Sharath Kumar Anugula V. Union of India, And Another

WP/10427/2021

AI Insights

The case revolves around the disqualification of Sharath Kumar Anugula as a director and the subsequent deactivation of his DIN by the Registrar of Companies, Telangana. The disqualification was based on alleged violations under Section 164(2)(a) of the Companies Act, 2013, which requires directors to file financial statements or annual returns for three consecutive financial years. The petitioner challenged the disqualification, arguing that the law was applied retrospectively, contrary to the principles of natural justice and the specific provisions of the Companies Act. The court examined the applicability of Section 164(2)(a) and related rules, ultimately finding that the law was applied retrospectively, which was not permissible.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 721660 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 18-07-2021
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax (Central) v. Vatika Township Private Limited, Yashodhara Shroff v. Union of India, Gaurang Balvantlal Shah s/o Balvantlal Shah v. Union of India
• Laws Referred To: Companies Act, 2013, Companies (Appointment and Qualifications of Directors) Rules, 2014, Constitution of India
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: NAMAVARAPU RAO
• Assessee Lawyers: J VISHNU WARDHAN
• Keywords: Deactivation of DIN; Director Identification Number; Disqualification of director; Natural Justice; Writ of Mandamus
• Section: 151; 226; 248; 252; 164(2)(a)

Judgement Text

"HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD (Special Original Jurisdiction) THURSDAY, THE TWENTY SECOND DAY OF APRIL TWO THOUSAND AND TWENTY ONE Between: Sharath Kumar Anugula, S/o. A. Dasharathnam, Age. 43 Years, Occ. Business Rl/o. Flat No. 205, Srinivasa Nivas, Vyasa Bank Colony, Vysno Devi Temple, Dubai Bus Stop, Bowenpally, Tirumalagiri, Hyderabad-S0OO1 1 . ' AND ...PET|T|ONER 1. !11o-n of lndia, rep. by Principal Secretary, tVinistry of Corporate Affairs, Srh floor, A Wing, Sashtry Bhavan, Dr. Rajendra Prasad Road, New Delhi-1 .10001. 2. The Registrar of Companies, Telangana, 2no floor, Corporate Bhavan, GSI post., Tattiannaram, Nagole, Bandlaguda, Hyderabad-500068,T. S. ...RESPONDENTS Petition under Article 226 ol 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 proceeding of Writ Order of direction more particularly one in the nature of Writ of Mandamus by declaring the order of the Respondents relating to the impugned order in so far as deactivating the Director ldentification Number O2765102 (Sharath Kumar Anugula) of petitioner uploaded in the website of the respondent No.1 as arbitrary, illegal without jurisdiction contrary to the provision of the companies Act,20'l 3 and Rule 1'1 of the Companies (Appointment and qualifications of the Directors) Rules 2014 violative of the principles of natural, justice besides violating the petitioners rights guaranteed under Article 14 and Article 19 (1) (g) of the Constitution of lndia. Devoid of merit and to quash the list uploaded in the website of Respondent No 1 with regard to the petitioner and consequenfly direct the Respondents herein to permit the Petitioner to continue as Director of the Companies without any interference lA NO: 1 OF 2021 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 direct the Respondent to stay the disabling and restore the Director ldentification 0276s102 (Sharath Kumar Anuguld) for Petitioner so as to enable them to continue as Director of the Companies and/or get appoint or reappointed as Director of any Company/ incorporate a new company without any interference and earn remuneration for their livelihood by serving the company as Director Counsel for the Petitioner : SRI J.VISHNU VARDHAN The Court made the following: ORDER PRESENT THE HONOURABLE SRIJUSTICE ABHINAND KUMAR SHAVILI WRIT PETITION NO: 10427 OF 2021 Counsel for the Respondents : SRI NAMAVARAPU RAJESHWAR RAO Assistant Solicitor General THE HON'BLE SRI JUSTICE ABHINAND KUMAR SHAVILI WRIT PETITION No.10427 of 202 1 Aggrieved by the action of respondents in disqualifying the petitioner as Director under Section 16a(2)(a) of the Companies Act, 20j.3 and in Petition has been filed. 2, Learned counsel appearing for petitioner contended that the /ls in the present Writ Petition is squarely covered by the common order dated 18,07.20t9 passed by this Court in W.p.No.5422 of 201,8 and batch, and hence the same may accordingly be allowed 3 Sri N. Rajeshwar Rao, learned Assistant Solicitor General, appearing for respondents, does not dispute the same. 4. The relevant portion of the order in W.p.No.5422 of 2OIg and batch dated 18.07.2019, is as under: \"23. In uieuL of the aboue facts and circumstances and_ the judgments refened to supra, as the impugned ord.ers in present urit petitions dbqualifuing the petitioners os d.irectors under Section 164(2)(a) of the Act, haue been passed\" consid.ering the peiod pior to 01,04.2014, the same cannot be sustained_. and are liable to be set aside to that extent. 30. In uieu.t of the aboue facts and circumstances and. the judgment refened to supra, the deactiuation of the DINs of the petitioners for alleged uiolations under Section 164 of the Act, cannot be sustained. ORDER: deactivating his Director ldentification Number (DlN), the present Writ 2 31. For the foregoing reasons, the impugned orders tn the writ petitions to the ertent of disqualifuing the petitioners under Section 164(2)(a) of the Act and deactiuation of their DINI, are set aside, and the 2nd respondent is directed to actiuate the DINs of the petitloners, enabling them to function as Directors other than in strtke off companies. 32. It is made clear that this order u.till not preclude *Le 2nd respondent from taking appropriate action in accordance uith latu for uiotattons as enubaged under Section 164(2) of the Act, giuing the satd prouision prospectiue effect from 01.04.2014 and for necessary action against DIN tn case of uiolations of Rule 11 of the Rules. 33. /t is also made clear that if the petitioners are aggieued bA the actton of the respondents tn stiking off their compantes under Section 2a8 of the Act, theg are at libertg to auail alternatiue remedg under Section 252 of the Act. 34. All the urtt petitions are accordinglg allowed to the ertent tndicated aboue.\" 5. ln view of the same, and for the reasons alike, the present Writ Petition is also allowed mutatis mutandis, in terms of the common order dated 18.07.20L9 passed in W.P.No.5422of 2Ot8 and batch. No order as to co sts. Miscellaneous petitions pending, if any, shall stand closed. sD/-N ?$flD#ili=#tl5aiR I //TRUE COPY// f....Z SECTION OFFICER ;uittsut{5li$s*;##pf#ii;11*:u'r['3f***iil':::l ? 313 3313 3iliiyH:il'#,:'A:jt$$,:1'fi:\"\"}xlliYtrant soticitor Generar toPUCl t l#\"3?frt3i33pv ot t\" order dated 18to7t2o1s in wP No 5422 of 2018 and batch) To Kj . HIGH COURT DATED:2210412021 ORDER WP.No.10427 o12021 ALLOWING THE WRIT PETITION WITHOUT COSTS. 1 Hg S\";,q k o L) 3 0 APH 20e1 a,lrr.! .I ts '3p r\" -;., v THE HON'BLE SRI JUSTICE A,RAJASHEKER REDDY W.P.NOs.5422. 12184. 13520. 13783, 13ss5, 14166. 24Os1. 3O993. ANp 40953 0F 2018. 5547. 5582, 5669. 5687, 5785, 6047, 6087, 6140, 6484, 6753. 685A. 6958. 69AL. 700L, 7008. 7014. 7046, 7069, 7073, 7LOs, 7432. 7454. 7572. 7595, 7732, 7765. 7768, 7824, 7978. 7 207 4 1 14409. 14582 ANp 14597 0F 2019 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. 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 764(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 flve 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. COMMON ORDER 2. The petitioners are the directors of the private companies, 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. 2 4. This court granted interim orders in the writ petitions directing the 2nd respondent to activate DINs of the petitioners, to enable them to function other than in strike off companies. 5. Heard the Iearned counsel appearing for the petitioners in all the writ petitions, Sri K.Lakshman, learned Assistant Solicitor General appearing for the respondents - Union of India. 7. Learned counsel submits that Section 164(2)(a) 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 7.4.2014, 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 7.4.2074, i,e., giving the provision retrospective effect, disqualified the petitioners as directors, which is illegal and arbitrary. 8. 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, 2074 (for 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 violation of principles of natural justice. and on this ground alone, the impugned orders are liable to be set aside. J shot'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 of 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 29.12.2017 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 restoratlon. 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 India. 10. With the above contentions, learned counsel sought to set aside the impugned orders and to allow the writ petitions. 11. On the other hand learned Assistant Solicitor General submits that failure to file financial statements or annual returns for any continuous period .+ of three financial years, automatically entail their d isqua lification under Section 164(2)(a) of the Act and the statute does not provide for issuance of any notice. Hence, the petitioners' who statutory requirement under Section 164 counsel a ppea I have failed to comPlY with the of the Act, cannot comPlain of violation of principles of natural justice' as it is a deeming provision' Learned further submits that the petitioners have alternative remedy of underSection252oftheAct,andhencewritpetitionsmaynotbe entertained 12. To consider the contention of the learned Assistant Solicitor GeneralwithregardtoalternativeremedyofappealunderSection252ofthe Act, the said provision is required to be considered' and the same is extracted as under for better appreciation: 252. APPeal to Tribunal: (1) Any person aggrreved by an order of the Registrar' notifying a company as dissolved under section ,ou,=i,\"i,\" \"\" ,po1\"r to th; Trrbunal within a period of three vears from the date \"r tn\" \"'t\"tii i#-n\"litt'ur. and, it the Trrbunal is of the oDinion that the removal of tn\" t\"\"t\" \"fin\" to'pinv from the register of companies is not iustified in view of tn\" uot\"nt\" of-uny of ihe grounds on which the order was ;'\":;:J;] i;; ti;;;; ii '\"v \"i'iii i\"'i\"lution or ihe name or the companv in the reoister of comPanres; Provided that before passing an order under thl::::ti:n'the Tribunal shall nivF a reasonable opportunity #rnZki\"g representations and of being heard to the i\"Jirlrii, ir,rli\"rnpinv ana all the persons concerned: Provided further that if the Regrstrar is satrsfied'-that the name of the company has been struck off tiorn tt'\" rJgister of companres either inadvertently or on basis of incorrect inrormatro\"n'rurn-isnJa uy tt',\" ,.or punL,?|. i,t directors, which I\"q, \"1,..\",i;i!t \"l' l.,l:- ::^+:?;;;i ;ilf ii;:; n JiJ\" :[H\": i :ffi :.\"Ifl[; I:X:J[:^tt\"\"r3i::,:\"'\"';:;i?: in\"' i,.,i,*' 'u\"iins \"\"\"o.utioi oi name or sucn company. (2) A copy of the order passed by the Tribunal shall be filed by the company with the Reqistrar wittrin tnirty o\"ai\"Jiim' tire- oate of the order and on receipt of the order, the Registrar =r,urr .uu#li\"'\"n\"r\"1i tr.\" company to be restored in the ;;;;i\";;; ;#;ni\"rlno =nuriitt'e a rresh certiricate or incorporation' (3) If a company, or any member or creditor -or worker thereof feels assrieved bv the companv';\";;;g 'i; ;;rne,struck.:rf -f'orn the resister or comoanies, the Tribunal \"r. \"\"'\"ppiil\"ti\"\" made bv the,:oT?'unv' member' creditor or workman before the e*piry\"Jii*\"nty years from the publication in the official Gazette of the notice ,\"o\"r \".io t\"\"il tij or s\".tio-n i4B, if satisfied lryt^-tl: ;;;;';;y\";;;, \",G\" ti.u \"r itt nu.nl beins struck ofr' carrvrnq on business or rn ooeration or otheTWrse ,, '' .1u'i tn-ui in\" nahe of the company be restored to the IJ.'=1\"r \"r,l\"roJni\"l, otour-iit \"\"-t-t\"i tn\" companv to be restored to the reglster of companies, and the Tribunal t\"v' o' in\" order' give such other directions and make such provisions u, o\"u-10 iuli fot ptuting the companY and all other persons in the same position as \"\"\"r.iv ii-rn\"v o!.is ii tne name of the company has not l\"en tttrcr. off from the register of companies' 5 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 does not deal with the disqualification of the directors, and deactivation of their DINs. In the present case, the petitioners are only aggrieved by their d isq ua lification as directors and deactivation of DiNs, but not about striking off companies as such. Hence, Section 252 of the Act, cannot be an alternative remedy for seeking that relief, and the contention of the learned Assistant Solicitor General, in this regard, merits for rejection. 13. Under Section 164(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 0t.O4.2074, and the petitioners are disqualified as directors under the said provision. At this stage, the issue that arises for consideration is - whether the d isq ua lification envisaged under Section 16a(2)(a) of the Act. which provision came into force with effect from 01.04.20t4, 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 16aQ)@) of the Act, has to be calculated, to hold the director of the company liable? In this regard, the learned counsel brought to the notice of this Court, the General Circular No.08/14 dated 4.4.2074 issued by the lvlinistry of Corporation 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 relating to maintenance of books of account, preparation, adoption and filing of financial statements (and documents required to be attached thereto), Auditors reports and the Board of Directors report (Board's report) have been brought into force with 6 effect from 1st April, 20l4 Provisions of Schedule II (useful lives to compute deorecration) and schedule llI i;;;;i of financ;al statements) have also been brouoht into force from that datel -ihe relevant Rules pertainrng to these provisions ;:\"#;il';\"\";;;iiri\"o, pl,.\"o ln the website or the Ministrv and have come into force from the same date. The Ministry has received requests for clarification wrth reqard to the relevant rinun.]ui v\"rrJ wiin \"ir\"ct rr,ot'*niin such provisrons of the new Act relating to maintenance of books or ...orni, -pr\"piraf,on, adopt,on.and filing of financial statements (and attachments tlt\"ilt\",),-!'oitoo'repoit and Board's report will be applicable- Althouqh the position in this behalf is quite clear'.to make things absolutely clear it i;'l;'rJy noti?i\"J tnut tne rinantiai-tiltements (and documents required to be attached thereto), auditors t\"po't inO Board's report in respect of financial years that commenced earlier than r'1 npril shall be go-verned by the relevant ii3i,,riJrrl)liil\"arreJlrures or tne-com'Janies Act' 19s6 and that in respect or financial years commencrng on oiati\"t i'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 07'O4'2OL4' shall be governed by the provisions under the Companies Act' 1956 and in respect of financial years commencing of the new Act shall aPP|Y. on or after 07.O4.2074, the Provisions L4. At thls stage it is required to be noticed that the analogous provisiontosectionl6a(2)(a)oftheAct18of2013,iSSection274(1)(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 company, if - not be capable of being appointed director of a (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 appoi,nted as a director of any irii\"r proli. ir;puiv ror- u p\"r-ioJoiriu\" \"vears from tire date.on which such public ;;;r'.y, i; *niJn nL is a director, failed io file annual accounts and annual returns under sub-clause (A) or has tu,Lo to '\"puy its deposits or.interest or redeem its debentures on due date or pay divrdend referred to rl clause (D)' 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 financial years commencing on 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) ot 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 Ot.O4.2074. 16. Coming to the facts on hand, the 2nd respondent has disqualified the petitioners under Section 16+(2)(a) of the Act 18 of 2013. for not filing financial statements or annual returris, for period prior to 01.04.2014. The action of the 2nd respondent runs contrary to the circular issued by the Ministry of the Corpbrate Affairs, and he has given the provisions of Act 18 of 2013, retrospective effect, which is impermissible. 17. The Apex Court in COMMISSIONER OF INCOME TAX (CENTRAL).L NEW DELHI v, VATIKA TOWNSHIP PRTVATE LIMITEDL has dealt with the general principles concerning retrospectivity, 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, ' lzorsyr sccr E conceptually it is a great deal more than an ordinary prose' There is a special ;;;;li;;,ty in the mod-e of verbal communication by a legislation A legislation is not just a series of statements, such as one finds in a work of fiction/non fiction or.even 1nl :ragn1unt of a court oi law. There is a technique required to draft a legislation \"r *utt ia to understand a legislation. Former technique is known as legislative Olfting unO latter one is to bd found in the various principles of'Interpretation of Statuteis,. Vls-dlvis ordinary proie, a tegislation differs in its provenance, lay-out ,na t\"utur\"r as also in the implication as to its meaning that arises by presumptions as to the intent of the maker thereof. 28. Of the various rules guiding how a legislation has to be interpreted' one established rule is that unless a contiary intention appears, a legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply io tt'',u \"r\"ntt of the past. If we do somethinq today, we do it keeping in the law of today and in force and not tomorrow's backward adjustment of it. our belief in the natuie of the law is founded on the bed rock that every human being is entitled to arrangehisaffairsbyrelyingontheexistinglawandshouldnotfindthathisplans have -been retrospeciively upset, This principle of law is known as lex prospicit non respicit : Iaw looks forward not backward. As was observed in Phillips vs Eyre t(1b70) LR 6 QB 11, a retrospective legislation is contrary to the general principle itrat tegistation by whicn tne conduct of mankind is to be regulated when introduced for the-first time to deal with future acts ought not to change the character of past transactions carried on upon the faith of the then existing law' 29. The obvious basis of the prrnciple aqarnst retrospectivity is the principle of 'fairness', which must be the basis of every legal rule as was observed in the decision,reportedinL,officeCherifiendesPhosphateSv.Yamashita.Shinnihon iieamsrrip to. Ltd. i{199a) 1 Ac 4861. Thus, tegistations which modified accrued iights or'which impose obligations or impose new duties or attach a new disability hive to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation s for purpose of supplylng an obvious omission in a formeT legislation or to explain a formeT legislation We neednotnotethatCornucopiaofcaselawavailableonthesubjectbecauseaforesaid legalpositionClearlyemergesfromtheVariousdecisionsandthislegalpositionWas co-nceieo oy tne iounsei for the parties. in any case, we shall refer to few judgments contalning this dicta, a little later. 30. We would also like to point out, for the sake of completeness, that where a benefitisconferredbyalegislation,theruleagainstaretrospectiveconstructionis different. If a legislaiion confers a benefit on some persons but without inflicting a corresponding deiriment on some other person or on the public aenerally, and where to confer su;h benefit appears to have been the legislators object, then the presumption would be that such a legislation, giving it a p!rposive construction' would warrant it to be given a retrospective effect. This exactly is the justification to treat procedural provisions as retrospective, ln Government of India & Ors v' Indian Tobacco Association, t(2005) 7 SCC 3961, the doctrine of fairness was held to be relevant factor to construe a stalute conferring a benefit, in the context of it to be given a retrospective operation, The same doctrine of fairness, to hold that a itaiute was reirospective in nature, was applied in the case of Vijay v State of Maharashtra & Ors., [(2006) 6 SCC 289]. lt was held that where a law is enacted for the benefit of community as a whole, even in the absence of a provision the riutrt\" auy be held to be retrospective in nature. However, we are (slc not) confronted with any such situation here. 31. In such cases, retrospectivity is attached to benefit the persons in contradistinctiontotheprovisionimposingsomeburdenorliabilityWherethe piesumption attached towards prospectivity. In the instant case, the proviso added io Section 113 ofthe Act is not beneficial to the assessee. On the contrary, it is a provisionwhichisoneroustotheassessee.Therefore,inacaselikethis,wehave to proceed with the normal rule of presumption against retrospective operation Thus, the rule against retrospective operation is a fundamental rule of law that no statuie shall b6 construed to have a retrospective operation unless such a ionstruction appears very ciearly in the terms of the Act, or arises by necessary and distinct implication. Dogmatically framed, the rule is no more than a presumption, and thus could be displaced by out weighing factors. 43. There is yet another very interesting piece of evidence that clarifies that provision beyond any pale of doubt viz., the understanding of CBDT itself regarding ihis provision. It is contained in CBDT Circular No B of 2002 dated 27 8 2002, with thesubject\"FinanceAct,2OO2-ExplanatoryNotesonprovisionrelatingtoDirect Taxes\". This circular has been issued after the passing of the Finance Act, 2002, by which amendment to section 113 was made. ln this circular, various amendments to the Income tax Act are discussed amply demonstrating as to which amendments are clarificatory/retrospective in operation and which amendments are prospective' 9 For example, Explanation to section 158-BB is stated to be clarificatory in nature. Likewise, it js 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 1.t 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 15g-BE, would be prospectiVe i.e., wjll 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 Iegislation 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 1g 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 J-6ae)@) of the Act 18 of 2013, by considering the period prior to OL.04.2014, 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 4,4.20t4 and the law laid down by the Apex Court, as stated in the writ affidavits, the first financial year would be from O1-04-2014 to 31,03.2015 and the second and third years financial 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 10 proviso to Section 96(1) of the Act' annual general meeting for the year ending 31.03.2OL7, can be held financial year i.e', by 30'09'2017' within six months from the closing of Further, the time limit for filing annual returns under section g2(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 normal fee, and within 270 days with additional fee aS per the proviso to Section 403 of the Act' Learned counsel submit that if the said dates are calculated, the last date for filing the annual returns would be 3O.jI.2OL7, and the balance sheet was to be filed on 30'10'2017 with normal fee and with additional fee' the last date for filing annual returns is 27.O7.zota. In other words, the disq ua lificatio n could get triggered only on orafter27'07.2oL8'Buttheperiodconsideredbythe2ndrespondentinthe present writ petitions for clothing the petitioners with d isq ualificatio n ' pertains prior to 01,04'2014' Therefore' when the omission' which is now pointed out, was not envisaged as a ground for disqua lification prior to t.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 \"No person shall be convicted of any offence except for violation of a law in force at the time of the commission of the act charged as an offence' nor be subiected 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 sdme, 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 16a(2)(a) 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.52911 0f 201? and batch dated 12 06 2019 11 private companies, which are relevant for the present purpose, are extracted as under: 208. In view of the aforesaid discussion, I have arrived at the following conclusions: (a) It is held that section 16a(2)(a) of the Act is not u/tra virus Article 14 of the constitution. The said provision is not manifestry arbitrary and arso does not faI within the scope of the doctrine- of proportionality. Neither does the said provision violate Articte 19(1)(g) of the Constitution as it ls made in the interest oi g\"n;;f public and a reasonabre restriction on the exercise of the said right. rne\"objeit and purpose of the said provision is to stipulate the consequence of a disqualification on account of the circumstances siated therein and the same is in order to achieve probity, . accountability, and transparency in corporate 9OVerna nce. (b) That Article (slc) section 164(2) of the Act appties 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-disquatification and this is not in violation of the principres of naturar justice, is not urtra vrres Articre 14 of the Constatution. (c) That section 164(2) of the Act does not have retrospective operation and is therefore, neither unreasonable nor arbitrary, in view of the interpretation placed on the same. (d) . . . (e) Insofar as the private companies are conceTned, disquarification on account of the circumstances stated under Section 164(2)(a) of the Act has been brought into force for the first time under the Act and the consequences of d isq ua l-ification could not have been imposed on directors of private companies by iaking into consideration any period prior to. Ol.O4.2Ol4 for the purpose of reck-oning continuous period of three financial years under the said provision. The saiJ conclusion is based on the principal drawn by way of analogy from Article 20(1) of the Constitution, as at no point of time prior to the enf6rcement of the Aci, a disqualification based on the circumstances under section t64(2) of the Act was ever envisaged under the 1956 Act vis-;-vis directors of private companies. Such a disqualification courd visit a director of onry a pubric company under section 27a(l)(g) of 1956 Act and never a director of a private company. Such disqualification of the petitioners who are directors of piivate companies is hence quashed. (0... (g) consequently, where the disquarification under section 164(2) of the Act is based on a continuous period of three financial years commencing from 01,04.2014, wherein financiar statements or annuar returns have not been fired by a pubric oi private company, the directors of such a company stand disqualiiied and the consequences of the said disqualification would apply to them under the Act. 21. A learned Single of the High Court of Gujarat at Ahmedabad in GAURANG BALVANTLAL SHAH S/o BALVANTLAL SHAH vs. UNI1N oF rNDrAs expressed similar view as that of the reaned singre Judge of High Court of Karnataka (1 supra), and held that Section 164(2) of the Act of 2013, which had come into force with effect from 1.4.2014 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 r r/Special Civil Application No.22435 of 2O I 7 and batch dated 18.12.20I8 12 annual returns for any continuous period of three financial years would be the default to be counted from the financial year 2014-15 only and not 20L3-t4. 22. A learned single Judge of the High Court of Madras in BIIAGAVAN DAS DHANANJAYA DAS vs. IJNION OF INDIA4 also expressed similar view, The relevant portion is as under: 29. In fine, 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 fixing the first financial year from 7.4.2073 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 year\" and in the light of section 2(41) defining \"financial year\" as well as their own General circular No.08/14 dated 4.4.2074, the first financial year would be from 1.4.2014 to 31.3.2015, the second financial year would be from 1.4.2015 to 31.3.2016 and the third financial year would be from 7,4.2016 to 31.3.2017, whereas the second respondent clearly admitted in paras 15 and 22 of the counter affidavit that the default of filing statutory returns for the final yeaTs commences from 2073-74, 2014-15 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 proceed ing s. 23. 1n 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 same cannot be sustained, and are liable to be set aside to that extent. 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: o W.P.No.25455 of 201? and barch dared 27 .O'7.2018 13 (2) No person who is or has been a director of a company which- (a) has not filed financial statements or annual returns for any continuous period of three financlal Years; or (b) . Shall be eligible to be re-appornted- as a dlrector-of that company or uppointi'in'oii\"r\"i3rnpun'tt r\"t \" JIioJ \"i ri\"e vears from the date on which the said companY fatls to do so A reading of the above provision makes it clear that it provides disq 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 ludge 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 Balvantlal 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-disqu alification nor post-disq ua tification and thls is not in violation of the principles of natural justice and hence, is nol ultra vlres Article 14 of the Constitution' I concur with the said reasoning 25. Thus, from the above'.it is clear that Section 164(2)(a) of the Act is a deeming provision and the d isqua 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 notice' but the respondentsnotifieddisqualificationevenbeforeitincurred'anddeactivated DINs, which is illegal arbitrary and against provisions contained in Section 164(2)(a) of the Act' l.+ 26. The next grievance of the petitioners is with regard to deactivation of their DlNs. 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 ieactivated' 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 164(2)(a) of the Act, DIN cannot be cancelled' 27. Rule 10 of the Rules provide for allotment of DIN and under sub Rule 10, it is allotted for life time' Rule 11 provides for or deactivation. Rule 11, which is relevant for the present purpose, is extracted as under for ready reference: rule (6) of cancellation (a) (b) (c) (d) (e) (0 11. Cancellation or surrender or deactivation of DIN: The Central Government or Regional oir\".tor-irio--rtl'uin nuqionl, Noida or any officer authorized bv the Regional Director may, 'pJn-u\"ing satiified on verification of particulars or documentary proof attached *itn\"tlrt\" uppiftution received from any peTson' cancel or deactivate the DIN in case - the DIN is found to be duplicated in respect of the same person provided the data related a oiin iri.'ii^ihari u\" .ers\"o with the validlv retained nu mber; theDlNWasobtainedinaWrongfulmanneToTbyfraudulentmeans; oi tf\" O\"utn of the concerned individual; the concerned indivi;;;i ha; been declared as a person of unsound mind bY a comPetent Cou rt: if the concerned inoivioual has been adjudlcated an lnsolvent; Provided that before cancellation or deactivation of DIN,pursuant to clause (b)' .\" #p\"tur\",r, \"i oeing neur.a snuii u\" giu\"n to the concerned individual; on an application made in Form DIR-5 by the DIN holder to surrender his or her DIN along with o\"tru'util-n ii.,rui n\" nut never-been apnointed as director in any companv and the said Dlil';;t';:;;;b\"t-n used for filing-bf anv document with ;;i;;,#iii, rh; ieniral Goue'nment mav deactivate such DIN; ProvidedthatbeforedeactivationofanyDlNinsuchcase,theCentral 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 o;'d-o;\"ntt *nitii ur-u noi legatty valid or incomplete documents are furnished or on suppresslon oi rnut\"riut-information or .on the basis of wrong certification or by making misl;din;;; f;lse information or by misrepresentation; (ii) the term \"fraudulent means\" means if the DIN is obtained with an intent to decetve 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 (i) l5 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 appropriate 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 154. Section 153 requires every individual intending to be appointed as Director of a Company to make an application for allotment of DIN to the Central Government in such form and manner as 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 ZO14 prescribe the procedure for making application for allotment and For the allotment of DIN, 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 Regional Director may, on being satisfied on verification of particulars of documentary 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 Section 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 provisjons 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.ItismadeClearthatthiSorderwillnotprecludethe2nd respondent from taking appropriate action in accordance with law for violations as envisaged under Section 164(2) of the Act' giving the said provision prospective effect from O:'.'O4'2014 and for necessary action against DIN in case of violations of Rule 11 of the Rules' 33.Itisalsomadeclearthatifthepetitionersareaggrievedbythe 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 above. Interlocutory applications pending, if any' shall stand closed' No order as to costs. A.RAJASHEKER REDDY,J DATE: 18-07-2019 AVS "