Siva Prasad Reddy Marthala V. Union of India

WP/14875/2020

AI Insights

The case involved two petitioners, directors of private companies, who were disqualified and had their DINs deactivated due to alleged defaults in filing financial statements and annual returns for three consecutive years. This action was taken under Section 164(2)(a) of the Companies Act, 2013, which came into effect on 07.04.2014. The petitioners challenged the disqualification and DIN deactivation, arguing that the law was applied retrospectively, which was not permissible. The court examined the provisions of the Companies Act, 2013, relevant rules, and previous judgments to determine the legality of the actions taken against the petitioners.

• Counselvise Citation: [2020] 140 COUNSELVISE.COM (IT) 721732 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 17-09-2020
• Assessment Year: misc
• Other Referred Cases: COMMISSIONER OF INCOME TAX (CENTRAL)-I, NEW DELHI v. VATIKA TOWNSHIP PRIVATE LIMITED, YASHODHARA SHROFF vs. UNION OF INDIA, GAURANG BALVANTLAL SHAH S/O BALVANTLAL SHAH vs. UNION OF INDIA, BHAGAVAN DAS DHANANIYA DAS vs. UNION OF INDIA
• Laws Referred To: Companies Act 2013, Companies Appointment of Director Rules 2014, Constitution of India
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: NAMAVARAPU RAO
• Assessee Lawyers: GAJANAND CHAKRAVARTHI
• Keywords: Deactivation; Director Identification Number; Disqualification; Natural Justice; Writ petition
• Section: 151; 226; 248; 252; 16(2)(a); 164(2)(a)

Judgement Text

"HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD (Special Original Jurisdiction) THURSDAY. THE SEVENTEENTH DAY OF SEPTEI 4BER TWO THOUSAND AND TWENTY PRESENT THE HONOURABLE SRI JUSTICE CHALLA KODANDA RAM WRIT PETITION NO: 14875 OF 2020 Betw ee n : 1. Siva Prasad Reddy [,/arlhala, S/o Shiva Rami Reddy Aged about 37 years. Occ. Service, R/o Plot No.60, Silpa Avenue, Kukatpally Hydernagar, Hyderabad 2. Anam Jaya Bharath Reddy, S/o Anam Jayarami Reddy Aged about 43 years, Occ Service, R/o Plot No. 60, Silpa Avenue, Kukatpally *rO\".inflt!,+lilft!frt AND 1. Union of lndia, The l ,4inistry of Corporate Affairs, Represented by its Secretary A Wing, Shastri Bhawan, Rajendra Prasad,Roa_d, New Delhi. 2. The-Registrar of Compani6s, Telangana State, 2nd Floor, Corporate Bhawan, GSI Post. Tattianaram, Nagole. Bandlagu'da, Hyderabad. ( ' ...RESPONDENTS Petition under Arlicle 226 of the . Consi,itution of lndia praying that in the circumstances stated in the affidavit fited,th)e reivith, the High Court may be pleased to issue an appropriate Writ, Order or Direction, more particularly one in the nature of Writ of l ,4andamus declaring the action of the respondents in deactivating DIN of the petitioners 02386599 and 02397816 for the disqualification period from 01i '1 1/2016 to 3111012421 of the petitioners and restrictlng the petitioners from filing statutory returns e. the annua returns of the companies in which the petitioners are d rector as arbitrary illegal without jurisdiction contrary of the provisron of the Companles Act 2013 and Rule 1 1 of the Companies Appointment of Director Rules 2014 violation of the prlnclple of natural lustice besides violating the petitioners rights guaranteed uncier Article 19 of the Constitution of India 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 No.1 to restore the DIN of the petitioners 02386599 and 02397816 for the disqualification period from 0111112016 lo 3111012021 of the petitioners so as to enable the petitioners to submit the annual returns and financial statements of the companies in which the petitioners are active as director Counsel for the Petitioners : SRI GAJANAND CHAKRAVARTHI Counsel for the Respondents : SRI NAMAVARAPU RAJESHWAR RAO ASSISTANT SOLICITOR GENERAL The Court made the following: ORDER lA NO: 1 OF 2020 THE HON'tlL l SRI JUSTICE CHALLA KODANDA R, lrI WI1II PETITION No. 14875 of 2O2O ORDER: The lleutjorlers challenge their disqualifica ,io n from Directorship unCer Section 16 Q) of the Companies Acr , 20 13, for the alleged def:rult in liling financial statement / An nuiLl Returns, and conseqlren'-. ' seek restoration of their Director Ideltjfication Numbers (D)N) v:2 . 02386599 and 02397816 respectiveL , Learnr:rl cor nsel lor the p,etitioners submits that tl e jssuc raised in thc l:)rr'sent Writ Petition is squarely coverc C b1' tl'rt: comnron orrlcr clrrtc'd 18.O7.2019 in W.P.No.542'2 o1 )( 18 ancl barch. Leanrcd Sttnding Counsel lor the 2nd responde n, Iicgistrar o1'Companies ci:re; not dispute the aforesaid submissi,l ). Opera'.ive l) )rtion ol the aioresaid order reads as Lt rc er \"For the foregoing reasons, the impugned orders in the writ p,)titions to the extent of disqualifyirrg t-he petitioner,i under Section 16a(2)(a) of the Act iLnd deactivation of their DINs, are set aside, and th,: 2'd respondcnt is directed to activate the DINS of the petil.ion!:rs, enabling them to function as Directors other than in it!ike off cornpa nir.s. It is rnade clear that this order will not preclLr.le the 2\"d respond( nt from taking appropriate action in acc,)rdance with law for violations as envisaged under Section 164(2) of the r{ct, gi!/ing the said provision prospective effect from 01.0,+.2014 and for necessary action against DIN in cirso of violations o I Rule 11 of the Rules. It is also made clear that if the petitiore:s are aggr:.eved by the action of the respondents in striking off their comprnies under Section 248 of the Act, theF are at liberty to aqail alte!native remedy under Section 252 of the Ac t. I All the w!it petitions are exte nt indicated above.,, accoldingly allowed to the ln vic,,v of rhe sard Order datecl 1g,07.2019 and lirr tlrt. rcas.)l.ts r.ecordcd thercin, this Writ petition is alsr: aliorr.ccl in t c I'l)t s thereof. No costs Miscellaneous petitions, if any pending, shalI stand c.losed. SD/.N.CHANDRA SEKHAR RAO ASSISTANT REGI AR ,TRUE COPY' SECTION OFFICER To 1. The Secretary, The l ,4inistry of Corporate Affairs, Unlon of lndia, A Wing, Shastr Bhawan, Rajendra Prasad Road, New Delhi. 2. The Registrdr of Companies, Telangana State, 2nd Floor, Corporate Bhawan, GSI Post, Tattianaram, Nagole, Bandlaguda, Hyderabad. 3. One CC to Sri Gajanand Chakravarthi, Advocate IOPUC] 4. One CC to Sri Namavarapu Rajeshwar Rao, Assistant Solicitor General Advocate tOPUCI 5. Two CD Copies (along with the copy of the order daled 1810712019 in WP No.5422 of 2018) K] x Vr/ HIGH COI,IFIT DATED:17'l09t2O2A ORDER WP.No.14875 ctf 2020 ALLOWINCi Tl\"{E WP WITHOUT COIS'rS. k 240 'tt'E sla 2 tr stP c o * a ') t CrS,'A t-cHrt rQ ( .rO 7- 6' ,a a (( AND 40953 0F 2018, 5547, 558 5669. 56a7 , 57a5, 6047 , 6047 , 1 8 81 7001 7008 70t4 7046 7069 7o 73.7105. -1 7 7732 7765 77 6A 7 R2 4 7 q7a 432. 45 4 1 572 7 595 8111, 8223. 8586, 8590, 9333, 9340. 9381. 9458. 9563. 9584. 9623, 9726, 9737, LOOSA, LOO99, tt20a. LL223. LL239, L1263, rt8B9. 11991, 12018, 12036, L2040, L2069,12108, L2t44, 12186, t2r94, L2200, L2209 . L22t5 , 122t7 , L2243, L2260, L2262, L22aA, t2342, 47 4 t2 6 4 5 26 1 1)1n) 1 2'r?. 1)'7An 1rRAE lrRSn 1?fl6S t)RR6 1?n1? 1?61R 13730, L3749. L3779, 13788, 13839,13455, t3a7A. 139L2, r39t7, t?o4q 141n1 1r'.1'td 1a)07 '.t4?sn l4?61 14?qo 1d.?,q) 'l 47q-] L4409,14582 AND L4597 0F 20t9 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'). Somc of the such companies are active, and some of them have been struck off from the register of companies under Section 248(1)( c ) of the Act, for not carrying on any business operation for the specified period mentioned in the said provision, and for not making any application within the specified period, for obtaining the status of a dormant company under Section 455 of the Act. 3. The petitioners, who were directors of the struck off companies, and who are presently directors of active companies, during the relevant period in question, failed to file financial statements or annual returns for a continuous period of three years. Therefore, the 2nd respondent passed the impugned order under Section 164(2) of the Act, disqualifying them as djrectors, and further making them inellgible to be re-appointed as directors of that company, or any other cornpany, for a period of five years from the date on which the respective companies failed to do so. Thc Dlreclor ldentlFication Numbers (DlNs) of the petitioners were also deactivated. Aggrieved by the same, the present writ petitions have been filed. 5 24 1 2 THE HON'BLE SRI JUSTICE A.RAJASHEKER REDDY W.P.NOs.5422. 72L84, L352O, 73783. L3ass. 74t66, 2405t, 3o993. COMMON ORDER l 4, This (--ourt granted interim orders in the 2n\" respondent to aclivate DINs of tire petitioners, othe- than n st-i((: 'rfl conpalies. writ petitior-s directing the to enable th e'T.r to function 5. Heard the earned counsel appearing for the peti:ionsrs in a the writ petitions, Srl l.(.L.akshrnan, learred Assistant Solicitor G:rreral appearing for the respor-den:s - Un on of India. 6 Learned c.runsel for the petitioners, contend tha: Sefore passing the impugned o'-der, lotices have not been issued, giving tl'em opportunity, and thls amounts to violation of principles of natural just cc, and on this ground alone, the i'rp,Lrgn96 orders are liable to be set aside, 7 Leerneci :ounsel submits that Section 164(2)(e ) of the Act empowers the autl'or ty to disqualify a person to be a direc:ci-, provided he has not filed f nanc al statements or annual returns of lhe corr::rr-y frna ncia y'(.a \"s. he is director, for :n 7 counsel further subm ts continuous pe riod of three that this provision came into force '.^/il.h effect lrom I.4.2014, and prior lrereto i,e., under Section 2la( )(g) of t')e Companies Act, 1956 (1 cf 1956), which is the analogous provision, therT,: 'ras no such requirement for ti.r€, c rectors of the private compan,es. Th(-,y contend that this provislon under qct 1B of 2013, wi I have prospective )peratlon and hence, iF the clirectors of company fail to comply with the r(:ouirements mentioned in the saic provision subsequent to the said date, the authority under the Act, is withir its jurisdiction to disqualify them. BJi 1 the present cases, the 2'j respord:nt, taking the period prior to 1.4.20L4, i e , givlng the provision retrospectiv€ effect, disqualified the petitioners as directors, which is illega I and arbi:rary. 8. With regarl to deactivation of DINs, learned counsel for the petitioners subm t that the DINs, as contemplated under Rulc .2(d) of the Companies (Appointm,?nt and Qualification of Directors), RLrles, 2074 (for to which Learned short'the Rules), are granted for iife time to the applicants under Rule 10(6) of the said Rules, and cancellation of lhe 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 1st respondent - Governrnent of India represenled by the lvlinistry of Corporate Affairs, has floated a scheme dated 29.72.201f viz., Condonation of Delay Scheme - 2018, wherein the directors, whose DiNs have been deactivated by the 2 \"1 respondent, aliows the DINs of the Directors to be activated, Hoivever, such scheme is not applicable to the companies whlch 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 businessi can approach the Tribunal and the companies, which have no business, cannot approach the Tribunal for restoration. They submit that since the penal provision is given retrospective operation, de hors the above scheme, they are entitled to lnvoke 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 mpugned orders and to allorJ the writ petitions, 11. On the other hand learned Assistant So citor Genera submits that failure to flle financial statements or annual retLrrns for any continuous perioc + of three financial years, automatically entail their disquarifi:ation under Section 164(2)(a) ofthe Act and the statute does not provcte fcr issuance of any notice. H€nce, the petltioners, who have failed to (:o\"rrl y with the statutory requi.emelt under Section 164 of the Act, cann,,t complain of vlolation of princip es of natural justice, as it is a deeming pi-()! s on, Learned counsel further sL-,briits that the petitioners have alternitt ,rr: remerly of appeal rnder Scc: or 252 of the Act, and hence r'Jrit peti: ofs mav not be c nte rta ned. 12. To ccnsiler the contention of the learned Ass st3nt Solicltor Genera with regai-c t) alternative remedy of appeal under Sec: cn 252 of the Act, the said pro'.,ision is required to be considered, ard the same is extracted as under foI better appreclation: 25 2. l pp€:al to Tribunal; (1) Any pers,rn aggrieved by an order of the Registrar, notify ng a company as dissolved under Sectlon 248, may file an appeal to the Tribunal withi- ; period of three years from the date oF the order of the Registrar and if the TrilLna is of the opinion that thL. re-no /al oF the name of the company from the reg ste- ol ( ompanies is not jListif ed n vrer,^ of the absence of any of the grounds on which tl-e frder v,ras passed by thc Req strrr, rt may order restorat on of the name of the ccrrplry in the req lste r oi col.l] Dan es Prcv rled tlet before pass,ng an order under this section, ll'e T lrur)a shal grve a reasona) e lpliortunrty oF makincl representations and of ber'rq 'e,rrc, to the Reg strar, lhrr (o.nDa.y and a I lhe persons concerned: Provrc,?d 'trr:, er that i the Regrstrar rs satrsFred, that il'ra .:in,e of tl're company 5as )een slruck off from the register oF con-rpanres either na(lvartent y or on basrs oF .ac\"rect nformation furnlsl'red by the company or lls dre:tars, whch requres restc..t cr r the regrster of companres, he may withrn a per ca of three years fronr tre date (f passrng oi the order dissolvrng the company u.d(r Sectron 248, F e an appl cat ,)n before the Tribunal seekrng restorat on of -ra nc of sucll company. (2) A cJ1'/ ol the order passed by lhe Tribuna sha be frlecl l) tire con'rpany ,,vilh tne Reg strar w ti n thlrty days fronl the date oF the order and on rcc.rl,'t oF the order, the Rcg stra' :hall cause the name of the company to be -€'st!rrc lll ihe regrster 01'corxpaIr3s ]nd shall lss!e a fresh certifrcate of ncorporat c,'. (3) if a {.on pany, or any member or creditor or worker t ere()F feels aggrieved b_v :h€ ccmpany having its name Struck off from th: reqrster cF comp.rn es, tlre Tr bural or an application made by the company, merntrer, .reditor or workman before the expiry of twenty years from the publicatior in the Official Gazette of the nclice under sub-section (5) of Section 248, if satr;fi:C that the company was, at:le :ime of its name being struck off, carrying on l)usiress or in operation oT other r'i is( it is just that the name of the company be r€'stor(ld to the register of conrparies, order the name of the company to be restored to lh(l register of companies, anc :h( Tribunal may, by the order, give such other direc-icns and make such provis oils rs deemed just for placing the company and all ctie-persons n the same position .s nearly as may be as if the name of the cof pan' l]as not been struck oFr Irom tl-e register of companies. a 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 fjle an appeal. Thus the said provision provides the forum for redressal against the dissolution and strlking 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 petltioners are only aggrieved by their dlsqualification as directors and deactivation of DINs, but not about striking off companies as such. Hence, Sectlon 252 of the Act, cannot be an a ternative remedy for seeking that rellef, and the contention of the earned Asslstant Solicitor General, in this regard, merits for rejection, 13. Under Section 164(2)(a) of the Act, if the Director of a company faiis to file flnancial 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 07.04.2014, and the petitioners are disqualified as directors under the said provision. At this stage, the issue that arises for consideration is - whether the disqualification envrsaged under Section 164(2)(a) of the Act, rvhich provis on came into force with effect from 4L.04.2074, can be made app icable with prospective effect, or has to be given retrospective operation? In other words, the issue would be, from rryhich financial year, the default envisaged under Sectlon 16a(2)(a) of the Act, has to be calcu ated, to hold the director of the company liable? In this regard, the earned counsel brought to the notice of this Court, the General Circular No.0B/14 dated 4.4.2A14 issued by the lYinistry of Corporation affairs, which clarifies the applicability of the relevant financial years. The relevant portion of the said circular is as under: \"A number of provisions oF the Companies Act, 2013 lncludlng those relating to maintenance of books of account, preparation, adoption and filing of frnancial statements (and documents required to be attached thereto), Auditors reports and the Board of Directors report (Board's report) have been brought into force wrth (-. effect from :': Apr , 2014. Provisions of Schedule Il (useful i'/es lo compute depreclation) and -chedu e III (format of financial statenrents) 'tave also been brought ntc lorcc'rlm that date. The relevant Rules pertaining tc:hts0 provisions have also been nl:r'red, placed on the webste oF the l.,llnistry and hirv€ come into forcc From :hc sarre dale. The Mln st.y l'3s recerved requests for clarificatron with regard tc l,re relevart Frnaocral years ,! th effect from which such provisions of the ne ! Aitt relatrng to n-rarttenance cf l)ooks of account, preparation, adoption and Fln( of Frnancta statements (;rnd aitachments thereto), audtors report and Board's .eIort will bc (rPP cable. Athough the los ron n ths llehalf rs quite cear, to make th ngs abso Lriey cear t rs hereb) nct f 'lC that the financial statements (and documents r('qt, red to be atlached thereto), e rditors report and Board's report rn respect of frrar rc al years that Comrrcnced earlrer than I'L Apfl Sha I be governed by rhtr rc evant prov srons/sched r es rules of the Conrpanies Act, 1956 and that rr resoeci of frnanc al yea's conrn-encrng on or after fstApril, 2014, the provrs ons or t:e ne ,^/ Act shalL a pply. \" A reading of :he aDove circular makes it clear the financial s:atements and the documents reg.,]ired to be attaclred thereto, auditors ret)c-t and Board's report in respect or linancial years that commenced earlier tr.:n A7.44.2074, shall be governed by the provisions under the Companies I'c:, 1956 and in respect of financial y€ars commencing on or after 01.04.201,1, tfre provisions of the new Act shall arply. provrsron ACt 10r 14. At this s-aqe it is req L ired to cf the Act 18 that l-h: a na logous Sector 274(1)(9) of is ext rirct ed as under to Sectio r) 164(2)(a) be noticed of 2 013, is 1of 19 56 1956. Thr, sard provrsron under Act for readt,referencc Section 274(1) p l-.efson sirall not b-- caDalle of bern.J appol]taI irc:or oF a. acnri r iv, f (91 suc lr D e rso,, (A) s ,r ready .l d rector of a pub c conlpany ./h ch, I as not F ed the annual accounts ancl annual retr,1 .:j for any cc.r:rnuous tl)ree frnancia years commencrng o. ar I after lhe i rs' day of Apr l, 1999; or (B) Provicled tlrar sJcfr pe'son shall not be eligible to be appornted as a . r ctc. of any other publlc compar]y for a period of fi!e years from the date on wh (:h sLch public company, n which lre s a director, failed to file annual accounts and an u,ri relurns under sub-clarse (A) or has failed to repay its deposits or interest lr r€deem its debentures on due aate or pay dividend referred to in clause (B). abc,v€ provision under Act 1 of 1956, makes t ,:l,lar that if a A reading of th €l person capable of b',rirg appointed director of a company and s.-rch already a director o' a public company, which has not fiied anr-ua person rs accounts and annual retL-rTns lor any continuous three financial years (o'nrnencing on 1 and after the first day of April 1999, shall not be eligible to be appointed as a dtrcctor of any other pubiic 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 annua returns, is placed on the directors of a'OUblic company'. There s no prov sion under the Act 1 of 1956, whlch p aces sirnl ar obligations on the directors of a'private company', Therefore, non- flllng of annual accounts and annual returns by the directors of the private company, will not disqualify them as directors under the provisions of Act 1 of 1956. 15. Under Section 164(2) of the new legislation i.e,, Act 18 of 2013, no such distinction bet!veen a 'private company' or a 'public company' is made and as per the said provislon 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 07.A4.2014. 16, Coming to the facts on hand, the 2\"d respondent has disqualifled th€ petitioners under Section 164(2)(a) of the Act 1B of 2013, for not Filing financial staternents or annual returns, for period prlor to 01.04.2014. The actron of the 2 ' respondent runs contrary to the clrcular issued by the f,linistry of the Corporate Affairs, and he has given the provisions of Act 18 of 2013, retrospective effect, which rs impermissible. 1t The Ancv Court in COMMISSIONER OF INCOME TAX (CENTRAL)-I, NEW DELHI v, VATIKA TOWNSHIP PRIVATE LIMITED| has dealt with the general principles concerning retros pectivity. 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 physicaily consists of words printed on papers. However, (11rl5)lSCCl c0naeptlrally rt s a great deal more than an ordlnary prose. -rfi3r:, s a specai peclr arity ll'r thc 1'cde oF vert)a Communtcatton by a eglslalion. ! elr S ation lS not lust a sefles of staf€ments, such as one finds ln a work of fiction/nln I ct on oT even in a ]udqmenl of 3 (ourt of law. There iS a techn que required to lrall a eg slation as vell as to !.rn:lerstand a legislation. Former technique is kno , as egislatve draftinq and lalter cne is to be found in the various principles of 'Intcrt)retat on of Statutes'. Vis-a v s ordinary prose, a legislation differs in ts prcverarce, lay-out and featrres as a sr in tl're implication as to its meaning that arises ty Dr'lsumptrons as to the inl:elrt ol th3 maker thereof. 23. Of the VaTcus ru es guding how a legslation has to be .tt,:rtreted, one esta5lrshed rule s tlr3t unless a contrary rntention appears, a legislaloI is presumed not:o be ifiended to have a retrospective operation. The idea be.Til]d the rule s thal a CLr.rent a^ sl ould govern current activites. Law passed lod.y canl]ot appy to the evenis oi i-le last. lf vJe do something today, we do it keep j9 n tie lavv of today and in Force aird not tomoTTow's backward adjustment of it. t)u bel ef n the nature or the au rs 'ounded on the bed rock that every human beirg s ertited to arrairge ris ,lffa[5 D, re yrng on tl]e existrng law and should not F n.i t ra: Eris p;a.s have been ret-osEear vely upset. Tlrls principle of law s kno!!n as l€x ilrtsD c I non respcrt : lav/ locls iorward not backward. As was observed rn P'r lri s vs Eyre [(1870) LR 6 QB 1], a retrospective legislation is contrary to the g'rni)ral pnnc ple that leqislator D'l vrlrch the conduct of mankind rs to be regulated !!h( n n:roducea for the first time tf (eal with future acts ought not to change the cfar,rc:er oF past lransactions aarrle,l cn upon the faith ofthe then ex stlng law. 29. The obvio s l.rsrs of the principle aga nst retrospectivity s ;h,. trlnc ple of 'fa rness', ! hrch rnu.rt be the basrs of every leqal rule as !\",/as ll)s.r ed rn the decsror'r reported r L'Office Cherifren des Phosphates v. Yama:h la Sh nnhorl Steamshrp C(). .tc [{1994) 1 Ac 486]. Thus, legislatons which r'rod'i.C accrued rEhts or wh:lr n'rlre oblrgatons or impose new duties or attach a r:r' drsaS t/ have to be treatecl ar; prospeclrve unless the egslatrve intenl rs cleer, :l grve the enaciment a r:trlsp€ctrve effect; unless the legislaton rs for purpo!e l's,rppyrnq an oi)vtous onirssrltl tn a former legislat on or to explaln a Former leg s artron. we need not note l:hat co'nucopia of case law avaiLable on the sub.lect be(ars€ eForesard egal posrtion cleer y rmerges From the var ous decisions and this leg.rl ;)os t on was conccded bv lhe coJnsel for ihe parties. In any case, we shal rrf(:r to fe$l JUdgments conrain 1E this dicta, a little later. 3C. We v/ould ,ilso lrke to pornt out, for the sake of completeness, itat where a benelit rs coiFeTTe. llr' a legislation, the rule agalnst a retrospectrve :o rs'ruct on s d FFerenl. If a leqrila'ion confers a benefit on some persons but withcLl lFlcting a corresponCing detr m( nt on some other person or on the public gene.all , .,nC wheTe to conFer such benefrt appears to have been the leg slators oblect, then the presumption wcu c 5: that such a Legislation, giving it a purposl ,€ (l'slructlon, would warrant t to be given a retrospectrve effect. This exactly is lhe JUSt'catron to treat procedural prov srons as retrospective. ln Government of Ina a 8 Ors. v. Indran Tobacco Associrtion, [(2005) 7 SCC 396], the doctflne of fairness w.rs held tc be re evant factor tc clnstrue a statute conferring a beneft, in the con:ert )F it to be grven a retrospectve operation. The same doctrine oF fairness, t)'rod thal a statute was retrosl]ec.ive in nature, was applied in the case of Vlay ./. State of l4aharashtra & Ors, (2006) 6 SCC 289]. It was held that where a a i !; enacted for the bene:rt of ccrrmunity as a whole, even in the absence of a p:o'.'ision the statutc may De ha d to be retrospective rn nature. However, wc a e (s/c not) confronted w th ar! sL ch situation here. 31 in such .iases, retrospectivity s attached to benefit th3 c(rrsons ln contradist nctr')n tc, tle provisron imposing some burden or liabrl :y ,ihere the presumpton atlacled lowards prospectivlty. In the instant case, the )r:v so added to Section 11:l l':1-e qct is not benefic'al to the assessee. On the ccnt-a-y, rt rs a provis on ,rhich is c,ne-ous to the asses:;ee. Therefore, in a case llke th s, we have to prcceed wrth t'rtr i,ormal rule of presumption aqainst retrospect v€ crt-'raton. Tl'rlrs, the rule aqe lst retrospectve operation rs a Fundamental rule (f ai,:hat no slatute shal be ( c.;trued to have a retrospective operation Llrrl( s:; luch a constrJCtron a:lpears '/:ry ciearly in the lerms of the Act, or ar ses by rle le!sary ard d st nct impl cat on Dogmatical y framed, the rule s no more than a pr:st.lrlrpt on, and thus ccull l,)e d s, aced by out weighrng factors. 43. Tllere is ye: another very nteresttng p ece of evidence tllat c,lr rcs that provrs on beyonl ery ira e of doLtbt vtz., tl'le understanding of CBDT t;e're(lardrnE tirs provrsion lt ; co rtarned n CBDT Circular No.B oF 2002 daled 27.8 2tro2, wrth the su5.lect \"f'n3.cr: Aat, 2002 - Explanatory Notes on provrsron rea:irl :o Direct Taxes\". Th s c Tau aT res been issued after the passing of the Finance ct, 2002, by ./htch amendrnent to section 113 was made. In this circular, various al'rendments to the Income tax A:t 3re discussed amply demonstrating as to whicr ar''re:'rclments are clarificato.y/retrosf)ective ln operation and which amendments are tro;pective. I For example, Expanation lo section 158-BB ls stated to be clarifcatory rn nature. Like'rrse, it s mentioned that amendments n Section 145 whereby provrsrons of ll.rat sectron are nrade applrcable to block assessments is made clariflcatory and v/ouid take effect retrospectrvely from 1't day of )uly, 1995. When rl comes to anrendment to Section 113 of the Act, this very crcuar provdes that the sald amendment alonq with the amendments in Section 158-BE, would be prospectrve .e., w ll take effect from 1.6.2002.\" 18. Thus, the Apex Court in the above judgment, has made rt clear that unless a contrary intention appears, a legislation has to be presumed to have prospective effect, A readlng of Section 164 of the Act does not show that the Iegisiation has any intention, to make the said provision applicable to past transactions. Further, the Apex Court in the above Judgrnent at paragraph No.43, found that the circular issued by the authority after passinq 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 N4inistry of Corporation affairs has issued the circu ar No.08l2014 daled 4.4.2014 clarifying that financial statements commencing after 01.04.2014, shall be governed by Act 18 of2013 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\"' respondent / competent authority, has disqualified the petitioners as directors under Section 164(2)(a) of the Act 18 of 2013, by considerrng 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 judg ment. 19, If the said provision is daled 4.4.2014 and the law laid given prospective effect, as per the circular down by the Apex Court, as stated in the writ affidavits, the 31.0 3.2 015 and the second and third years financial years would be for the years ending statements are to be filed with Registrar of Companies only after the first financial year would be from 01-04-2014 to 31,03.2016 and 31.03.2017. The annual returns and financial conclusion of the annua genera meeting of the company, and as per the first l() proviso to Secticr !r6(1) of the Act, annual general meol rg for the year ending 31.03.20 L /, can be held within six months fron] ri e closing of financial year i.e., ct 30.09.201-7. Further, the time limit f rr f ling annual returnS unde. Ser-tion 92(4) of the Act, is 60 days from annual general meeting, or the last date on which annual general meetilg ought to have been held with normal fee, and within 270 days with additior ar f :e as per the proviso to Section 4,13 of the Act. Learned counsel submit th.rt if the said dates are calculated the last date for filing the annual retrrrs would be 30,77.2077, and the balance sheet was to be filed on .]C.10,2017 with normal fee and wil.h additional fee, the iast date for filing anrLral returns is 27.07.20L8, In o:re-words, the disqualification could get t-icg:tred on y on or after 27 .07 .20Lt:. But the period considered by the 2-- r'€,s lcrdent rn the Dresent wr: tet t or-S for clothing the petitioners with c s lJa lficat on, pertains pr or io Ol 04.2014. Therefore, lvhen lhe omission, r,. nich s no,,', pointed out, ,/i as ro envlsaged as a ground for disqualiric:'- on ,: cr to L.4.2011, the pet t oners cannot be disqua lfied on the said ,JroJnd. This anaiogy rs traceable to Article 20(1) of the Constitution of Incia, ,vhich states that \"A/o person shall )e convtcted of any offence except for vioiaiion of a law in force at the time oi'the commission of the act charged as an lffence, nor be subjected to a penalty greater than that which might have been inflicted under the law in forct: at the time of the commission of tht: of,'ence\". In view of the same, the ground on which the petitioners w€'re Jisqualified, cannot stand to leqal scrutiny, and the same is liable to be set aside. 20. A learne( SingJe Judge of the High Court or' Karnataka in YASHODHARA SHROFF vs. UNION OF INDIA') considering Sectlon 164(2)(a) cf he Act and ol.her provisions of the A(lt ;rnd var ous .l:clgmenis, passc'd .rn e aborate orde- and held that the said prc vlsion has no retrospectlve opera: cr. The observations of the learned ludg?, p:rtainlng to private companies, which are relevant for the present purpose, are extracted as under: 11 208. ln vrelv oF the aforesaid drscussron, I have arflved at the followtng conclustorls (a) It s held that Section 164(2)(a) of the Act is not u/tra v/rus Artrcle 14 of the Constitution, The said provision is not manifesfly arbitrary and also does not fall within the scope of the doctrine of proportionality. Neither does the said provlston violate Article 19(1)(g) of the Constitution as it is made rn the interest of general public and a reasonable restriction on the exercise of the said right. The object and purpose of lhe said provision is to stipulate the consequence of a disquallficat on on account of the circumstances stated therein and the same is in order to achieve probity, accountability, and transparency in corporate governa nce. (b) That Article (sic) Section 164(2) 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-dlsqualfication and this is not ,r violation of the principles of natural JUStice, is nol ultra vires Article 14 of the Constrtution. (c) That Secton 164(2) of the Act does not have retrospeat ve operatron therelore, ne ther Lrnreasonable nor arbrtrary, ln vrew of the nterpretat on on lhe sa me. a.d s placecl (d ) (e) (r) lnsofar as the pnvate companies are concerned, drsqualrfrcatron on accoLint of the crrclrnrstances stated under Section 164(2)(a) of the Act has been hrought rnto Force For tlre Frsf trme under th€ Acl and the consequences of drsOualrfrcalror, could not have been mposed on Crrectors oF private companres by taking llto consrderatron any peflod prior to 01.04.2014 for the purpose of reckonI1g continuous per od oF three fnancial years under the sard provrs or'r. The sad conclusion rs based on the principal drawn by ur'ay of analogy from Artrcle 20( 1) cf the Constitution, as at no pornt of time pnor to the enForcernent of the Act, a d squa ificatron based on the c rcumstances under Sect on 164(2) of lhe Act ras ever envrsaged under the 1956 Act vis-;-vs directors of private compantes. Such a d squalrfrcatron could v sit a director of only a publrc company Lr'rcjer Section 27A(l)(9) of 1956 Act and never a director of a private company. Such drsqualrFicatron of the petrtroners who are directors oF pflvate companies ls hence quashed. (g) Consequently, where the disqualrfication under Sectlon l6aQ) af the Act ls based on a continuous period of three financial years commencing from 01.04.2014, wherein financial statements or annual returns have not been filed by a pub rc or private company, the directors of such a company stand disquallfled and the consequences of the said disqua,ification 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. UNION OF INDIA3 expressed similar view as that of the leaned single .judge of High Court of Karnataka (1 supra), and held that Section 76a(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 contemplatec under Section 16a(2)(a) with regard to non-fi lng of financia statements or annual returns fo - ; ny continuous lleriod of three financial ,,ears would be the deiau t to be counted from the financlal year 2014-lt lnly and not 2073- 74 . 22. A learn 3d single Judge of the High Court of N4adr; s rn BHAGAVAN DAS DHANANIAYA DAS vs, UNION OF INDIA4 also erx:ressed similar view. The relevan: portion is as under: 29. In fine, (a) Wher the New Act 2013 came into effect f()n- 1.4,2014, the seccrd respondent herein has wrongly given r()t'ospective effect ani:l erroneously disqualified the petitioner - Cirectors trom 1.1.2 )16 itself before the deadline commencec ,v orgly fix ng the first F nancial year from 1.4.2A13 to 31.3.2014. (b) 1 '.1' o.:5155 oi l )I- u rl l,r Lch clatccl I?.0?.:01I By virtue of the new :,ection 164(2)(a) of the 2C-3 Act using the elpression 'For any continuous period of three Fn.-n:Lal year\" and n the llght oF section il(41) definlng \"Flnanclal yeirr as well as the r o!./r (;eneral clrcular l o.08/14 daled 4,4.2O14, tl'e f rst f rTancia year vould be from 1.4.2014 to 31.3.2015, tlrr: .e cnd Inanca year,vould be from 1.4.2015 to 31.3.2016 anc tl,r'f ird frr.rncr3 yeer vould be from 1.4.2016 to 31.3.2017, ,,..ler:as the secor,c resDo rdenI clearly admitted in paras 15 and :2 o the counter aff Ca /it that the default of filing statutory i-etrrrrs for the 1'rna years commences frorn 2013-14, 2474-75 anci 2115'16 .e. orre year lefore the Act 2013 came into force. Tl's s the basic rncrirable Iegal infirrnity that v trates the 3r tire mpugned pro:eedings. 23. In view of the above facts and circumstances arc tio judgments referred to supra, as the impugned orders in present writ petltions disqualifying the pel-itoners as directors under Section 164(2)(a. of the Act, have been passed ccnsidering the period prior to 01.04.2014, the same cannot be susteined and are liable to be set aside to that ext(rn:. 24. As iar as :l're contention regarding issuance of prlor r ltice Sefore ojsqualif)inq the pe::oners as directors is concerned, Sect rtr l6 (2)(a) s required to bC ^ct (('d, and the same is extracted as rrr'rc er for ready reference: 164. Disqual fication for appointment of director: (a) has rrol fr ed F nanc a statements oT annua rellrrns for any cont nuous pc-,04 c'lr'ree ti1a1c,a vears. o- (b) Sha I be eligibe to be re-appornted as a director of that company or appointed rn other companres for a period of frve years from the date on which the said company fa ls to do so. A reading of d isq u a lificatio n a dlrector of a the above provision makes it clear that it provides who is or has been of an event i.e if a pe rso n not filed financial statements or annual returns for any continuous period of three financial years, shali 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 ''rear ng. A learned single Judge of the High Court of Karnataka in Yashodara Shroff v. Union of India (l supra), as well as the learned singe ludge ofthe High Court of Gujarat at Ahmedabad in Gaurang Balvantla Shah s/o Balvantlal Shah vs. Union of India (2 supra), after analyzing varrous provisions of the Act and Rules framed thereunder, and by re ying on various judgments of the Apex Court, held that Section 16+(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-disqualification and this is not in violation of the principles of natural justice and hence, is not ultra yires 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 disqualification envisaged under the said provision comes into force automatically by operation of law on default and Leg s ature did not provide for issuance of any prlor notice, but the respondents notified disqua lfication even before it ncurred, and deactivatec DINs, which is il egal arbitrary and against prov sions conta ned in Section 164(2)(a) of the Act. on ha p.pening compa ny has 1l 26. The rert rlrlevance of the petitioners is with regard :c deactivation of their DINs. The :ontention of the learned counsel for th'r letitloners is that except for the g-ounds mentioned under Rule 11 (a) to (') of the Rules, the DINs cannot [)e cancelled or deactivated, and the vio at o'] mentioned under Sect or 16.1 l2)(a) of the Act, is not one of lhe grou-ds mentioned undeT c,auses (a) to f) of Rule 11, and hence for the alleged .'iolation under Section 164(2)(a) c;f the Act, DIN cannot be cancelled. 27, Ru e 1(l o' the Ru les provide it is allotted for for a lotment of Dlll rrd unoer sub rr ie (6 ) of cance ai on Ru e 10 liFe time, Ru le L 1 rrovrdes for fcr lhe present or deact vation. Rule 11, which is relevant purpose, is extracted :s under for ready reference: 11. Cancellation or surrender or deactivation of DINi lh' Centra Gove.nmel,]t or Re(]lcral Director (Northern Region), Noida or any c'F c€' . 1:ho|-lzec by tlle Req cna D -e(tor may, upon being satrsfed on verfcaton oF p.rrl c! ars or docunentary p-ocF a:'ached w th the application received from any pl s( n, cancel or deact vate the Dlll i. tase - the DI[] s 'ound to be duplicated in respect of the same l)(rsrr Drovded tl're data re ated to both the DIN shall be merqed with the va :llv reta ned number; the DIN ,!3; obtained in a wrongful manner or by fraudu ert n'e.ns; of the deatlr of the concerned indlvidual; the concerred individual has been declared as a person of rrso.rod m nd cy a co nrpe:ent Court; rf the conce-ned indivrdual has been adludicaled an nsolven:; Provided th3i treicre cancellation or deactivation of DIN pursLran: to c ause (b), an opDortunity oF b{-'ii-r'l lleard shall be g ven to the concerned nd v dL-ral; on an alpi ( at on made rn Form DIR-5 by the DIN l]older lc sr.ri -.ider hrs or her DIN a or.g ^ th declaraton that he has never been appointe(l as cl reclor rl any ccmpany al]d i rc ;ard DIN has never been used for filing cF any cc( r.ent !',/rtir any a!thonly, tlre Cen ral Government rnay deactivale such DIN; Provide(: irai beFore deactrvatiln of any DIN n such case l. aentra Gove ri ment shall venf/ e-records. Expianation fc. the purposes of clause (b) - The ier\"r'rs 'wrongful manner\" means if the DIN is obtair ec on the strength oF document:; which are not legally valid or incomplete (l()cuments are furnlshed or on sL.rDpression of material information or on the basis oF wronq cert fication or by r'raki]g misleading or false information or by misrepresentat on; (,i) the tern \"fraLlu ent means\" means if the DIN is obtained with an interl to dece ve any other persion or any authority inc ud ng the Cent \"a I Gove -n me nt. 28. C auses (a) to (f) of Rule 11, extracted above, p'o,/ides for the circumstances under , hich the DIN can be cancelled or dear(iti/eted, The (b) (c) (d) (e) lr) (r) said groundsi are diFferent from the ground en',/ sagsd under r5 of the Act. Therefore, for the alleged violation under Section 164(2)(a) Section 164 of the Act, DiNs cannot be cancelled or deaclrvated, 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. Th s takes the Court to the next question as to whether the respondents cou d have cleactivated the DINs of the petitioner as a conseqLrence of the rmpugned 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 D rector Identifrcation Number under Sectron 154. Section 153 requires every individual intending to be appointed as D rector of a Company to make an application for allotment of DIN to the Central Government in such form and manner as may be prescribed. Sectlon 154 states that the Central Government shall within one month from the receipt of the application under Section 153 allot a DIN to an appl cant n such manner as may be prescflbed, Section 155 prohibits any rndividual, who has aiready been allotted a DIN under Section 154 from apply ng for or obtainrng or possessrng another DIN. Rules 9 and 10 of the sard Rules of 2014 prescr be the procedure for making applicatron For allotment and for the allotn ent of DlN, and further prov cle tl'rat the DIN al otted by the Central Government under the sard RLrles vrou d be vald for the lrfe trr.e of tl.re appl cant and sha I not be allotted to any otheT Derson. 30, Rule l1 provrdes For cance lat on or surrender or deact vat on of DIN. Accordlngly, the Central Government or Reg ona Dlrector oT ar'ry authorzcd offcer of Regrona Drrector may, on berng sal sFred on veflFrcatron of partrcu ars of clocumentary proof attached w th an applrcatron Frorn any person, cancel or deactrvate the DIN on any oF the grounds mentioned rn Clause (a) to (f) thereof. The said Rule L1 does not contemplate any suo motu powers erLher w th the Central Government or with the aufhorized offlcer or Reg onal Director to cancel or deactivate the DiN allofted to lhe Director, nor any of lhe clauses mentioned rn the sard 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, rf one of the companies in which he was Director, is \"struck off\", his DIN could not be cancelled or deactivated as that wou d 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 vrew oF the matter, the Court rs of the op nion that the action of the respondents 1n deactlvating the DlNs of the pettioners - Directors a on9 with tlre publlcatron of the rmpugned lrst oF Directors of \"slruck off\" companres under Sectron 248, also l, ,as not legally tenable. Of course, as per Rule 12 of the sard Rules, lhe rndrv dua who has been allotted the DIN, rn the event of any change in l'l s part culars stated n Form DIR -3 has to rnt mate such change to the CentraL Government within the prescrbed time in Form DIR-6, however, lf 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 provrsions contained in the sald Rules.\" 30. In view of the above facts and circurnstances and the of the petitloners be sustained. r judg ment for a lleged referred to supra, the deactivation of the DINs vrolaIrons under Section 164 of the Act, cannot i. 31. For the foregoing reasons, the impugned o:ders in the writ to the extent of disqualifying the pe:it o'rers under 16a(2)(a) cf the Act and deactivation of their DINs, are set aside, 2'': responc,rnt is directed to activate the DINs of tlr(r petitioners, then\" tc fL.n.tron as Directors other than in strike ofl cr;nyranies. petitions S e ct io.r and the enabling 32. respondent violalions as I: is 11 rde clear lhat this order ,v I not pr€: rde the 2 1 accordance ,'ith la ! , for action ln fro'n ta,l in g appropriate envlsaged under Section 164(2) of the Act, 9 ! ng the said provision prospect ve effect from 01.04,2014 and for 'rece:;sary action aga inst DIN in case ol violations of Rule 11 of the Rules. 33. It is a so nade clear that if the petitioners action of the respondonts in striking off their companies the Act, they are a: berty to avail alternative remedy the Act. are agg rieved under Se ctio n by the 248 of under Section 252 of 34. All the i rit petitions aire accordrngly allowed 1l the extent nd catcd a bove 35. InterlocLitory applrcations pending, if any, shall strrd c osed. No order as to co sts. A.RA]ASHEKER REDD'/,] DATE: 16-07-201!l AVS "