Smt Itha Deepa V. Union Of India

WP/17276/2020

AI Insights

The case involves two petitioners, Smt ltha Deepa and Sri Garlapati Srikanth Reddy, who challenged their disqualification as directors and the deactivation of their DINs by the respondents, which was based on their alleged default in filing financial statements and annual returns for three consecutive years. The petitioners argued that the action taken by the respondents was arbitrary, illegal, and violated principles of natural justice, as well as their rights under the Constitution of India. The court examined the applicability of Section 164(2)(a) of the Companies Act, 2013, and its retrospective effect, ultimately finding that the provision should be applied prospectively and not retrospectively, leading to the setting aside of the disqualification and DIN deactivation.

• Counselvise Citation: [2020] 140 COUNSELVISE.COM (IT) 677448 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 01-10-2020
• Assessment Year: misc
• Other Referred Cases: 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: ANGOTHU NEHRU
• Keywords: Director Identification Number (DIN); Disqualification of Directors; Natural Justice; Retrospective effect; Writ of Mandamus
• Section: 151; 164(2); 226

Judgement Text

"HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD (Speciat Original jurisdiction) THURSDAY, THE FIRST DAY OF OCTOBER TWO THOUSAND AND TWENTY PRESENT THE HON'BLE SRI JUSTICE CHALLA KODANDA RAM WRIT PETITION NO: 17276 OF 2020 Between: 1 . Smt ltha Deepa, S/o ltha Srivenu, Aged about 43 years R/o 1-86/16. Patm County, Beside Safrani School, Raidurg, Golconda, Hyderahad, Telangana- 500033. 2. Sri Garlapati Srikanth Reddy, S/o Surender Reddy Garlapati, Aged about 34 years, R/o Plot No. 439, Road No.20, Jubiliee Hills, Hyderabad, Telangana- 500033. AND ...PET|T|ONERS 1. Union of lndia, Rep. by the Ministry of Corporate Affairs, A-Wing, Shastri Bhawan, Rajendra Prasad Road, New Delhi - 110001 , Represented by its Secretary. 2. The Registrar of Companies, (For State the of Telangana), 2nd Floor, Corporate Bhawan, GSI Post, Tattiannaram 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 lo pass an order or direction or any other proceedings one in the nature of Writ of Mandamus declaring the action of respondents in disqualifying the petitioner as a directors and deactivating the petitioner Director ldentiflcation Number (DlN) 02593745 and 2nd petitioner Director ldentification Number (DlN) 02593746 and restricting the petitioners from filing statutory returns, i.e., the annual returns and financial statements of the Companies in which they are Directors and restricting the petitioners to incorporate new companies Under Companies Act. 20'13 as arbitrary, illegal, without jurisdiction, contrary of the provisions of the Companies Act, 2013 and Rule 1 1 of the Companies (Appointment of Directors) Rules, 2014, violative of the principles of natural justlce besides violating the petitioner rights guaranteed under Article 14 and Article 19 (t ) (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 1st Respondent to restore the 1st petitioner Director ldentification Number (DlN) 025937 45 and 2nd petitioner Director ldentification Number (DlN) 02593746 so as to enable petitionerS to Submit pending annual returns and financial Statements for the Companies in which they are appointed as directors, and petitioners enable to incorporate new companies Under Companies Act. 2013. Counsel for the Petitioner: SRl. ANGOTHU NEHRU Counset for the Respondents: SRl. NAMAVARAPU RAJESHWAR RAO, ASSISTANT SOLICITOR GENERAL The Court made the following: ORDER f.I:IE] HON'BLE SRI JUSTICE CHALLA K')DITNDA RAM WRIT PETITION No. L7276 of '.21 20 OR.DEII: The petitioners challenge their dis,qualification from Directorship under Section 164(2 of the Comparries Act, 2013, for the alleged default in filing financial statemerrt/Annual Returns, and co::sequently seek restoration of their Directlr Identification Numbe:s (DIN) viz., 02593745 and 02593746 res:ectively. L:arned counsel for the petitioners subrn:ts that the issue raised .r'r the present Writ Petition is squarell' covered by the common order dated 18.07.2019 in W.P.No.5,421) of 2018 and batch. LerLrned Standing Counsel for the 2\"a resF,onclent - Registrar of Companies does not dispute the aforesaid subr::ission. Opt:rertive portion of the aforesaid order reads as under: \"For the foregoing reasons, the impugrLed orders ln th€ writ petitions to the extent of disqrralifying the petltioners undcr Section L6aQl@l of tt,e Act and deactivation of thelr DINS, are set aside, and the 2\"d respondent ls directed to activate the DINs of th,3 petitioners, enabling them to function as Ditectors other thsn in strike off c,rmpanies, It is made clear that this order will not pr:eclude the 2\"a respondent from taklng appropriate action in 1c,:ordance with law for violations as envisaged under Sectio[ .164(21 of the Act, giving the said provislon proapective effect from O1.O4.2014 and for necessary action against DLV in case of r/iohtlons of Rule 11 of the Rules. It is also made clear that if the pet:it)orLers are aggrieved by the action of the :espondents in s:riklng off thei' companies under Section 248 of the Act, the:, are at liberty 16 avail alternative remedy under Section ilSlZ of the Act. 2 All the $r.it petitions are accordingly allowed to the extent indicated above-\" ln view of the said Order dated 18.07 .2019 and for the reasons recorded therein, this Writ Petition is also allowed in terms thereof. No costs. Miscellaneous Petitions, if any stand closed. //TRUE COPY// SD/.B.SATYAVATHI ASSISTANT REGISTRAR SECflON OFFICER To, 1. 2. J. 4. t CHR The Secretary, t ,4inistry of Corporate Affairs, Union of lndia, A-Wing, Shastri Bhawan, Rajendra Prasad Road, New Delhi - 1 10001. The Registrar of Companies, (For State the of Telangana), 2nd Floor, Corporate Bhawan, GSI Post, Tattiannaram Nagole, Bandlaguda Hyderabad - 500 068. One CC to Sri Angothu Nehru Advocate [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 C-- HIGH COUIlT DATED:01 l10t',2020 ORDER W.P.No.1727r?; of 2020 DISPOSING OF THE WRIT PETTTION WITHOUT CC)S S C,I iHe sIA 15- .( 3 0 I ocl2020 a. ) , z .}, -t : : ;: ,c PAT ctir! t0 tI0 2 THE HON'BLE SRI JUSTICE A.RA]ASHEKER REDDY W.P.NOs.5422. 12184. 13520. 13783. 13855, 14166. 24Os1.30993. ANp 40953 0F 2018. s547. 5582. 5669, 5687. s78s. 6047. 6087. 6L40. 6484. 6753. 6A5A. 695A. 69AL, 700L.700A.7014.7046.7069, 7073. 7tos. 7432. 7454, 7572, 7595. 7732. 7765. 776a. 7A24. 797A. 8111, 8223. 8586. 8590. 9333. 9340. 9381. 9468. 9s63. 9584. 9623. 9726.9737. 10058. 10099. 11208. 11223. 11239. 11263. 11a89. LL99t. L20L8. L2036. L2040. L2069. 12108. 12144. t21A6. 12194. 122()0. L2209. L22L5. L22L7. L2243. 12260. 12262. t22AA. 12342. 12350. L24L7. L2432. L2472. L2498, 72506. 12s74. t2s9a. 72621. 12702. 12735, 12740. 12845, 12850. 12865. 12866. 13013. 13618. L3730. L3749. L3779. L37AA, L3839. L3A55. L3A7A. L39L2. L39L7. L3945. t4t0t. L4174. L4207. L4350. L436L. 14390. L4392. 14397, L4409, 145a2 AND L4597 0F 20L9 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 thesaidprovision,andfornotmakinganyapplicationwithinthespecified period, for obtaining the status of a dormant company under Section 455 of the Act. 3. The petltioners/ who were directors of the struck off companies' andwhoarepresentlydirectorsofactivecompanies,duringtherelevant period in question, failed to file financial statements or annual returns for a continuous period of three years' Therefore' the 2nd respondent passed the impugned order under Section 164(2) of the Act' disqualifying them as directors, and further making them 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 ) 4. This couft granted interim orders in the writ petit ons directing the 2nd respondent to activate DINs of the petitioners' to enable them to function other than in str ke off comPanies' 5. Heard the learned counsel appearing for the petitioners in all the writ petitions, Sri K.Lakshman, learned Assistant Solicitor (;eneral appearing for the respondelts - Union of India' 6.Learnedcounselforthepetitioners,contend-hatbeforepassing the impugned order, notices have not been issued, givin'3 them opportunity' and this amounl:s to violation of principles of natural justice, and on this ground alone, the impugned orders are liable to be set as de' 7. Learned counsel submits that Section 164(2)(a) of the Act empowers the authority to disqualify a person to be a ciirec:tor, provided he has not filed financial statements or annual returns of the company to which he is director, I'or any continuous period of three financial years. Learned counsel further submits that this provision came into for(:e with effect from t.4.2014, and prior thereto i.e., under Section 27aQ)@) of the Companies Act, 1956 (1 of 1956), which is the analogous provision. there was no such requirement for the directors of the private companies. They contend that this provision under Act 18 of 2013, will have prospoctive operation and hence, if the directors of company fail to comply wi:l' the requirements mentioned in:he said provision subsequent to the saicl date, the authority under the Act, is within its jurisdiction to disqualify therr. 8,ut in the present cases, the 2nd respondent, taking the period prior to L.4,2074, i.e., giving the provision retrospective effect, disqualified the petitioners asr directors, which is illegal and a rb itra ry. 8. Witi regard to deactivation of DINS, learned counsel for the petitioners sub,.it thar the DIN', as contemplated uncer luie 2(d) of the Companies (Ar,trointment and eualification of Directors ), ttules, 2014 (for short'the Rules), are granted for life time to the applicants under Rule 10(6) of the said Rules, and cancellation of the DiN can be made only for the grounds mentioned in clauses (a) to (f) under Rule 11 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 l't respondent - Government of India represented by the Ministry of Corporate Affairs, has floated a scheme dated 29.72.201,7 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 such directors, whose DIN are deactivated. However, under Section 252 only the companies, which are carrying on the business, can approach the Tribunal and the companies, which have no business, cannot approach the Tribunal for restoration. They submit that since the penal provision is given retrospective operation, de hors the above scheme, they are entitled to invoke the jurisdiction of this court under Article 226 of the Constitution of I nd ia. 10. With the above contentions, learned counsel sought to set aside the impugned orders and to allow the writ petitions. 11. On the other hand learned Assistant Solicitor General submits that failure to file financial statements or annual returns for any continuous period 4 of three financial years, automatically entail their disrlualification under section 164(2)(ir) of the Act and the statute does not pro'riJe for issuance of any notice. Hence, the petitioners, who have failed to cc'mply with the statutory requirement under Section 164 of the Act, calnot complain of violation of principles of natural justice, as it is a deeming p -o'rision' Learned counsel further submits that the petitioners have alterrrative remedy of appeal under Section 252 of the Act, and hence writ petiticns may not be entertained. 12. To consider the contention of the learned l ssistant Solicitor General with regJard to alternative remedy of appeal under l;ection 252 of the Act, the said provision is required to be considered, itnC the same is extracted as und,?r for better appreciation: 252. , l)peal to Tribunal: (1) Arr)/ person aggrieved by an order of the Registrar, n,)t fying a company as dissolved unler Section 248, may file an appeal to the Tribunal vitlin a period of three years fror'i the date of the order of the Registrar and if th{r 'Tribunal is of the opinion that the removal of the name of the company from the re(ii:ter of companies is not JUstrfied in view of the absence of any of the grounds on which the order was passed by the tlegistrar, it may order restoration of the name of thrl ccmpany in the register of corr Dan es; Providrl.l that before passing an order under this section the Tribunal shall give a reasonal)le opportunity of making representations and of oeinq heard to the Registrar, the :)mpany and all the persons concerned: Provideij further that if the Registrar is satisfied, that the name of the company ilas l).:err struck off from the register of companies either iradvertently or on basis of inc.rrrect information furnished by the company or ils directors, which requires restori,ton in the register of companies. he may withrr ir teriod of three years from the dale of passing of the order dissolvang the compa ry under Section 248, file an eppli:ation before the Tribunal seeking restoratior r)f name of such company. (2) A :r)py of the order passed by the Tribunal shall be f l3r b.r' the company with the Regis:rar within thirty days from the date of the order ard or receipt of the order, the Re(J strar shall cause the name of the company to l€ r3stored in the regaster of conrl. an es and shall issue a fresh certificate of incorporal ion. (3) It a company, or any member or creditor or w()Tlier thereof feels aggrieved by l:he company having its name struck off frorn tfe register of companies, th,: Tr bunal or an application made by the company, rnember, creditor or workman beFore the expiry of twenty years from the publicati)n in the Official Gazette of the nctice under sub-section (5) of Section 248, f satisfied that the company was, nt ihe time of its name being struck off, carryjng ()n business or in operation or otherwise it is just that the name of the company be r3stored to the register of con)panies, order the name of the company to be reston)d to the regjster of companies, ,:nc the Tribunal may, by the order, give such olhtr directions and make such prcVjsions as deemed just for placing the company and all other persons in the same plsition as nearly as may be as if the name of the Conlpany has not been struck off iro n the register of companies. 5 A reading of above provision goes to show that if the company is dissolved under Section 248 of the Act, any person aggrieved by the same, can file an appeal. Thus the said provision provides the forum for redressal against the dissolution and striking off the company from the register of companies. It does not deal with the disq ua lificatio n of the directors, and deactivation of their DINs. In the present case, the petitioners are only aggrieved by their disqualification as directors and deactivation of DINs, but not about striking off companies as such. Hence, Section 252 of the Act, cannot be an alternative remedy for seeking that relief, and the contention of the learned Assistant Solicitor General, in this regard, merits for rejectlon. 13. Under Section 164(2)(a) of the Act, if the Director of a company fails 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 flve years from the date on which the said company fails to do so. The said provision under the Act 18 of 2013, came into force with effect from 01.04.2074, and the petitioners are disqualified as directors under the said provision. At this stage, the issue that arises for consideration is - whether the d isq ua lification envisaged under Section 164(2)(a) of the Act, which provision came into force with effect from 01.04.2014, can be made applicable with prospective effect, or has to be given retrospective operation? In other words, the issue would be, from which financial year, the default envisaged under Section 164(2)(a) of the Act, has to be calculated, to hold the director of the company liable? In this regard, the learned counsel brought to the notice of this Court, the General Circular No.08/14 dated 4.4.20t4 issued by the Ministry 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 boots of account, preparation, adoption and filing of financial statements (and documents required to be attached thereto), Auditors reports and the Board oi Directors report (Board's report) have been brouqht into force with o effect from 1s' April, 2014. Provisions of Schedule 11 (usefu I veri to compute depreciation) irnd Schedule III (format of financial statements) have also been brought into for.e irom that date. The relevant Rules pertaining to th:se provisions have also beer notified, placed on the website of the Ministry arrd have come into force from the same date. The lvlinistrv f,as received requests for clarification with regard t() the relevant financial years with effect from which such provisions of the n':v/ l ct relating to maintenance of books of account, preparation, adoption and fi inE of financial statements (arr.l attachments thereto), auditors report and Board's report will be applicable. Although th3 position in this behalf is quite clear, to make things, alsolutely clear it is hereby n,::ified that the financial statements (and documeits required to be attached ther€to), auditors report and Board's report in respect ()f 1'nancial years that commen:.id earlier than 1't April shall be governed t)y the relevant provisions//sch,rlules/rules of the Companaes Act, 1956 and thdt rn respect of financial years (:onrmencing on or after lstApril, 2014, the provis oIs tf the new Act shall apply. \" A reading of th: aDove circular makes it clear the finanr:i,rl statements and the documents required to be attached thereto, auditors rep,ort and Board's report in respect of financial years that commenced earlior than 07.O4.2074, shall be governed by the provisions under the Companies Act, 1956 and in respect of financ al years commencing on or after 01.O4.i,.CLtl, the provisions of the new Act s;hall apply. 14. At this stage it is required to be noticed that the analogous provision to Seciion 76aQ)@) of the Act 18 of 2013, is Sie ction 27aO)G) ot Act 1 of 1956. The said provision under Act 1 of 1956 s, {lx:racted as under for ready referer ce:: Section 2 z A person shall not be capable of being appf,irt€d director of a company, if - (g) such pr:rson is already a director of a public company whictl, - (A) has not filed the annual accounts and annLra returns for any continuous three financial years commencing on and after the first day of Aprit, 1999; or (B) Provided rhat sucr person shall not be eligible to be appointed as a director of any other public coxpany for a period of five years from tire date ot which such public company, in !vnich he is a director, failed to file annual accounts and annual returns under sub-claLse (A) or has failed to repay its deposits or int{rrlst or redeem its debentures on due date or pay dividend refeired to in clause (B). A reading of the above provision under Act 1 of 1956, m;rkes it clear that if a person capable ,:rf being appointed director of a company anC such person is already a direct.r of a pubric company, which has not fired annuar accounts and annual retu.ns for any continuous three financiar yea-s commencing on and after the first day of April 1999, shall not be eligible to be appointed as a director of any other public company for a period of five years from the date on which such public company, in which he is a director, failed to file annual accounts and annual returns. So the statutory requirement of filing annual accounts and annual returns, is placed on the directors of a 'public company'. There is no provision under the Act 1of 1956, which places similar obligations on the directors of a 'private company'. Therefore, non- filing of annual accounts and annual returns by the directors of the private company, will not disqualify them as directors under the provisions of Act 1 of 1956. 15. Under Section 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 effect from 01.04.2074. 16. Coming to the facts on hand, the 2nd respondent has disqualified the petitioners under Section 164(2)(a) of the Act 18 of 2013, for not filing financial statements or annual returns, for period prior to 01.04'2014' The action of the 2nd respondent runs contrary to the circular issued by the Ministry of the corporate Affairs, and he has given the provisions of Act 18 of 2013, retrospective effect, which is impermissible' 77. The Apex Court in COMMISSIONER OF INCOME TAX (CENTRAL)I,NEWDELHIv.VATIKATOWNSHIPPRIVATELIMITEDI has dealt with the general principles concerning retrospectivity The relevant portion of the judgment is thus: 27. Notifica A legislation, be it a statutory Act or a statutory Rule or a statutory tion,--naav physically consists of words printed on papers However' I (2015)l sccl 7 8 conceDtually it s a great deal more than an ordinary prose rter3 is a special peculianty in tlre mode or u\"'uar'tornin''iilation Ov a legiitation A leqislation is not iust a series of stai:ements, au.n ia on\" finds in a work of fiction/ 1c n f iction or even i;: ;,;;.',;r; ;;';;,;;i i\"* ' ?\"'\" i' \" iechnique required.tc c rat a reeislation as well as to understand a r\"gisraii;n. -rormer technique is kno vn as legislative drafting and latter one i, to u\" ioino- in it'\" '\"tiout principles oF'lnlerpretation of Statutes'. vis-;-vis oroinary pro-s-e,'a i\"gitiution differs.in. its p'overTance' lay-out ;;;;;;;r r\";;t;r.o in tt\" i;plic-ati;;a; io its meanine that aris(rs bv presumptions as to the intent of the maker thereof' 28. of the various rules guiding how a legislation has to be in:erpreted' one established rule is that unr\"r, u tontiuty intenti6n appears' a legi:;laticrn is presumed not to be intended to nau\" u 'et'osplitive operation Thg iq:' behind the rule is that a current iaw should govern culrent activities Law passed :oda'/ cannot apply to the events 3f the past. rr*\" oo somlrning today, we do-itl<€eping in the_l.aw.of today and rn flrce and not tomotrowS bickwird adjustment of i- OJr belief in the i\"irl\"-oitr,\" l6v,/ rs founded on inu o\"o rock that every human b(rin3 is entitled to arrange hrs affairs by relying onihe existing law and should not fnd that his plans iu[ i\"\" n- r\"tr. rrp eciively urset This princlple of law.is known as lex prospicit non .'\"reJi l\"* rr\"i, ro.waro noi backward As was observed in F'hillips vs Eyre t(1870) LR 6 QB 11, a retrosp;;i;; legislation is contrary to tle g€:neral principle rh:r tadiqtiri.n hv which tn\" aonOrai oihantlnd is to be regulated when introduced ;;;il;;i;;i;;;'t;-;\";i ;'th irtrre acts oueht not to chanse the character or past iirniu.tion. crrried on upon the faith of the then existing law' 29. Tlre obv ous basis of the principle against retrospectivitl/ s i:he principle of 'ruir-ness;, wh ch must be the basis o? e'jty legal rule as was ol)served in the i\".irLn 'r\"por,\"o in L'office cherifien des ihosphates v Y'rrra:;hita-Shinnihon it\"ur*nip Lc. Ltd. t{199a) 1Ac 4861. Thus, legislations which modified accrued .ionls or'*nlcr. nrposL obligations ot irnpose new duties or att;tc.r 'r new disability 'nl\"\"i\" o\" ir'r.,\"iii pio=p-ectire unless the legislative intent is (:learly to give the ;;;;;\";i a rr:trospective effect; unless the legislation is for purpose of supplying an obvious orrission in a former Iegislation or io explain a fornrer legislation. We need not note that cornucopia of cas! law available on the subje(t be':ause aforesaid legal position clearly emerges from the various decisions and this legal position was .o-niei\"o by the counsel- for the parties. In any case, we slall refer to few judgments co''rl:aining this dicta, a little later. 30. We wsuld also like to point out, for the sake of completenesj, that where a Uenefit is conferred by a legisiation, the rule against a retrospe(:tive construction is different. If a legislation confers a benefit on some persons but ,',ithout inflicting a corresponding rjeiriment on some other person or on the public aerrerally, and where to confer su:h benefit appears to have been the legislators otJect, then the presumption vrculd be that such a legislation, giving it a puiposive construction, would warrant it to be given a retrospective effect. This exactly is [h(: justification to treat procedLral grovisions as retrospective. In Government cf India & Ors. v. Indian Tobac(o Association, t(2005) 7 SCC 3961, the doctrine of Fa rness was held to be relevant factor to construe a statute conferring a benefit, in the co\"ltext of it to be given a retrcspective operation. The same doctrine of fairnos;, to hold that a statute was rei:rospective in nature, was applied in the case of Vijay v. State of Maharashtra t ors., [(2006) 6 SCC 289]. It was held that whe rrr a law is enacted for the benefii: of community as a whole, even in the absenc€ of 3 provision the statute may t,3 held to be retrospective in nature. However, w(: are (slc not) confronted wi[h any such situation here, 31. In r;uch cases, retrospectivity is attached to benefil the persons in contradistinct on to the provision imposing some burden or lirbility where the presumption a:tached towards prospectivity. In the instant cas€, :h6: proviso added to Section 113 of the Act is not beneficial to the assessee. On tl'e (:ontrary, it is a provision which is onerous to the assessee. Therefore, in a cas3 ike this, we have to proceed ! a:h the normal rule of presumption against retrcsl)e(tive operation. Thus, the rule against retrospective operation is a fundamental nJle of law that no statute shall be construed to have a retrospective operation Jnless such a construct on appears very clearly in the terms of the Act, or arisos by necessary and distinct irTplication. Dogmatically framed, the rule is no more th.rn a presumption, and thus could be displaced by out weighing factors. 43. Ther€ rs yet another very interestang piece of evidenc{r that clarifies that provision bey,)nd any pale of doubt vaz., the understanding of Cllt)T itself regarding this provision It is contained in CBDT Circular No.8 of 2002 dar:el i:7.8.2002, with the subject \"l:inance Act, 2002 - Explanatory Notes on provision relating to Direct Taxes\". This circular has been issued after the passing of the Financc Act,2OO2, by which amendrrentto section 113 was made. In this circular, vlrioLs amendments to the Incom(r l:ax Act are discussed amply demonstrating as to which amendments are cla rificato r)'/ retrospective in operation and which amendment:; are prospective. For example, Explanation to section 158-BB is stated to be clarificatory in nature. Likewise, it is mentioned that amendments in Section 145 whereby provisions of that section are made applicable to block assessments is made clarificatory and would take effect retrospectively from lst day of luly, 1995. When it comes to amendment to Section 113 of the Act, this very circular provides that the said amendment along with the amendments in Section 158-BE, would be prospective i.e., will take effect from 1.6.2002.\" 18. Thus, the Apex Court in the above judgment, has made it clear that unless a contrary intention appears, a legislation has to be presumed to have prospective effect. A reading of Section 164 of the Act does not show that the legislation has any intention, to make the said provision applicable to past transactions. Further, the Apex Court in the above judgment at paragraph No.43, found that the circular issued by the authority after passing of the legislation, clarifying the position with regard to applicabllity of the provisions, has to be construed as an important piece of evidence, as it would clarify the provision beyond any pale of doubt. In the present case, as already noted above, the Ministry of corporation affairs has issued the circularNo.08/20l4dated4.4.20l4clarifyingthatfinancialstatementS commencing after 01.04.2014, shall be governed by Act 18 of 2073 i'e'' new Act and in respect of flnancial years commencing earlier to 01'04'2014' shall be governed by Act 1 of 1956' At the cost of repetition' since in the present cases, as the 2nd respondent / competent authority' has disqualified the petitioners as directors under section 16a(2)(a) of the Act 18 of 2013' by considering the period prior to O1'04'2014' 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 financiar years wourd be for the years endinq 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 9 t0 provrso ending to Section 96(1) of the Act' annual general meetrng for the year 31.o3.2c17, can be held within six months frcnr the closing of flnancial year i'€., by 30'09'2017' Further' the time llmit for filing annual returns under section gz(4) of the Act, is 60 days frcnr annual general meeting, or the ast date on which annual general meet irrg ought to have been held with normal fee, and within 270 days with addition;rl fee as per the proviso to Section 403 of the Act' Learned counsel subrnit that if the said dates are calculated, the last date for filing the annual returns would be 30.11.2Ot7, ar(: the balance sheet was to be filed on 30'10'2017 with normal fee and ,,r,ilh additional fee, the last date for filir g annual returns is 27 ,07 .2Ot8. In other words, the disqualification could g:t t-iggered only on or after 27.07.?-018. But the period considered by the 2'd rr:spondent in the present wrtt petitions for clothing the petitioners 'r'it h disqualification, pertains prior :o 07,04.20L4. Therefore, when the omiss;ion, which is now pc.rinted out, r'i as not envisaged as a ground for disc uallfication prior to 1.4.2014, the petitioners cannot be disqualified on th€ said ground. This analogy is traceable to Article 20(1) of the Constitution c,f India, which states that \"/Vo perso't sltall be convicted of any offence except for violation of a law in force at the time of the commission of the act charge'o as an offence, nor be subjected to a penalty greater than that which might hzrve been inflicted under the law in force at the time of the commission ct'the offence\". In view of the sanre, the ground on which the petitioners; rvere disqualified, cannot stand to legal scrutiny, and the same is liable to be set aside. 20. A lr:arned Single Judge of the High CoJrt of Karnataka in YASHODHARA SHROFF vs. UNION OF IND'Itt2 considering Section 16a(2)(a) of the Act and other provisions of :l-e Act, and various judgments, passed an elaborate order and held that the saicl provision has no retrospective operation. The observations of the learneci .ludge, pertaining tO ' w.p.No.529l I of 2l l: rnd batch dared 12.06.2Olg 11 private companies, which are relevant for the present PUrpOSe, are extraCted as under; 208. In view of the aforesaid discussion, I have arrived at the following conclusions: (a) It is held that Section 1641 co,,titution.-;#,';il' ffil:iiti,l{:}:i\",=',;\"\",,r1,,,#r,Iffi j,::.f\"j,. f\"l i:; within the scope of the doctrine of proportionatity. f,leitn\"r,Oo\", the said provrsion viotate Articte 19(1)(o) of tne conititution l;;li; ;;;;:;;e interest or eenerar public and a reasonabte restrjction \"\" ti,\" \"r\"iiir\" \"iit\"'lu,ol.,gt,. The object and purpose of the sajd.provision i, io - ,l,prt\",\" \"ih-e consequence of a disquarification on account of the circumstances siated therein and the same is in :ld:r to achieve probity, accountability, unJ'-t.unipurun.y in corporate governance. (b) That Articte (sic) Seclon 164(2) of th of the circumstances stated therein hearing, neither pre-disqualification violation of the principles of natural Constitution. e Act applies by operation of law on the basis , the said provision does not envisage any nor post-disqualification and this is not in justice, is not ultra ylres Article 14 of the (c) That section 164(2) of the Act does not have retrospective operation and is therefore, neither unreasonable nor arbitrary, in view of the interpretation placed on the same. (d)... (0... (9) Consequently, where the disqualification under Section 764(2) of the Actis based '-' on a continuous period of three Rnancial years commencing from 01 04 2014, wherein financial statements or annual returns have not been filed by a public or private company, the directors of such a company stand disqualifled and the consequences of the said disqualification would apply to them under the Act' (e) Insofar as the private companies are concerned, d isqua lification 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 d isqualification based on the circumstances under Section 164(2) of the Act was ever envisaged under the 1956 Act vis-a-vis directors of private companies. Such a disqualification could visit a director of only a public company under Section 274(L)(g) 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 ashed. 2t. A learned Single of the High Court of Gujarat at Ahmedabad in GAURANG BALVANTLALSHAH S/O BALVANTLALSHAH 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 l'4 '2014 would have prospective, and not retrospective effect and that the defaults contemplated under Section 164(2)(a) with regard to non-filing of financial statements or I r/Special Civil Application No 22435 of2017 and batch datcd 18 12 2018 t2 annual returns fr)r any continuous the default to tcr counted from the financial year 2Al3-L4. 29. In fine :, period of three financial years wculd be 261a--15 only and not 22. A lea-rteCsingle ludge of the High Court of Matlr:s in BHAGAVAN DAs DHANAN;\"q'YA DAS vs' 'INION OF INDIA4 als() expressed similar view. The relev;iTt portion is as under: (a) (b) 23. In 'riew of the above facts and circumstancert arrd the judgments referred to supra, as the impugned orders in prosent writ petitions disqualifying the petitioners as directors under Section f.64(2)(a) of the Act, have been passed considering the period prior to 01.C4.2014, the same cannot be sustalned, and are Iiable to be set aside to tha - '3xtent. 24. As 'ar as the contention regarding issuance of pt'ior notice before disqualifying tt),3 petitioners as directors is concerned, S,:cr:ion 164(2)(a) is required to bo noticed, and the same is extracted a:; :nder for ready reference: 164. Disqualification for appointment of director; 'When the New Act 2013 came into effecl' frc'm 1'4'2014' the lll liia ''r\"rrtiiaeni herein has wrongty given rotrospective effect ;;;\"\",-;;;;;;v disquatified the ieti[ion:r - directors from i. iz,iiii,t!rr tieroi\" tne aeiotine commen(:ed wronslv fixins the iirrili\"arl.iur year from r'4'20fi to 31'3'2014 Lrv virtue of the new sectron 164(2)(a) of tlre 3013 tc.t usinq the ;lr;\";;;\"\"ir;;-\";; ;\"\"ti;;\"r' period or thre,i rinanciar vear\" and ';,r [h;i;;i \"i.*til,\" 2(41) defining \"financ-a1 Tear\" as well as their .r^'c.,.i,\"i.f circular lto.08/t4 daied 4'4 2014' the first financial \"\"rr *\"\"1a be from 1,4.2014 to 31 3'2015, the second financial J.;; ;;;i; o-\" rrorn l.+.zors to 31'3 2016 ard the third financial ;.;; ;;;l; u\" r.rn L 4,2016 to 31'3'2017, whereas the second i\"rrona\"nt clearly admitted in paras 15 an) ZZ of the counter \";;;;;it-th.i ine'default of filing statutoD' rel:urns for the final y€ars commences from z1l3-14, 2OL4-15 and 2015-16 ie' one ye,ar before the Act 2013 came into force' This is the basic ia:urable legal infirmity that vitiates 1he entire impugned p roceed ings. o W.P.No.25455 of 2l -, ,rnd barch dated 27.07.2018 t3 (2) No person who is or has been a director of a company whjch_ o\"r.o \"fi)nlXtr[\"\"t\":,':ir:::;'L\"l statements or annuar returns ror any continuous (b). A reading of the above provision makes it clear that it provides d isq ua lification on happening of an event i.e., if a person who is or has been a director of a company has not filed financial statements or annual retu rns for any continuous period ofthree financiar years, sha, be inerigibre 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 fairs to do so, The provision does not provide for issuance of any prior notice or hearing. A learned singre Judge of the High court of Karnataka in yashodara Shroff v. Union of India (1 supra), as well as the learned single ludge of the Ba lva ntla I Shah High Court of Gujarat at Ahmedabad in Gaurang Balvanflal Shah s/o vs. Union of India (2 supra), after analyzing varjous provisions of the Act and Rules framed thereunder, and by rerying on various judgments of the Apex Court, held that Section 764(2)(a) of the Acr appties by operation of law on the basis of the circumstances stated therein, the said provision does not envisage any hearing, neither pre-d isq u a lification nor post-disq ua lificatio n and this is not in violation of the principles of natural justice and hence, is not ultra yftes Article 14 of the Constitution. I concur with the said reasoning. 25. Thus, from the above, it is clear that Section 16a(2)(a) of the Act is a deeming provision and the 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. :ll\"::Hffi L#ii!\"\",?.i:.ff 3ff f :;od',:\"fl ',?:H.f : j:ij\".,\"Tfl il*J 26. The next grievance of the petitioners is with regald to deactivation of their DINS' -lhe contention of the learned counsel for fhe 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 :'6a(2)(a) of the Act' is not one of the grounds mentioned under clauses (a) to (f) of Rule 11' and hence for the allergecL violation under Section 16+(2)(a) of the Act' DIN cannot be cancelled' 27. Rule 10 of the Rules provide for allotment of t)It{ and under sub rule (6) of Rule 10, it is allotted for life time' Rtrlt: cancellation or deactivation' Rule 11' which is relevent purpose, is extracted as under for ready reference: 14 11 provides for for the Present 11. cancellation or surrender or deactivation of l)IN: The Central Government rr Regional Oirectoi itiortnern Region), Noida or a']) oificer authorized hv thp Reoionl Jlrector may, upon being satrifred on verifrcation of particulars or ;;.;;\";i;;; ;; \";i uttu.n\"J*itr,'tt'e applLation received from an / person' cancel or deactivate the DIN in case - th: DIN is found to be duplicated in respect of the sEre rerson provided thsoatarelatedtoboththeDlNshallbemergedWitrtheValidlyretained nLmber; th3 DIN was obtained in a wrongful manner oT by fraLdrlent means; of t're death of the concerned individual; the concerned individual has been declared as a per!or'r cf unsound mind b) a clm Petent Court; if :he,:oncerned individual has been adjudicated an lns()lv(lnt; Provded that before cancellation or deactivation of DIN pu-s'rant to clause (b), an opportuni:! of being heard shall be given to the concerned in'li'/idual; or ,3n application made in Form DIR-5 by the DIN holder to surrender his' or her DIN all|rg with declaration that he has never been appsirt€d as director in any company and the said DIN has never been used for filing ol any document with any authorit)', the Central Government may deactivate such DIN; Provided that before deactivation of any DIN in suc'r case, the Central Government shall verify e-records. Expl;natlon: for the purposes of clause (b) - The terms \"wrongful manner\" means if the DIN is obtained on the strength of iocuments which are not legally valad or incomplete documents are Furnished or cn suppression of material information or on tte basis of wrong certificat on or by making misleading or false information or by nri:;representation; (ii) the term \"fraudulent means\" means if the DIN is obtained with an intent to deceive any other person or any authority incluclin,l the Cen:ra I Government. 28. ClaLses (a) to (f) of Rule 11, extracted above, provides for the circumstances under which the DIN can be cancelled o- deactivated. The said grounds, are different from the ground envisaged under (a) (b) (c) (d) (e) (f) (r) l5 secrion 164(2)(a) or the Act. Therefore, for the areged vioration under Section 164 of the Act, DINS cannot be cancelled or deactivated, except in accordance with Rule 11 of the Rules. 29. Learned Single Judge of the Gujarat High Court in the decision cited 2 supra, held as under: \"29. This takes the Court to the next questjon as to whether the respondents could have deactivated the DlNs,of the petitioner \". u .onr\"qr-\"n.u of the impugned list? In this regard, it would be appropriate t\" ,.f\"i t\" ii\" relevant provisions contained in the Act and the said Rules. Section 153(3) pro;ides that no person shall be appointed as a Director of a company, ,ni.r, i5 hu, been allotted the Dlrector IdentiFication Number under section 154. secttn-is: requires every individual intending to be appointed as Director of a -ompany to make an application for allotment oF DIN to the centrar Government in suc'h form and manner a5 may be prescribed. sec on 154 states that the central Government shall within one month from the receipt of the application under Section 153 allot a DIN to an applicant in such manner as may be prescribed. Section 1S5 prohibits any individual, who has already been allotted a DIN under Sectjon 154 from applying for or obtaining or possessing another DIN. Rules 9 and 10 of the said Rutes of ,014 prescribe the procedure for making application for allotment and for the allotment of DIN, and further provide that the DIN allotted by the Central Government under the said Rules would be valid for the life time of the appticant and sha not be allotted to any other person. 30, Rule 11 provides for cancellation or surrender or deactivation of DIN. Accordingly, the Central Government or Regional Director or any authorized officer of Regional Director may, on being satisfied on verification of particulars of documentary proof attached with an application from any person, cancel or deactivate the DIN on any of the grounds mentioned in Clause (a) to (f) thereof. The said Rule 11 does not contemplate any suo motu powers either with the Central Government or with the authorized officer or Regional Director to cancel or deectivate the DIN allotted to the Director, nor any of the clauses mentioned in the said Rules contemplates cancellation or deactivation of DIN of the Director of the \"struck off company\" or of the Director having become ineligible under Section 164 of the said Act. The reason appears to be that once an indivldual, who is intending to be the Director of a particular company is allotted DIN by the Central Government, such DIN would be valid for the life time of the applicant and on the basis of such DIN he could become Director in other companies also. Hence, if one of the companies in which he was Director, is \"struck off\", his DIN could not be cancelled or deactivated as that would run counter to the provisions contained in the Rule 11, which specifically provides for the circumstances under which the DIN could be ca ncelled or deactivated. 31, In that view of the matter, the Court is of the opinion that the action of the resDondents in deactivating the DINs of the petitioners - Directors along with the publication of the impugned list of Directors of \"struck off\" companies under bectlon 2+8, also was not legally tenable. Of course, as per Rule 12 of the said nuies, the individual who has-been allotted the DIN, in the event of any change in nii particutats stated in Form DIR -3 has to intimate such change to the central couuin.\"nt within the prescribed time in Form DIR-6, however, if that is not done, ine Olru coutO not be cancelled or deactivated The cancellation or deactivation of the DIN coutd be resorted to-btlhe concerned respondents onlv 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 154 of the Act, cannot be sustained' I6 31. For the foregoing reasons' the impugned orders in the writ petitions !o the extent of disqualifying the petitioners under Sectjon 164(2)(a) of the Act and deactivation of their DII ls' are set aside' and the 2\" re5pondent is directed to activate the DINs ')f the petitioners' enabling them r:o frnction as Directors other than in strike cff companies 32. It ls made clear that this order will not: preclude the 2nd respondent frcm taking appropriate action in accord'lrrc(: with law for violations as envisaged under Section L64(2) of the Act, giving the said provision prospective effect from 01.O4.2014 and for necessary action against DIN in (:ase of violations of Rule 11 of the Rules. 33. It is also made clear that if the petitioners a13 aqgrieved by the action of the respondents in striking off their companies uncer Section 248 of the Act, they are: at liberty to avail alternative remedy und,:r Section 252 of the Act, 34. All the writ petitions are accordingly allowerJ to the extent indicated a bcve. 35. I r terioc r..,tory applications pendinq, if any, shall s:and closed, No order as to costs. A.RAJASHEKER RI:I}DY,J DATE: 18-07-2119 AVS "