Mr. Krishna Mena Kumar V. Union of India and Another

WP/12927/2020

AI Insights

The case involved a writ petition filed by the petitioner, a director of several private companies, challenging the deactivation of his DIN and his disqualification as a director for failing to file financial statements and annual returns for three consecutive years. The petitioner argued that the actions taken by the respondents were arbitrary, illegal, and violated principles of natural justice, as they were based on a retrospective application of the Companies Act, 2013. The respondents, including the Ministry of Corporate Affairs and the Registrar of Companies, defended the actions based on statutory provisions that allowed for such disqualifications. The court's decision was influenced by precedents and interpretations of the Companies Act, 2013, and its rules, particularly focusing on the prospective application of legal provisions and the lack of procedural fairness in the disqualification process.

• Counselvise Citation: [2020] 140 COUNSELVISE.COM (IT) 721742 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 26-08-2020
• Assessment Year: misc
• Other Referred Cases: COMMISSIONER OF INCOME TAX (CENTRAL)-L 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 of Directors) Rules, 2014, Constitution of India
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: NAMAVARAPU RAO
• Assessee Lawyers: AJAY MANDADAPU
• Keywords: DIN Deactivation; Disqualification of Directors; Natural Justice; Retrospective Legislation; Writ of Mandamus
• Section: 151; 164(2); 226; 248; 252

Judgement Text

"HIGH COURT FOR THE STATE OF TELANGANA (Special Original Jurisdiction) WEDNESDAY, THE TWENTY SIXTH DAY OF AUGUST TWO THOUSAND AND TWENTY PRESENT THE HON'BLE SRI JUSTICE A. RAJASHEKER REDDY WRIT PETITION NO:12927 OF 2020 !41 tllshna Mena Kumar, S/o Vidya Sagar l rlena, Aged about 38 years, Occ: Business, R/o. Flat No.103, Plot No.79 and 80 Classic Avenue-Apts, Jayanagar KirHB Hyderabad Telangana State-500072. AND ...PET|T|ONER 1. Union of lndia, The Ministry of Corporate Affairs Represented by its Secretary, 'A' Wing, Shastri Bhawan, Rajendra Prasad Road, New Delhi - i 10 011, 2. The Registrar of Companies, Telangana State, 2nd Floor, Corporate Bhawan, GSI Post, Tattianaram, Nagole, Bandlaguda, Hyderabad - 500 068. ...RESPONDENTS 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 proceeding one in the nature of Writ of IVandamus declaring the action of respondents in deactivating the DIN Number 03599212 for the disqualificatron period of 0111112016 lo 3111012021 , of the Petitioner and restricting the petitioner from filing statutory returns, i.e., the annual returns of the companies in which the petitioner is director. as arbitrary, illegal, without jurisdiction, contrary to the provisions of the Companies Act, 2013 and Rule 1 '1 of the Companies (Appointment of Directors) Rules, 2014, violation of the principle of natural justice besides violating the petitioner rights guaranteed under Article 14 and Article '19 (1) (g) of the Constitution of lndia. 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 direct the '1 st respondent to restore the DIN number 035992'12 for the d isq ualification period of 0111112016 to 3111012021. So as to enable him to submit the annual returns and Financial Statements of the companies in which the petitioner is acting as director. Counsel for the Petitioner: SRl. AJAY BABU MANDADAPU Counsel for the Respondents: SRl. NAMAVARAPU RAJESHWAR RAO, ASSISTANT SOLICITOR GENERAL The Court made the following: ORDER Between: HON'BLE SRI JUSTICE A.RAJASHEKER REDDY Writ PetitionNo.L2927 OF 2O2O ORDER: Learned counsel for the petitioner as well as Sri Namavarapu Rajeshwar Rao, learned Assistant Solicitor General of India, appearing for the respondents submits that the lis in this Writ Petition is squarell, covered by the Common Orders of this Court in WP No.5422 of 2Ol8 & batch, dated 18.O7 .2019. In view of the same and for the reasons alike in the Common Order in WP No.5422 ot 2O),8 & batch, dated 18.07.2019, this Writ Petition is also allowed. There shall be no order as to costs. As a sequel thereto, miscellaneous applications, if any, pending in this Writ Petition, shall stand disposed of. ASSISTAN?DdffiI* //TRUE COPY// D SECTION OFFICER The Secretary, Ministry of Corporate Affairs, Union of lndia, A Wing, Shastri Bhawan, Rajendra Prasad Road, New Delhi - 110 0'1 1, The Registrar of Companies, Telangana State, 2nd Floor, Corporate Bhawan, GSI P_ost, Tattianaram, Nagole, Bandlaguda, Hyderabad - S00 068. Qn\" Q9 to -Sri Ajay Babu fr/andadapu Advocati-' [OPUC] One CC to Sri. Namavarapu Rajeshwar Rao, Assistant Solicitor General [OpUC] (Along with a copy of order, dated 18.07.2019 in W.P.No. 5422 of 2018 and batch) Two CD Copies To, 5. CHR 1 a a 4 q,-- HIGH COURT DATED:26 t0812020 ORDER W.P.No.12927 of 2020 ALLOWING THE WRIT PETITION WITHOUT COSTS yl 6bP' \"L 0 3 siP 2u[ * -* rh 14: S ki c) z o o ,(' -} r r ,-- .4, THE HON'BL SRI JUSTICE A.RA]AS HEKER REDDY W P Nt-c qA)) 1 2t R4 1 ?52nl 3743 13855 L4 66 )An I ?ooo? 5 ANp 40953 0F 2018. 5547. s582, s669. 5687, 5785, 6047, 6087. 6t40, 6484, 6753, 6A5a, 695a, 6981, 7001, 7008, 7014, 7046, 706e, 7073, 7tos, 7432, 7454, 7572, 7595. 7732. 7765. 776A. 7824, 7978, 8111. 8223. 8586. 8590. 9333, 9340, 9381. 9468. 9563. 9584. 9623. o7?e o7?7 l nnrQ lnno 9 tL2 11 8 ,r? trr?o r'r16? tlQao tt99t. L20LA, L2036. 12040. 12069. t2tOA. t2t44, L2tA6. L2t94, 22 o 1 20 t22L 122L7 L2 4 1 2 12350, t2417,12432, 12472, 12494, 12sO6, 12574, 12s98. 1262t, 12702, L273s. L2740, 12A45, 12A50, t2A65. L2A66. 130t3. 13618, 13730, 13749, !3779,13784, 13839. 13a55. 13a7a. 139t2. 139L7. t3945. LALOL. 14174. 14207. 1-4350. 1436L, t4390. L4392. 14397. N 14597 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 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 offfromtheregisterofcompaniesUnderSection24s(1)(c)oftheAct,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. 1 3. The petitloners, who were directors of the struck off companies' and who are presently directors of active companies' during the relevant period in questlon, 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 t64(2) of the Act' disqualifying them as directors, and further making them inerigibre 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 Identification Numbers (DINs) of the petitioners were so. The Director also deactivated. Aggrieved by the same, the present writ petitions have been filed COMMON ORDER 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.Heardthelearnedcounselappearingforthepetitionersinallthe writ petitions, Sri K'Lakshman, learned Assistant Solicitor General appearing for the respondents - Unlon 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 violation 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 76aQ)@) 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 27aO)@) 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 1B 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 7.4,201\"4, 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, 2Ol4 (for J short'the Rures), are granted for rife time to the appricants under Rure 10(6) of the said Rules, and cancellation of the DiN can be made only for the grounds mentioned in crauses (a) to (f) under Rure 11 0f the Rures, and the said grounds does not provide for deactivation for having become inerigrble for appointment as Directors of the company under section 164 of the Act. Learned counser further submits that as against the deactivation, no appear is provided under the Rures, and appear to the Tribunar 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'r respondent - Government of India represented by the Ministry of Corporate Affairs, has fioated a scheme dated 29.12.2077 viz., Condonation of Delay Scheme - 2018, wherein the directors, whose DINs have been deactivated by the 2'd 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 suchdirectors,whoseDlNaredeactivated.However,undersection252only the companies, which are carrying on the business, can approach the Tribunal and the companies, which have no business, cannot approach the Trlbunal 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 I nd ia. 10. Wlth 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 4 of three financlal Years' Section 16a(2)(a) of the Act and any notice. Hence, the petitioners' statutory requirement under Section automatically entail their d isqua lification under the statute does not provide for issuance of who have failed to comPlY with the cannot comPlain of violation of principles of natural justice' as it is a deeming provislon' Learned counselfurthersubmitsthatthepetitionershaVealternatiVe appeal under Section 252 of lhe Act' and hence writ petitions entertained ' 164 of the Act, remedY of may not be consldered, and the same ls 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 extracted as under for better appreciation: 252' APPeal to Tribunal; (1) Any person aggrieved by an order of the Regrstrar' notifying a company as dissolved under Section Zce,-iui file an appeal to th' Triblnal within a period of inr\"\" v\"\"it ri\", the date of tne oroer of the iegistrar and if the Tribunal is of the \"ji\"ti G.1 tn\" removal of the name of the compiny from the register of companies J\"\"t rritri\"a in view of the absence of any of the grounds on which the order was p1ri\"i uv the Registrar, it may order restoiation of the name of the company in the register of com Pani€s; 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 if the Reqistrar 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 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 directlons 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. J 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 appear' Thus the said provision provides the forum for redressar against the dissolution and striking off the company from the register oF companies. it does not deal with the d isq ua lification of the directors, and deactivation of their DIN'. In the present case, the petitioners are only aggrieved by their disquarification as directors and deactivation of DINs, but not about striking off companies as such. Hence, Sectio n 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 Sectron rcae)@) of the Act, if the Director of a company fails to fire financiar statements or annuar 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 1g of 2013, came into force with effect from 0L.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 disqualification envisaged under Section 16a(2)(a) of the Act, which provision came into force with effect from Ol.O4.2Ol4, 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 brought to the notice of this Court, the General Circular No.0B/14 dated 4.4.2074 issued by the lYinistry 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 () effecilrom 1' Ap.lr,, ?911 ,,?'?;;il:; :i ff:::,'\":*,:';:l',!) ;\".'\"\"'\"1!!TJ:: Jepreciation) and Sched,ule ,t1l\"t in\"\"r\",;runt Rutes pertaining to these provisions [iJrqnt ,nto force from thgt du]'.,n l;; ';:di; oi the Min,stry -und have come into have-also been notrfled, Placeo force from the same date rhe Ministrv has recerved requests for clarification *]:n'i:'gi:1 ti.ltr?,1?li[\"ii t \"\"\"il\"i 'r\"'\"if.' *,ii \"ir\"tt from which such provisions or tne maintenance of books o' ttt 'i1\"\"0r.\"oi'ation' udopt'on, and filrng of financial statements (and attachments in\"rJ,Jl, -!raiars report and Board's report will be applicable. Althouqh the position in this behalf is quite clear'.to l1!:.Lhinot absolutely clear it is herebv notified that th\" fi;;;t;;i:i\"t\"ments tang documents required to be attached thereto), auditors '\"pfi unO Aoara's 'epott in respect of financial years that commenced earlier tnan- 1i ntrit Stralt be. ^governed by the relevant provisions/schedules/rules or l'n\"'corniiu\"i\"t 1t1' r9!o and that in respect of financial years commencrng t\" olufi\"i i'i np i'tl, ZOtc, the provisions of the new Act shall a pPlY. \" 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 01'04'2014' shall be governed by the provisions under the Companies Act' 1956 and in respect of financial years commencing on or after OL'04'2014, the provisions of the new Act shall aPPlY. 14, At this stage it is required to be noticed that the analogous provision to Section 16+(2)(a) of the Act 18 of 2013, is Section 27a(l)(9) of Act 1 of 1956. The said provision under Act 1 of 1956 is extracted as under for ready reference: (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 atready a director of a public company, which has not filed annual accounts and annual returns for any continuous three financial years commencing on Section 274(1) A person shall not be capable of being appointed director of a company, if - 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. 16. Coming to the facts on hand, the 2nd respondent has disqualified the petitioners under Section f6a(2)(a) of the Act 18 of 2013, for not filing financial statements or annual returns, for period prior to 01.04.2014. The actlon of the 2\"d respondent runs contrary to the circular issued by the lvlinistry of the Corporate Affalrs, 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 PRIVATE LIMITEDt has dealt with the general principles concerning retros pectiv 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 consrsts of words printed on papers. However, '(lol5)l scc I 15. Under Section 764(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 efrect from 0t.04.2074. 8 conceptually it is a great deal more than an ordinary prose. There is a special peculiarity in the mode 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 in a judgment of a court of law. There is a technique required to draft a legislation as well as to understand a legislation. Former technique is known as legislative drafting and latter one is to be found in the various principles of'lnterpretation of Statutes'. Vis-e-vis ordinary prose, a legislation differs in its provenance, lay-out and features as also in the implicataon 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 contrary 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 to the events of the past. If we do something 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 nature of the law is founded on the bed rock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. This principle of law is known as lex prospicit non respicit : law looks forward not backward. As was observed in Phillips vs. Eyre [(1870) LR 6 QB 1], a retrospective legislation is contrary to the general principle that legislation by which the 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 principle against retrospectivity is the principle of 'fairness', which must be the basis of every legal rule as was observed in the decision reported in L'Office Cherifien des Phosphates v. Yamashita-Sh innihon Steamship Co. Ltd. [{1994) 1 Ac 486]. Thus, legislations which modified accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain a former legislation. We need not note that cornucopia of case law available on the subject because aforesaid legal position clearly emerges from the various decisions and this legal position was conceded by the counsel for the parties. In any case, we shall refer to few judgments containing this dicta, a little later. 30, We would also like to point out, for the sake of completeness, that where a benefit is conferred by a legislation, the rule against a retrospective construction is different. If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public aenerally, and where to confer such benefit appears to have been the legislators object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. This exactly is the justification to treat procedural provisions as retrospective. In 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 statute conferring a benefit, in the context of it to be given a retrospective operation. The same doctrine of fairness, to hold that a statute was retrospective in nature, was applied in the case of Vijay v. State of l4aharashtra & Ors., [(2006) 6 SCC 289]. It was held that where a law is enacted for the benefit of community as a whole, even in the absence of a provision the statute may 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 contradistinction to the provision imposing some burden or Iiability where the presumption attached towards prospectivity. In the instant case, the proviso added to Section 113 of the Act is not beneficial to the assessee. On the contrary, it is a provision Which is onerous to the assessee. Therefore, in a case like this, we have 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 statute shall be construed to have a retrospectjve operation unless such a construction appears very clearly in the terms of the Act, or arises by necessary and distinct implication. Dogmatjcally 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 provislon beyond any pale of doubt viz., the understanding of CBDT itself regarding this provision. It is contained in CBDT Circular No.8 of 2OO2 dated 27.8.2002, wit6 the subject \"Finance Act, 2OO2 - Explanatory Notes on provision relating to Direct Taxes\". This circular has been jssued after the passing of the Finance Act, 2002, by which amendment to section 113 was made. In this tircutar, various amendments to the Income tax Act are discussed amply demonstrating as to which amendments are cla rificato ry/ retros pective an operation and whjch amendments are prospective. 9 For example, Explanation to section 159-BB is stated to be crarificatory in nature. Likewise, it is mentioned that amendments in Section 145 whereby provisions of that. sectjon are made applicable to block assessments is made ciarificatory 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 1SS-BE, would be prospective i.e., will take effect from L.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 Corporatlon affairs has issued the circular No.08/2014 dated 4.4.2074 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 2\"d 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 07.04.2014, 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 4.4.2014 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 t0 proviso to section 96(1) of the Act, annual general meetlng 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 limit for filing annual returns under Section 92$) of the Act, is 60 days from annual general 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 30.11.2017, 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,O7.2078. In other words, the disqualification could get triggered only on or after 27.07.2018. But the period considered by the 2nd respondent in the present writ petitions for clothing the petitioners with disqualification, pertains prior to 01.04.2074. Therefore, when the omission, which is now pointed out, was not envisaged as a ground for d isq ua lification prior to 1.4.2014, 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 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 Court of Karnataka in YASHODHARA SHROFF vs. UNION OF INDIA2 considering Section 764(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 ludge, pertaining to 2 w.P.No.529t I of 2017 and batch dated 12.06.2019 private companies, which are relevant for the present purpose, are extracted as u nder 208. In view of the aforesaid dtscussion, I have arrived at the following conclusions: (a) It is held that Section 16a(2)(a) of the Act is not u/tra virus Arlicte 14 of the Constitution. The said provision is not manifestly arbitrary and also does not fall within the scope of the doctrine of proportionality. Neither does the said provision violate Article 19(1)(q) of the Constitution as it is made in the interest of generat public and a reasonable restriction on the exercise of the said right. The object and purpose of the said provision is to stipulate the consequence of a disqualification on account of the circumstances stated 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 applies by operation of taw on the basis of the circumstances stated therein, the said provision does not envisage any hearing, neither pre-disqualification nor post-disqualification and this is not in violation of the principles of natural justice, is not ultra ylres Article 14 of the Constitution. II 'r'specill C ir il Application No.ll.ll5 ol l0lT and balch datcd ls.ll.l0l8 (c) That Section 164(2) of the Act does not have retrospective operation and is therefore, neather unreasonable nor arbitrary, in view of the interpretation placed on the same. (d) (e) Insofar as the private companies are concerned, disqualification 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 disqualification could not have been imposed on directors of private companies by taking into consideration any period prior to 01.04.2014 for the purpose of reckoning continuous period of three financial years under the said provision. The said 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 enforcement of the Act, a disqualification based on the circumstances under Section 164(2) ol the Act was ever envisaged under the 1956 Act vis-d-vis directors of private companies. Such a disqualification could visit a director of only a public company under Section 27a(1)(9) of 1956 Act and never a director of a private company. Such disqualification of the petitioners who are directors of private companies is hence q u a shed. (0 (g) Consequently, where the disqualification under Section f6a(2) ot the Act is based on a continuous period of three financial years commencing from 01.04.2074, wherein financial statements or annual returns have not been filed by a public or private company, the directors of such a company stand disqualified and the consequences of the said disqualification would apply to them under the Act. 27. A learned Single of the High Court of Gujarat at Ahmedabad in GAURANG BALVANTLAL SHAH S/O BALVANTLAL SHAH vs, UNION OF INDIA3 expressed similar view as that of the leaned single 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 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 2013-t4. 22. A learned single Judge of the High Court of Madras in BHAGAVAN DAS DHANANJAYA DAS vs. LINION OF INDIA4 also expressed similar view. The relevant portion is as under: 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 erToneously 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 liqht of section 2(41) defining \"financial year\" as well as their own General circular No.08/14 dated 4.4.2o14, the first financial year would be from t.4.2074 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 75 and 27 oF the counter affidavit that the default of Filing statutory returns for the final years commences from 2073-1-4, 2074-15 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 ings. 23. 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 164(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 164(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 of20l7 and batch dated 27.07.2018 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 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. 25. Thus, from the above, it is clear that Section 16a(2)(a) of the Act is a deeming provision and the disqualification 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 respondents notified d isq ua lification even before it incurred, and deactivated DINs, which is illegal arbitrary and against provisions contained in Section 16a(2)(a) of the Act. A reading of the above provision makes it clear that it provides disqualification 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 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-disqualification nor post-d isq u a lification and this is not in vlolation of the principles of natural justice and hence, is not ultra vfes Article 14 of the Constitution. I concur with the sa id reasoning, (a) l.+ 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 164(2)(a) ofthe 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: 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 shall be merged with the validly retained number; the DIN was obtained in a wrongful manneT or by fraudulent means; of the death of the concerned individual; the concerned individual has been declared as a person of unsound mind by a competent Court; if the concerned individual has been adludicated 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; 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 misrepresentation; (ii) the term \"fraudulent means\" means if the DIN is obtained with an intent to deceive any other peTson or any authority including the Central Govern ment. 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 b) c) d) (e) (0 o on an application made in Form DIR-5 by the DIN holder to surrender hrs 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 deactavation of any DIN in such case, the Central Government shall verify e-records. I5 Section 16a(2)(a) of the Act. Therefore, for the alleged violation Section 164 of the Act, DINs cannot be cancelled or deactivated, accordance with Rule 11 of the Rules. un der except in the decision 29, Learned Single Judge of the Gujarat High Court in cited 2 supra, held as under: \"29. Thrs takes the Courr.,to th9 next questlon as to whether the re5p9n6sa1, courd have deativared the DrNs,of tn\" puiit,o\"u.., ;;;;r;;;\"\".\" or rhe impusned list? In thrs regard, rt woujd be _upp.opriut\"-,o\"-.i;.\" ,;l;\" retevant provrsrons contained in the Act and thesad-Ruter.- i\".t,\"\"'*!frio-\",0\", that no person shalr g6 3pp6;n1\"d as a Drrector o.f a company, unt\"r.-,nJ nus been atlotted the Drrector Identrficatron Number under Section iS+. -lL.iL\" 153 requires every individual intendinq to be appornted- as oirecLl or-'\"'.'iornpuny to make an application for altotment of DIN to_the C\"ntruf corJinri\"n; in-;uch form and manner as may be prescribed. Section 154 ,tut\", tnuiinJ C\"niruf'cou\"rn.un, shalt within ::: i\"1tl rrom the recerpt of tne apprication- u\" j\"i1\".itii,: aror a DrN to an apprrcant in such manner \", may 'be p.\"=.riolo. -';;;tio, 155 prohibits any indrvrduat, who has atready been a ;tted u olrv unoui SJLn rsa from apptying for ::^:T11,:,9 or possessrng another DrN. nrr\"i s \"ro-1;;i the said Rures of 2014 presc.be the procedure for making application for;llo1;;nt ana for the a otment of DIN, and further provide tnat tne 6nr urroii\"J ov tiu?nlrut'iou\"rn-\"n, under the said Rutes woutd be valid for the rire time of ine ap;t\"il ;;; inatt not be a,otted to any other person. - 30, Rule 11 provides for cancellation or suTrender or deactivation of DIN. Accordingly, the Central Government or Regional Director or any authorized officer 3l^.1:sl:1\"] Dleclor T'ay, on beins satilfied on veririiattn of particulars of oocumentary proof attached with an application from any person, cancel or deactivate the DIN on any of the grounds mentioned in Ctiuse (a) to (D thereof. The said Rule 11 does not contemplate any suo motu po*eii eitf,\",. with ihe Centrat Government or with the authorized officer or Regional Drrector to cancel or deactivate the DIN allotted to the Director, nor any oithe 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. H€nce, 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 coutd be ca ncelled 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 cancellataon or deactivation of the OIN 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. I6 31, For the foregoing reasons, the impugned orders in the writ petitions to the extent of disqualifying the petitioners under SectionrcaQ)G)oftheACtanddeactivationoftheirDlNs,aresetaside, 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 76aQ) 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 24g of the Act, they are at riberty to avair arternative 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.RAJASHEKER REDDY,J DATE:18-07-2019 AVS "