act empowers the authority to disqualify a person to be a director, provided he has not filed financial statements or annual returns of the company to which he is director, for any continuous period of three financial years. Learned counsel further submits that this provision came into force with effect from L4.2074, and prior thereto i.e., under Section 27aQ)@) 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 disqualify them. But in the present cases, the 2nd respondent, taking the period prior to t.4.2074, i.e., giving the provision retrospective effect, disqualified the petitioners as directors, which is illega I and arbitrary. B. With regard to deactivation of DINs, learned counsel for the petitioners submit that the DINs, as contemplated under Rule 2(d) of the Companies (Appointment and Qualification of Directors), Rules, 2014 (for 4, This court granted interim orders in the writ petitions directing the 2'd respondent to activate DINS of the petitioners, to enable them to function other than in strike off companies. short 'the Rules), are ! ranted for life time to the applicants under Rule 10(6) of the said Rules, anc cancellation of the DIN can be made only for the grounds mentioned in clauses (a) to (f) under Rule 11 of the: Rules, and the said grounds does not provide for deactivation for having b,:come ineligible for appointment as Directors of the company under Section 164 of the Act. Learned counsel furth(r submits that as against the deactivittion, no appeal is provided under the Rules, and appeal to the Tribunal unde- Section 252 of the Act is provided only against the dissolution of the :ompany 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.I2.2077 viz., Condonation of Delay Sr:heme - 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 applicrble to the companies which are s'ruck 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 )IN are deactivated. However, under :;ection 252 only the companies, whic[) are carrying on the business, can approach the Tribunal and the coml)anies, which have no business, cannlt approach the Tribunal for restoration. They submit that since the penal p'ovision ls given retrospective operatior, de hors the above scheme, they are entitled to invoke the jurisdiction of this court under Article 226 of the' Constitution of India. 10. Wlth the a rove contentions, learned counsel sought to set aside the impugned orders and to allow the writ petitions 11. On the othe,r hand learned Assistant Solicitor Gen<:ral submits that failure to file financial ;tatements or annual returns for any c()ntinuous period I + of three financial years, automatically entail their disqualification under Section 164(2)(a) of the Act and the statute does not provide for issuance of any notice. Hence, the petitloners, 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. t2. 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: 25 2. Appeal to Tribunal (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 lustified rn 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 compan ies; Provided that before passing an order under this section, the Tribunal shall grve a reasonable opportunity of making representations and of being heard to the Registrar, the company and all the persons concerned: Provided further that if the Registrar is satisfied, that the name of the company has been struck off from the register of companies either inadvertently 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 Section 248, file an application before the Tribunal seeking restoration of name of such compa ny. (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 directions 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. 5 A reading of above provision goes to show that if the comf)any is dissolved under Section 248 of .he Act, any person aggrieved by the:;ame, can file an appeal. Thus the saic provision provides the forum for redr:ssal against the dissolution and striking off the company from the register c,f companies. It does not deal with tl^e disqualification of the directors, an(j deactivation of their DINs. In the present case, the petitioners are only a