Sri Brahmayya Koddidela V. Union of India

WP/19253/2020

AI Insights

The case involved a group of petitioners who were directors of various companies that faced disqualification under Section 164(2)(a) of the Companies Act, 2013, for failing to file financial statements or annual returns for three consecutive years. The Ministry of Corporate Affairs and the Registrar of Companies disqualified the directors and deactivated their DINs, citing non-compliance with statutory requirements. The petitioners challenged this action, arguing that the application of the law was retrospective and violated principles of natural justice. The court examined whether the disqualification could be applied retrospectively and whether the DINs could be deactivated based on the alleged non-compliance.

• Counselvise Citation: [2020] 140 COUNSELVISE.COM (IT) 721712 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 03-11-2020
• Assessment Year: misc
• Other Referred Cases: COMMISSIONER OF INCOME TAX (CENTRAL)-L NEW DELHI v. VATIKA TOWNSHIP PRIVATE LIMITED, YASHODHATA SHROFF vs. UNION OF INDIA, GAURANG BALVANTLAL SHAH S/O BALVANTLAL SHAH vs. UNION OF INDIA, BTIAGAVAN 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: ANGOTHI NEHRU
• Keywords: Companies Act; Director Identification Number (DIN); Disqualification of Directors; Natural Justice; Writ of Mandamus
• Section: 226; 248; 252; 164(2)(a)

Judgement Text

"HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD (Special Original J urisdiction) TUESDAY THE TH]RD DAY OF NOVEMBER TWO THOUSAND AND TWENTY Betwee n : 1. Sri Brahmayya Koddidela, S/o Sri K. Veeraiah, Aged about 65 years, R/o H. No. 2137, Kambalakunta, Cuddapah, Singareddipalli, Andhra Pradesh-S1 6 1 27. 2. Sri Narasimha Vara Prasad Anala, S/o A. Narasimhulu, aged aboul 47 years, R/o 7 -g -21 1, 11.R Palli, Thirupathi( Urban), Chittoor, Andhra Pradesh -51 7 502. 3. Sri Ramakrjshna Puchhakaayala, S/o Sri Puchhakayala l ,4attaiah, Aged about 38 years, R/o 1/87, Rajukunta, Cuddapah, Andhra Pradesh-S16104. 4, Sri Eswaraiah Jonnalagadda, S/o Sri Jonnalagadda Narasaiah, Aged about 50 years, R/o Plot No. 6/54, Kondur, Cuddapah, Andhra Pradesh-s16i27. ...PETITIONERS AND 1 2 Union of lndia, Rep by the -N,4inistry of Corporate Affalrs, A Wing, Shastri Bhawan, Rajendra Prasad Road, New Delhi - 1 1O 001, Repres6nted by its Secretary. The Regis_lrar_of Companres, (For State the of Tetanqala). 2nd Floor, Coroorate Enawan. LiSt post. IattiannaramNagole. Band jaguda Hyderaoad _ 5OO 068 ...RESPONDENTS Petitron under Artich- 226 of the constitution of rndia praying that in the circumstances stated in the affidavit fired therewith, the High court may be preased to pass an order or direction or any other proceedrngs one in the nature of writ of l ,4andamus declaring the action of respondents in disqualifying the petjtioner as a directors and deactivating the 1'( petitioner Director rdentification Number (DJN) 4u37504' 2nd petrtioner Director rdentification Number (DrN) 0g137510, 3rd petitioner Director rdentification Number (DIN) 0g137516 and 4th petitioner Drrector ldentifrcation Number (DrN) 08137524 and restricting the petitioners fro n..r statutory returns, i.e., the annuar returns and financiar statements of the companies in which thg, are Directors as arbitrary, i,egal, without jurisdiction, contrary of the provisions of they companies Act' 20'13 and Rure '1 .1 0f the companies (Appointment of Directors) Rules' 2O 1 4' violative of the principres of natural justice besides viorating the petitioner rights guaranteed under Arlicle 14 and Articre r 9 (r ) (g) of the constitution of lndia PRESENT THE HON'BLE SRI JUSTICE CHALLA KODANDA RAM WRIT PETITION NO: 19253 OF 2020 il2il O: 1OF20 Petition under S ion 151 CPC praying that in the circumstances stated in the ffidavit filed in support st Respondent to rest f the petition, the High Court may be pleased to direct the re the 1st petitioner Director ldentification Number (DlN) 8137 504 , 2 nd petitio r Director ldenlification Number (DlN) 08137510, 3rd etitioner D irector ld enti cation Number (DlN) 08137516 and 4th petitioner Director ldentif ication Number (D N) 08137524 so as to enable petitioners to submlt pending a 1 0 p annual returns and fin cial statements for the Companies in which they are a ppo nted as directors. Counsel for the Petition r: SRl. ANGOTHIJ NEHRU Counsel for the ResPctn ents: SRI NAMAVARAPU RAJESHWAR RAO' ASSISTANT SOLICITOR GENERAL The Court made the foll ing: ORDER an e d THE HON'BLE SRI JUSTICE CHALLA KODANDA RAM WRIT PETITION No. 19253 of 2O2O 9RDER: 'l'irt llclltioncrs chalicr:qc tltcir clisclr,Lirlii-iciLtion fi-o1l) Dilcctorship r:nder Scction 16a(2) ol the Companics Acr, 20 13, lor thc alleged delault in filing linancial statement/ Annuai Returns, and consequently ss.i< restoration oi their Director Identification Numbers (DIN) viz., 08 137504, 08137510, 08137516 and 08 1 37 524 respectively. I-earned counsel for the petitioners submits that the issue raised in the present Writ Petition conlmon or<1er dated i8.07.2019 in ba t r' :.r is squarely covered by the W. P. No.52122 ol 2018 and (lcneral ol lndra, appearing lor the 2'rd respondent - RceisLrari'ol' Courpanies does not disputc tl-re alorcsaid sul>mission Operative portion of the aforesaid order reads as under .For the foregoing reasons, the impugned orders in the writ petitions to the extent of disqualifying the petitioners under Section L6al2)lal of the Act and deactivation of their DINs, are set aside, and the 2\"d respo[dent is directed to activate the DINS of the petitioners, enabling them to function as Directors other than in strike off companies. It is made clear that this older will not preclude the 2nd respondent from taking appropriate action in accordance with law for violations as envisaged under Section 16412) of the Act, giving the said provision prospective effect from OLO4.2Ol4 and for necessaly action against DIN in case of violations of Rule 11 of the Rules. It is also made clear that if the petitioners are aggrieved by the action of the respondents in st!iking off their companies under Section 248 of thc Act, thcy are at To, CHR .B ) libetty to avail alternative remedy under Section 252 of the Act. All the writ petitions are accordingly allowed to the extent indicated above.\" ln ,,,iew ol the sard Order dated 18 07 2019 and lor thc reasons recorCed thereln, thls Wril Petitron is also allowed in terms thereol. irlo costs. NIis,:eilancous PetiLions, rl anl' stal-rd closed SD/. I.NAGALAKSHMI ASSISTANT REGIST //TRUE COPY// SECTION OFFICER 1. The Secretary, I ,4inistry of Corporate Affairs, Union of lndia, A Wing, ShastriBhan,an, Rajendra Prasad Road, New Delhi - 110 001 . 2. The Registrar of Companies, (For State the of Telangana), 2nd Floor, Corporate Bhawan, GSI Post, TattiannaramNagole, Bandiaguda Hyderabad - 500 068. 3. One CC to Sri Angothu Nehru, Advocate [OPUC] 4. One CC to Sri Namavarapu Rajeshwar Rao, Assistant Solicitor General [OPUC] 5. Two CD Copies (Along with e copy of the order, dated 18.07.2019 in W.P. No. 5422 of 2018) Wr' HIGH COURT DATED:0311112020 ORDER W.P.No.192:53 s1 2g2O ALLOWING THE WRIT PETITION WITHOUT COTS I (, 4r tV 0 5 No'/ 2m0 1-i C * * lA s E H 1 o L] /- J l THE HON'BLE SRI JUSTIC E A.RAJASHEKER REDDY W,P.NOs.5422, 12184, 13520. 13783' 13855, 14166. 24051.30993, AND 40953 0F 2018.5547.5s82, s669. 5687, 5785, 6047.6087. 6L40. 6484. 6753, 6A5A. 695A. 698L,700t, 7008,70L4. 7046.7069. 7 073. 7 LO5. 7 432. 7 454. 7 57 2. 7 595. 7 7 32. 7 7 6s. 7 7 6a. 7 A24. 7 97 A. 8111. 8223. 8586. 8590. 9333. 9340. 9381. 9468. 9s63. 9584. 9623, 9726. 9737. LOOSA. LOO99. LL208. 11223. 1L239. rL263. 1t889, tL99t. t20ta. L2036.72040. 72069. t2to8. 12L44. t2tA6. t2t94, 12200. 12209.12215. L22L7.12243. t2260. t2262. L228A. t2342. L2350. 12477. L2432. t2472. 12494. L2506. 12574. L2598. L262t. 1)'rrl) 1'r1aR 11-rin 1)Q11E 1) qo 1 ,t6E 1?R66 1 13n ? 1?6r e L3945. 14101. L4t7 4. 74207. 14350, L436L, 14390, L4392, L4397. Since, the issue involved in all they are heard together and are being COMMON ORDER the writ petitions is one and the same, 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 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 45S 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 rn question, failed to file financial statements or annual returns for a continuous period of three years, Therefore, the 2'. respondent passed the impugned order under Section 164(2) of the Act, djsquaiifying them as directors, and further making them ineligible to be re-appointed as directors of that company, or any other company, for a penod of five years from the date on which the respective companies faired to do so. The Director Identification Nurnbers (DINs) of the petitioners were also deactivated. Aggrieved by the same, the present wrlt petitions have been filed. 14409. 14582 ANp 14597 0F 2019 l 4. This court granted interim orders in the writ petitions directing the 2\"c responderrt to activate DINs of the petitioners, to enable them to function other than in strike off ccmpanies. 5. Heard the learned counsel appearing for the petil,ioners in all the writ petitions, Sri K.Lakslrman, learned Assistant Solicitor Gr:neral appearing for the respor'tdents - Union of India. 6. Learned counsel for the petitioners, contend that before passing the impugned order, notices have not been issued, giving them opportunity, and this amounts to violation of principles of natural justice, and on this ground alone, the impugned orders are llable to be set aside. 7. L,3arned counsel submits that Section 164(2)(a) of the Act empowers the authority to disqualify a person to be a director, provided he has not filed financial statements or annual returns of the company to which he is director, for any continuous period of three financial years. Learned counsel further submits that this provision came into force with effect from 1,4.2014, and prior thereto i.e., under Section 27qO)G) oF the Companies Act, 1956 (1 of 1956), which is the analogous provision, there was nc such requirement for the directors of the private companies. They contend that this provision under Act 18 of 2013, will have prospective operation and hence, if tlre directors of company fail to comply with the requirernents mentioned in the said provision subsequent to the said date, the authority under the Act, is within its jurisdiction to disqualify them. But in the present cases, the 2nd respondent, taking the period prior to 1.4.20!t+, i.e., giving the provision retrospective effect, disqualified the petitioners as directors, which is illega I and arbitrary. B. With regard to deactivation of DINs, learned counse for the petitioners subrrrit that tre DINs, as col''ltemplated under Ilule 2(d) of the Compan es (,{ppointrnent and Qualifi(:al.ion of Directors), Itu es, 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 mentloned in clauses (a) to (f) under Rule 11 of the Rules, and the said grounds does not provide for deactivation for having become ineligible for appointment as Directors of the company under Section 164 of the Act. Learned counsel further submits that as against the deactivation, no appeal is provided under the Rules, and appeal to the Tribunal under Section 252 of the Act is provided only against the dissolution of the company under Section 248 of the Act. 9. Learned counsel further submits that 1't respondent - Government of India represented by the t 4inistry of Corporate Affairs, has floated a scheme dated 29.72.2017 viz., Condonation of Delay Scheme - 2Arc, wherein the directors, whose DINs have been deactivated by the 2\"' respondent/ allows the DINs of the Directors to be actlvated. 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 Oiru 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 operatlon/ 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 { oF three financial years, automatically entail thelr disqualificatron under Section 164(2)(a) of the Act and the statute does not provide for issuance of any notice, Hence, the petitioners, who have failed lo comply with the statutory requirement under Section 164 of the Act, cannot compl;rin of violation of principles of natural justice, a:; it is a deenting provision. Learned counsel furtirer submits that the petitioners have altern.)tlve remeCy of appeai under Section 252 of the Act, and hence writ petitions may not be entertained. 12. lr-o consider the contention of the learned Assistant Solicitor General with regard to alternative remedy Act, the said provision is required to extracted as under for better appreciation: of appeal under Section 252 of the be considered, and the sarne is 252. Appeal to Tribunal: (1) Any person aggrieved by an order of the Registrar, notifying a company as dissolved under Sectjon 248, may file an appeal to the Tribunal within a period oi three years from the date of the order of the Registrar and if the Tribunal is of the opinion that the removal of the name of the company from the register of cornpanies is not Justified rn view of the absence oF any of the grounds on which the order wils passed by :he F.egistrar, it may order restoration of the nam€, of the .ompany in the registcr of:ompanies; Provided that beFore pass ng an order under this section, th,: Tnbunal shill grve a reasonable opportunrty oF making representatrons ancl of being heard to the Registrar, the company and all the p,3rsons concernedi Provide,l further that if the Registrar s satisfied, that the name of the company has been struck off from the register of companies either rnadvertently or on basis ol'incorrect informaton furnished by the company or its clirectors, which requ res restoraton in the register of companies, he may lvrthin a penod of three years from the ciate of pass ng of the order dissolvlng the company under Sectron 248, file an applrcatron beFore tl're Tribunai seek ng restoratron of name of su(:h company. (2) A copy of the order passed by the Tribunal shall t,e filed by the cDrnpany with the Reg st.ar with n thirty days from the date of the order and on recerpt of the order, the Reg slrar sl'rall cause the name of the company to be restored in the register of :onrpanres and shall issue a fresh cert ficate of inccrrporation. (3) If a company, or any member or creditor or lvorker therecf feels aggrleved by the company having its name struck off from the register of companies, the l'r bunal or an application made by the company, member, credit,lr or workman before the expiry of twenty years from the publication in the Official Gazette of the notice under sub-section (5) of Section 248, if satisfied that the company was, at the time of its name being struck off, carrying on business or in operalion or otherwise it is just that the name of the company be restored to the register of con]llanies, order the nante of the company to be restored to the register oF companies, and the Tribunal may, by the order, give such other directions and make such provrsions as deemed lust for placing the company and all other persons in the same position as nearly as may be as iF the name oF the company has not been strucl.r oFf from the register of companies. 5 A reading of above provision goes to show that if the company is dissolved under Section 248 of the Act, any person aggrieved by the same, can file an appeal. Thus the said provision provides the forum for redressal against the dissolution and striking off the company from the register of companies. It does not deal with the disquallfication of the directors, and deactlvation 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 rejection. 13. Under Section 164(2)(a) of the Act, if the Director of a company fails to file financial statements or annual returns for any continuous period of three financial years, he shall not be eligible to be re-appointed as a director of that company or appointed in other company for a period of five years from the date on which the said company fails to do so. The said provision under the Act 1B of 2013, came into force with effect from 07.04.2014, and the petitioners are disqualified as directors under the said provlsion, At thls stage, the issue that arises for consideration is - whether the disqualification envisaged under Section L64(2)(a) of the Act, which provision came into force with effecl from 07.04.2014, 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 Sectron l6a(2)(a) of the Act, has to be calculated, to hold the director of the company liable? In this regard, the learned counsel brought to the notice of this Court, the General Circular No.0B/14 dated 4.4.2014 issued by the Ministry oF Corporation affairs, which clartfies the applicability of the relevant financial years. The relevant portion of the said circular is as u n der: \"A number of provisions of the Companies Act, 2013 inctuding those relating to majntenance of books of account, preparation, adoption and filtng of financial statements (and documents required to be attached thereto), Auditors reports and the Board of Directors report (Board's report) have been brought lnto force with 6 effect from 1st April, 201.4. Provisions of Schedule II (useful lives to compute depreciation) and Schedule III (format of financial statements) have also been brought into force from that date. The relevant Rules pertaining to these provisiolrs have also been notified, placed on the website of the l4inistry and have come into force from ;he same date. The Ministry has received requests for clarification with regard to the -elevant financial years !^,ith effect from which such provisions of tl'te new Act rel,3tinq to marntenanc:e of books of account, preparation, adoption and filing of I'inanc al statements (and attachments thereto), auditors report and Board'si report will be applicable. Althouglr th€ poston Ir lhis behalf is cluite c ear, to make things ]bsolutely ciear rt is hereb,/ notlfed that the frnancial statements (and documents required to l)e attached tireretro), auditors report and Board's report rn respect of financi,rl years that conlmenced earlier Ihan 1si April shal be gove \"ned by the relevant provisions/schedules/rules of the Companies Act, 1956 and that rn respect of Financra years commencing on or after lstApril, 2014, the provisions of the new Act A reading of the above circular makes it clear the financial statements and the documents required t.o be attached thereto, auditors report and Board's report rn respect of financlal years that commenced earlier than O.1.04.2074, shall be governed by the provisions under the Companies Act, 1956 and in respect of financial years commencing on or after 01.04.2014, the provisions of the new Act shall apply. L4. lit this stage it is required to be noticed that the analogous provision to :;ection 164(2)(a) of the Act 18 of 2013, ls Secl:ion 2)'a(l)(g) of Act 1 of 1956;. The said provision under Acl 1 of 1956 is extracted as under for ready reft:rence: Sectio! 274(11 A person shall not be capable of being appointed director of a company, iF - (g) such person is already a director of a Dublic company !/hich, - {A) has not Frled the annual accounts and annual teturns Fcr arry conlinuous three financial years commerlclng on and aFter tle frrst day oF April, 1999; or (B) Provided that such person sha I 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, n which he is a director, failed to file annual accounts and annual returns under sub-clause (A) or has failed to repay its deposits or interesl: or redeem its debentures on due date or pay dividend referred to in clause (B). A reading of the above provlsion under Act 1 of 1956, makes it clear that if a person capable of being appointed director of a company and such person is already a director of a public conrpanyr which has not filed annu.rl accounts and annual returns for any continuous tlrree financial years commencing on and after the tirst day of April 1999, shall not be eligible to be appornted 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 ls a director, failed to file annual accounts and annuai returns. So the statutory requirement of filing annual accounts and annual returns, is placed on the directors of a 'public company'. There is no provision under the Act 1of 1956, which places similar obligations on the directors of a 'private company'. Therefore, non- filing of annual accounts and annual returns by the directors of the private company/ will not disqualify them as directors under the provisions of Act 1 of 1956. 15. Under Section 164(2) 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 eliglble for appointment as a director of a company, As already noted above, the said provision, came into force with effect from 07.04.2014. 16. Coming to the facts on hand, the 2nd respondent has disqualified the petitioners under Section 16a(2)(a) of the Act 1B 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 1B of 2013, retrospective effect, which is impermissible. 17, The Apex Court in COMMISSIONER OF INCOME TAX (CENTRAL)-L NEW DELHI v. VATIKA TOWNSHIP PRIVATE LIMITEDl has deait with the general principles concerning retrospectiv ity. The relevant portion of the judgment is thus: 27. A egislation, be it a statutory Act or a statutory Rule or a statutory Notification, may physically conststs of words printed on papers. However, 'i:or:;rscct s conceptua ly il is a great deal more than an ordinary prose. There is a special peculiarity in the mode of verbal communication by a legislation. A legislation is not just d series oF statements, such as one finds in a work of fiction/non fiction or even in a ludgrnent of a court of law. There is a technique required to draft a legislation as well as to understand a legislation. Former technique is known as leqislative draFtlng anl latter one is to be found in the various principles of'Interpretation of Statutes'. Vis-;-vis ordinary prose, a legisl.rtion differs in its provenance, lay-out and features as also ir'l the impllcation as to its meaning that arises by presumptions as to the rntent of the maker thereof. 28. Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not to be ltended to have a retrospective operation. The idea behind the rule is that a current la / should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in the law of today and in force and not tomorrow's backward adjustment of it. Our belief in the nature of the law js founded on the bed rock that every hun]an being is entitled to arrange hrs affairs by rely ng on the existing law and should not find that his plans have been retrospectively upset, This principie of law is known as lex prospicit non respicit : aw locks Forward not backward. As was observed in Phillips v:;, Eyre [(1870) l-R 6 QB 1], a retrospective legislalion ls contrary to the general principle that egrslaton b'/ which tlre conduct of manklnd is to be regulated , hen rnt-oduced for the firsl time to deal y/ith future acts ought not to change the character of past transactrcns calriecl on upon the faitlr of the lhen existing iaw. 29. Tl'r.: ollvlous basls of tl,e princip e against retrospectivity s the pr nc ple oF 'fairness', wh ch must be the basis of every legal rule as was observed in tlre decision r€ported n L'Off ce Cherifien des Phosphates v. Yama5hita-Shinnlhon Steamship Co. Ltd. [{1994) 1Ac 486]. Thus, legislations which mod fiecl accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain a former legislation. V1/e need not note that cornucopia of case law available on the subject because aForesaid legal positi,ln clearly emerges from the various decisions and this legal position was conceded by the counsel for the parties. In any case, we shall refer to few judgments containing this dicta, a little later. 30. We would also like to point out, for the sake of completeness, that where a benefit is conferred by a legislation, the rule against a retrospective construction is different. If a legislation confers a benefit on some persons but without inflicting a correspondinq cletriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators object, then the presumption would be that such a legislation, 9ivin9 it a purposive construction, would warrant it to be given a retrospective effect. This exactly is the justification to treat proc€dural provisions as retrospective. In Government of India & Ors. v. Indian Tobacco Association, [(2005) 7 SCC 395], the doctrine of fairness was held to be relevant factor to construe a statute conferring a benefit, in the context of it to be given a retrosDect ve operation. 'l-he same doctrine oF fairness, to hold that a statute u/a; relrospective in nature, was applied in the cas€r of Vi.lay v. State of lvlaharashtra & Ors., [(2006) 6 SCC 289]. It lvas held that where a law rs enacted fcr the befefrl of commur]rty as a whole, even rn the absence of 3 provr:ion the statLrte nra y l)e held to be relrospective 11 nature. However, we are (s/c nct) confronted willr anV sLich srtual on here. 31. In such cases, retrospectivity is attached to benefrt the persons in contradistrnctron to the provision rmposing some burden or lrability where the presumptrcn attached towards prospectivity. In the instant case, the provis,l added to SectLon 113 of the Act is not beneficial to the assessee. On the contrarY, it is a provision !/hrch is onerous to the assessee. Therefore, ln a case lik,: th s, lve have to proceed wrth the norn.ral rule oF presunlption against retrospective operation. Thus, the fule a(rainst retrospective operation is a Fundamental rule of law that no statute shall be construed to have a r(:trospedatve operation unless such a constructron appears very clearly tn the terms of the Act, or arlses by necessary arld distrnct implicalion. Dognratically framed, tlre ru e rs no more than a presumptlon, and thus could b,: displaced by out weighing factors. 43. There s vet anotlter very nterest ng piece of evl(ir:nce thi)t clar Fres lhat provrson beyorLCi ary pale of doubt viz., the understandinq of CBDT itself r€garding thLs provrsron. It is contaLned rn CBDT Circu ar No.B of 2002 dated :17.8.2002, $/ilh the sublect \"Finance Act, 2002 - Explanatory Notes on provrsion relating t,l Direct Taxes\". 'fhis circular has lleen issued after the passing of the Finance Act, 2002, i:y which amendment to section 113 was made. ln this circular, various amendments to the lncc,me tax Act are discussed amply demonstrating as to which amendments are clarificatory/retrospective in operation and which amendments are prospective, 9 For examp e, ExpLanation to sect on 158-BB is stated to be clarlficatory in nalure. Likewise, it is mentioned that amendments in Section 145 whereby provisions oF that section are made applicable to block assessments is made clarificatory and wou d take effect retrospectively from 1't day of July, 1995 When it comes to amendment to Section 113 of the Act, this very circu ar provides that the sard amendment along with the amendments in Secton 158-BE, !'!ouid be prospective i.e., !rill take effect from 1,.6.2042.\" 18. Thus, the Apex Court in the above judgment, has made it clear that unless a contrary intention appears, a legislation has to be presumed to have prospective effect. A reading of Section 164 of the Act does not show that the legislation has any intention, to make the said provision applicable to past transactions. Further, the Apex Court in the above judgment at paragraph No.43, found that the circular issued by the authority after passing of the legislation, clarifying the position with regard to applicability of the provisions, has to be construed as an important piece of evidence, as it would clarify the provision beyond any pale of doubt. In the present case, as already noted above, the f 4inistry of Corporation affairs has issued the crrcular No.08/2014 daled 4.4.2014 clarifying that financial statements commencing after 01.04.2014, shall be governed by Act 18 of 2013 i.e., ner/ Act and in respect of financial years commencing eariier to 01.04.2014, sha l be governed by Act 1 of 1956. At the cost of repetition, since in the present casesi as the 2\"' respondent / competent authority, has disqualified the petitioners as directors under Section 164(2)(a) of the Act 1B of 2013, by considering the period prior to 01.O4.2074, 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 financial years would be for the years ending 31.03.2016 and 31.03.2017. The annual returns and financial statements are to be filed with Registrar of Companies only after the conclusion of the annual general meeting of the company, and as per the first l0 proviso to Section 96(1) of the Act, annual general meeting for the year ending 31,0i3.2017, can be held within six months from the closing of financial year i.e., by 30.09.2017. Further, the time limit for filing annual returns under Section 92(4) of the Act, is 60 days from annual general meeting, or the last date on which annual general meeting ought to have been held with normal fee, and within 270 days with additional fee as per the proviso to Section 403 of the Act. Learned counsei submit that if the said dates are calculated, the last date for filing the annual returns would be 30.11.2011 , and lhe balance sheet was to be filed on :i0.10.2017 with norrnal fee and with additional fee, the last date for filing arnnual returns is 21 .07.2018. in other words, the disquallfication could gel triggered only on or after 27.07.2078. But the period considered by the 2\"0 rl3spondent in the present writ petitions for clothlng the petitioners with disqualification, pertains prior to 0L04.2014. Therefore, when the omission, wlrich is; now pointed out, was not errvisaged as a ground for disqualification prior to 1.4.2014, th3 pr:titioners cannot be disqualified on the said ground. This analogy is traceable to Article 2O(1) r:f the Constitution of Indla, which states that \"/Vo person shall be convicted of any offence except for violation of a law in force at the time of the commission of the act charged as an offence, nor be subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the commission of the offence\". In view of the sanre, the ground on which the petitioners were disqualified, cannot stand to legal scrutiny, anci the same is liable to be set aslde. 20. ,A learned Single Judge of the High Court of Karnataka in YASHODHAT A SHROFF vs, UN|ON OF )lNDIA2 considering Section 16zt(2)(a) of the Act and other provisions of the Act, and various judgrnenls, pass,3d an elaborate order and held that tlre said provision has no retrospective ope[ation. 'fhe observatiorrs oF the learned Judge, pertaining to r tv.l,.No.529tt cf20l7 and batch dared 12.06.2019 private companies, which are relevant for the present purpose, are extracted a5 under 208. 1n vrew of the aforesard drscussion, I have arrived at the followlng conclusrons: (a) lt s held that Section 164(2)(a) of the Act is not u/tra vlrus Article 14 of the Constitution. The said provision is not manifestly arbitrary and also does not fall within the scope ofthe doctrine of proportionality. Neither does the said provision violate Article 19(1)(q) of the Constitution as it is made in the interest ofgeneral public and a reasonable restriction on the exercise of the said ri9ht. The object and purpose of the said provision is to stipulate the consequence of a disqualification on account of the circumstances stated therein and the same ls in order to achieve probity, accountability, and transparency in corporate 9OVernance. (b) That Article (slc) Section 164(2) of the Act applies by operation of law on the basis of the circumstances stated therein, the sajd provision does not envisage any hearing, neither pre-disqualiflcation nor post-disqualification and this is not n violation of the principles of natural justice, is not ultra vires Article 14 of the Constitution. (d) (e) Insofar as the private companies are concerned, d squaliflcat on on account of the crrcumstances stated under Section 164(2)(a) of the Act has been brought rnto force for the first time under the Act and the consequences of disqualificat on could not have been imposed on directors of private companles by taktng into consideratron any period prior to 01.04.2014 for the purpose oF reckonrng continuous period of three financial years under the sa d provision. The sa d conclusion is based on the principai drawn by way ofanalogy from Article 20(1) oF the Constitution, as at no point of time prior to the enforcement of the Act, a drsqualification based on the circumstances under Sectron 164(2) af the Act was ever envisaged under the 1956 Act vis-a-vis dlrectors of private companies, Such a disqualificatlon could visit a director of only a public company under Sectron 274(l)(g) of 1956 Act and neveT a director of a private company. Such disqualification of the petitioners who are directors of private companies is hence quashed. t1 (r) I r Special Civil Applicalion No.22435 ol'20it'7 andbarchdarecl t8.12 2018 (g) Consequently, where the disquaiification under Sectlon 164(2) of the Act is based on a continuous period of three financial years commencing from 01.04.2014, wherein fjnancial statements or annual returns have not been filed by a public or prlvate company, the directors of such a company stand disqualified and the consequences of the said disqualification would apply to them under the Act. 21. A learned Single of the High Court of Gujarat at Ahmedabad in GAURANG BALVANTLAL SHAH S/O BALVANTLAL SHAH vs, UNION OF INDIA3 expressed s milar view as that of the leaned single Judge of High Court of Karnataka (1 supra), and held that Section 764(2) of the Act of 2013, which had come into force with effect ftara 1.4.2014 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 (c) That Section 164(2) of the Act does not have rerospective operation and s therefore, neither unreasonable nor arbitrary, in view of the rnterpretation placed on the sa me. )) annLral returns fo: any continuous perioci of three financial years would be the default to be counted from the firrancial year 2014-15 onlv and not 2073-L4. 22. A learned single Judge of the Fligh Court of N4adras in BTIAGAVAN DAS DHANANJAYA DAS vs. I,NION OF INDIA4 also expressed similar view. The re evant portion is as under: 29. In fine, (a) When the New Act 2013 came into efFect from 1.4.2014, the second re:rpondent herein has wrongly given r€)trospective effect and erroneously disqualified the petitioner - directors from h.1.2016 itself before the deadline commenced wrongly fixing the first financlal year from t,4.20f3 to 31.3,2014. (b) Bv virtue of the new Section 164(2)(a) of the 2013 Act using the e)(pression 'for any continLrous period of three financial year\" and in the iight ofsection 2(41) defining \"financiai year\" as lvell as their own General circular No.08/14 dated 4.4.2014, the first financial year would be from 1.4.2014 to 31.3.2015, th13 secor'ld firrancial year would be from 1.4.20:15 to 31.3.2016 and the third firrancial year would be from 1.4.2016 to 31.3.2017, wtrereas the second respondent clearly admitted in paras 15 and 22 of the counter affidavit tlrat the default of filing statutory returns for the final years commences from 2013-14, 20!4-J,5 and 2015-16 i.e, one year before the Act 2013 came into force. This is; the basic incurable legal infirmity that vitiates the entire impugned p roceed ings. 23, In vi€lw of the above facts and circumstances and the judgments referred to supra, as the impugned orders in present writ petltions disqualifying the petitloners as dlrectors under Section 16a(2)(a) r:f the Act, have been passed considering the period prior to 11.04'2014, the same cErnnot be sustained, and are llablr: to be set aside to that extent. 24. , s fa' as the contention regarding issuance of prior notice before disqualifying the petitioners as directors is concerned, Section 164(2)(a) is required to be noticed, and the same is extracted as tlnder for ready reference: :[64, Disqualification for appointtnent of director: 'w.P.No.2545,s c'f 2017 and batch dated 27.07.2018 1,1 (2) No person who is or has been a director oF a company whlch- (a) has not filed financial statements oT annual returns for any contrnuous period of three financial years; or (b) , . Shall be eligible to be re-appointed as a director of that company or appointed in other companies for a period of five years from the date on which the said company fails to do so. A reading of the above provision makes it clear that it provides disqualification on happening of an event i.e., if a person who is or has been a director of a company has not filed financial statements or annual returns for any continuous period of three financial years, shall be ineligible to be re- appointed as a director of that company or appointed in any other company for a period of five years from the date on which the said company fails to do so. The provision does not provide for issuance of any prior notice or hearing. A learned single Judge of the High Court of Karnataka in Yashodara Shroff v. Union of India (l supra), as well as the learned single Judge ofthe High Court of Gujarat at Ahmedabad in Gaurang Balvantlal Shah s/o Balvantlal Shah vs. Union of India (2 supra), after analyzing various provisions of the Act and Rules framed thereunder, and by relying on various judgments of the Apex Court, held that Section 16a(2)(a) of the Act applies by operation of law on the basls of the circumstances stated therein, the said provision does not envisage any hearing, neither pre-disqualification nor post-d isq u a lification and this is not in violation of the principles of natural justice and hence, is not ultra vires Article 14 of the Constitution. I concur with the sa id reasoning. 25. Thus, from the above, is a deeming provision and the it is clear that Section fta(2)(a) of the Act disqualification envjsaged 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 disqualification even before it incurred, and deactivated DINs, which is illegal arbitrary and against provisions contained in Section 164(2)(a) of the Act. j.1 ia) 26. The next grievance of the petitioners is wrth regard to dr:activation of their DINs. The contention 01' the learned counsel for the petitioners is that except for the grounds mentioned under Rule 11 (a) to (f) of the llules, the DiNs cannot be cancelled or deactivated, and the violation mentioned under Section 164(2)(a) of the Act, is not one of the grounds mentioned under clauses (a) to (f) of Rule 11, and hence for the alleged violation under Section 164(2)(a) of the Act, DIN cannot be cancelled. 27. Rule 10 of the Rules provide for allotment of DIN and under sub rule (6) of Rule 10, it is allotted for life time. Rule 11 provides for cancellation or deactivalion. Rule 11, which is relevant for the present purpose/ is exlracled as under for ready reference; 11. Cancellatiorl or surrender or deactivation of DIN: The Centra Governrnent or F,egional Director (l orthern Flegion), Noida or any officer authoriz,ld by the Reqrional Director rnay, upon being satlsfied on verificatlon c,f part culars or documentary p-cof attached w th the applrcaron received from any p,:rson, cancel or deactrvate the D;N in case - lhe DIN is foLrnd to be duplicated in respect of the same person provid,3d the data related to both the DIN shall be merged !vith the validly ietained number; the DIN was obtained in a wrongful manneT or by fraudulent means; of the death of the concerned individual; the concerned individual has been declared as a person of unsound mind by a competent Court; if the concerned individual has been adjudicated an insolvent; Provided that before cancellation or deactivation of DIN pursuant to clause (b), an opportunity of being heard shall be given to the concerned individual; on an app ication made in Form DIR-s by the DIN holder to surrender his or her DIN along with declaration that he has never been appointed as director in any company and the said DIN has never been used for filing of any docum,3nt with any authority, the Central Government may deactivate such DIN; Prc,vided that before deactivation of any DIN in such ca:;e, the Central Government shall verify e' records. Explanat oni for the purposes of clause (b) - The terms \"u,/rongful manner\" means rf the DIN is obtained on tlre strength of doclrments which are not legally valid or incomplete documents are furnisl'red lr on suppression of material information or on the basis of wrol'lg certification or by making misleading or false informat on or lly miSrel)resentation; (ii) the ternr \"Fraudu ent means\" means if lhe DIN is obtained with an irtent to decerve any other person or any authority includinq the (lentral Government. 28. Clauses (a) to (f) of Rule 1:1, extracted above, provicles for the circumstances under which the DIN can be cancelled or deactivated. The said groun,Cs, are different from the ground envisaged under (b) (c) (d) (e) ir) l,) l5 Section 164(2)(a) of the Act. Therefore, for fhe alleged violation under Section 164 of the Act, DINs cannot be cancelled or deactivated, except in accordance with Rule 11 of the Rules. 29, Learned Single Judge of the Gujarat High Court in the decision cited 2 supra, held as under: \"29. This takes the Court to the next question as to whether the respondents could have deactivated the DINS of the petltioner as a consequence of the impugned list? In this regard, it ll/ould be appropriate to refer to the relevant provisions contained in the Act and the said Rules. Sect,on 153(3) provides that no person shall be appointed as a Director of a company, unless he has been allotted the Director Identification Number under Section 154. Section 153 requires every individual ntending to be appointed as Director of a Company to make an application for allotment of DIN to the central Government in such form and manner as may be prescribed. Section 154 States that the Central GoveTnment shall within one month from the receipt of the application under Section 153 allot a DIN to an applicant in such manner as may be prescribed. Section 155 prohlblts any indrvldual, who has already been ailotted a DIN under Section 154 from applying for or oblaining or possessrng another DlN. Rules 9 and 10 of the said Rules of 2014 prescrlbe the procedure for makrng application for allolment and for the allotment of DIN, and further provide that the DIN allotted by the Central Government under the sa d Rules would be valid for the life time ofthe app icant and shal not be allotted to any other person. 30, Rule 11 provides for cancellation or surrender or deactivatron of DIN. Accordingly, the Centrai Government or Regional D rector or any authorized offlcer 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 mentjoned in Clause (a) to (f) thereof. The said Rule 11 does not contemplate any suo matu powers either with the Central Government or with the authorized officer or Regional Director to cancel or deactivate the DIN allotted to the Dlrector, nor any of the clauses mentioned in the said Rules contemplates cancellation or deactivat on of DIN of the Director of the \"struck off company\" or of the Director having become inel gible under Section 164 of the said Act. The reason appears to be that once an individual, who is intending to be the Director of a particular company is allotted DIN by the Central Government, such DIN would be valid for the life time of the applicant and on the basis of such DIN he could become Director in other companies also. Hence, if one of the companies in which he 4as 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 whtch the DIN could be cancelled or deactivated. 31. In that view of the matter, the Court is of the opinion that the action of the respondents in deactlvating the DINS of the petjtioners - Directors along with the publication of the impugned list of Directors of \"struck off\" companies under Section 248, also was not iegally tenable. Of course, as per Rule 12 oF the sard Rules, the individual who has been atiotted the DIN, in the event of any change in his particulars stated in Form DIR -3 has to intimate such chanqe to the Cenlral Government withln the prescribed 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 provisions contained rn the said Rules.\" 30. In view of the above facts and circumstances and the judgment referred to supra, the deactivation of the DINs of the petitioners for alleged violations under Section 164 of the Act, cannot be sustarned. l() 31. For the foregoing reasons, the impugned oroers in the writ petilions tc, the extent of disqualifylng the petjitioners Under Section 164(2)(a) of the Act and deactivation of their DINs, are set aside, and the 2'd respondent is directed to activate the DINs of the petitioners, enabling theri to function as Directors otl'rer than in strike off companies,. 32. i:t is made clear that this order will not preclude the 2\"d respondent from taking appropriate action in accordance with law for violations as envisaged under Section 16a(2) of the Act, givinci the said provision prospective effect from 07.O4.2014 and for necessary action against DIN in case of violations of Rule 1.1 of the Rules. 33. It is also made clear that if the petitioners are aggrieved by the action of the respondents in striking off their companies under Section 248 of the Act, they are at iberty to avail alternative remedy under Section 252 of the Act. 34. / :he writ petitions are accordingiy allowecj to the €rxtenl indicated a bove 35. Interlocutory applications pending, if any, shall sland closed No ord er as to costs. A.RAJASHEKER REDDY,J DATE: 18-07-2019 AVS "