Sri Dhaassyam Tharun Bhascker V. Union of India

WP/20620/2021

AI Insights

The case involved a petition under Article 226 of the Constitution of India, where the petitioners, directors of private companies, challenged the deactivation of their DINs and their disqualification as directors. The disqualification was based on their failure to file financial statements or annual returns for three consecutive years, as per Section 164(2)(a) of the Companies Act, 2013. This provision came into effect on April 1, 2014, but the respondents applied it retrospectively, considering periods prior to this date. The petitioners argued that this retrospective application was illegal and violated principles of natural justice. The court agreed, referencing a circular from the Ministry of Corporate Affairs and various precedents that supported the prospective application of the law.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 721639 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 01-09-2021
• Assessment Year: misc
• Other Referred Cases: COMMISSIONER OF INCOME TAX (CENTRAL).I, NEW DELHI V. VATIKA TOWNSHIP PRIVATE LIMITED, YASHODHARA SHROFF vs. UNION OF INDIA, GAURAN BALVANTLAL SHAH vs. UNION OF INDIA, BHAGAVANDAS 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: G SUMATHI
• Keywords: Deactivation; Director Identification Number; Disqualification; Natural Justice; Writ of Mandamus
• Section: 151; 226; 248; 252; 164(2)(a)

Judgement Text

"Between: AND HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD (Special Original Jurisdiction) WEDNESDAY, THE FIRST DAY OF SEPTEIV1BER TWO THOUSAND AND TWENTY ONE PRESENT THE HONOURABLE SRI JUSTICE ABHINAND KUMAR SHAVILI The Court made the following: ORDER S,ri Dhaassyam Tharun Bhasck-er, S/o Sri Dhaassyam Geetha ahascker, Aged about 33 years. Rio-B--2 -703l4tBl1A, Ground Flooi, and Servant Ouirteis, -SJ Enclave, Road No 12, ^Banjarahills, Near Genx Hotel, KhairataUaO, HVAerdOja, I elangana state -500034. ...PETITIONER Union of lndia, Rep.by its the Ministry of Corporate Affairs, A Wing, Shastri Bhawan, Rajendra Prasad Road, New Delhj - 110 OO1, Represeni6d by its Secretary The Regis_lrarof Companies, (For.State of Teiangana), 2nd Floor, Corporate Bhawan, GSI Post, Tattiannarbm Nagole, Bandla-gudd, Hyderaba'd - sbo 06S. 1 2 ...RESPONDENTS Petition under Article 226 of the Constitution of lndia praying that in the circumstances stated in the affidavit filed therewith, the High Court may be pleased to pass an order or direction or any other proceedings one in the nature of Writ of Mandamus declaring the action of respondents in deactivating the petitioner Dtrector ldentification Number 03041 187 and restricting the petitioners from filing statutory returns, i.e., the annual returns and financial statements of the Companies in which they are Directors as arbitrary, illegal, without jurisdiction, contrary of the provisions of the Companies Act, 2013 and Rule 11 of the Companies (Appointment of Directors) Rules, 2014, violative of the principles of natural justice besides violating the petitioners rights guaranteed under Article 14 and Article 19 (1) (g) of the Constitution of lndia. lA NO: 1 OF 202'l 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 petitioner Director ldentification Number (DlN) 03041 .187 so as to enable him to submit pending annual returns and financial statements for the Company in which he is appointed as director. Counsel for the Petitioner : M/s. G. SUMATHI Counsel for the Respondents: SRI NAMAVARAPU RAJESHWARA RAO' ASST. SOLICITOR GENERAL WRIT PETITION NO: 20620 OF 2021 HON'BLE SRI JUSTICE ABHINAND KUMAR I}HAVILI W.P.No.20620 of 2021 ORDER: Boththelearnedcounselsubmittedthattheissut:raisedinthe present writ petition is squarely covered by the commc'n order dated 05.8.2021 passed by this Court in writ petition No'1 1434 of 2021 arrd batch. Therefore., the present writ petition may be clisposed of in terms of the said order. In view of the above submission, following the common order dated 05.8.2021 passed in W.P.No.11434 of 2021 and ratch and tbr reasons alike, this writ petition is also disposed of. No c,lsts As a sequel, the miscellaneous petitions pendinl;, if any, shall stand closed. SD/. N.CHANDRA SEKHAR RAO ASSISTANT REGISTRAR //TRUE COPY// SECTION OFFICER 1. The Secretary, Union of lndia, Ministry of Corporate Affairs', A Wing, Shastri Bhawan, Rajendra Prasad Road, New Delhi - 110 001. 2. The Registrar of Companies, (For State of Teiangana), 2nc Floor, Corporate Bhawan, GSI Post, Tattiannaram Nagole, Bandlaguda, Hytlerabad - 500 068. 3. One CC to M/s. G. Sumathi, Advocate IOPUC] 4. One CC to Sri Namavarapu Rajeshwara.Rao, Asst. Solicitc r General, Advocate loPUCl 5. Two CD Copies 6. One Spare Copy (A long with a copy of order dt:051812021in W.P.No.11434 ol202l and Batch) To, sm {r{} HIGH COURT DATED:01/09/2021 ORDER WP.No.20620 of 2021 DISPOSING OF THE WP WITHOUT COSTS a 1nES14 o tJ 15 SEP202| * DJ. TCi.i c-o * 5 t , e HON'BLE SRI JUSTICE ABHINAND KUMAR SHAVILI COMMON ORDER 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 someofthemhavebeenstruckofffromtheregisterofcompanies under Section 248(1)( c ) of the Act, for not carrying on any business operation for the specified period mentioned in the said provision' and for not making any application within the specified period' for obtaining the status of a dormant company under Section 455 of the 3. The petitioners, who were directors of the struck off companies, and. who are presently directors of actlve companies' during the relevant period in question, failed to file financial statements or annual returns for a continuous period of three years' Therefore, the 2nd respondent passed the impugned order under Section 164(2) of the Act, disqualifying them asdirectors' and further making them lneligible to be re-appointed as directors of that companyr or any other company, for a period of five years from the date on which the respective companies failed to do so' The Director Identification Numbers (DINS) of the petitioners were also I W.P.Nos. 11434. 11941.12240. 13780. 14963. 14992' 15139' 15856 & 16161of202l Act. 2 deactivated. Aggrieved by the same, the present writ petitions have been filed. 4. This court granted interim orders in the writ petitions directing the 2nd respondent to activate DINs of the petitioners, to enable them to functionother than in strike off compani(:s. 5. Heard the learned counsel appearing for :he petitioners in all the writ petitions, Sri Namavarapu Rajeswara Rao, learned Assistant Solicitor General for the respondents - Union rrf 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 ol principles of natural justice, and on this ground alone, the impugred orders are liable to be set aside. 7. Learned counsel submits that Section 1€,4(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 Freriod 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 27C(l)(S) of the Companies Act, 195( (1 of 1956), which is the analogous provision, there was no such rr:quirement for the directors of the private companies. They contend that this provision under Act 18 of 2013, will have prospective operation and hence, if the directors of company fail to corr ply with the requirements mentioned in the said provision subsequr:nt to the said date, the authority under the Act, is within its jurisdiction to disqualify them. But in the present cases, the 2nd respondent, talling the period prior to 1.4.2014, i.e., giving the provision retrospective effect, disqualified the petitioners as directors, whichis illegal and arbitrary. B. With regard to deactivation of DINs, learned counsel for the petitioners submit that the DINs, as contemplated under Rule 2(d) of the Companies (Appointment and Qualification of Directors), Rules, 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 appealis provided under the Rules, and appeal to the Tribunal under Section 252 of the Act is provided only against the dissolution of the company under Section 248 of the Act' 9. Learned counsel further submits that 1't respondent - Government of India represented by the Ministry of Corporate Affairs, has floated ascheme dated 29.t2.2O77 viz., Condonation of Delay Scheme - 2018, wherein the directors, whose DINs have been deactivated by the 2nd respondent, allows the DINs of the Directors to be activated. However, such scheme is not applicable to the companies which are struck off under Section 248(5) of the Act' In case of active companies, they can make application to National Company Law Tribunal under Section 252 of the Act, seeking for restoration, and the Tribunal can order for reactivation of DIN of such directors, whose DIN are deactivated. However, under Section 252 onlythe companies, which are carrying on the business, can approach the Tribunal and the companies, which have no business, cannot I approach the Tribunal for restoration. They submit tlat since the penal provision is given retrospective operation, de hors the above scheme, they are entitled to invoke the jurisdiction of this court under Article 226 of the Constitution of India. 10. With the above contentions, learned coursel sought to set aside the impugned orders and to allow the writ petitions. 11. On the other hand learned Assistant Solicitor General submits thatfailure to file financial statements or annual returns for any continuous period of three financial years, automatically entail their d isq ua lification under Section 16a(2)(a) of the Act and the statute does not provide for issuance of any notice. Hence, the petitioners, who have failed to comply with thestatutor'/ requirement under Section 164 of the Act, cannot complain 01' violation of principles of natural justice, as it is a deeming provision. Learned counsel further submits that the petitioners have alterrlative remedy ofappeal under Section 252 of the Act, and hence writ petitions may not be entertained. 72. To consider the contention of the leatned Assistant Solicitor General with regard to alternative remedy of appeal under Section 252 of theAct, the said provision is required to )e considered, and the same is extracted as under for better appreciation: 252. Appeal to Tribunal: (1) Any person aggrieved by an order of lhe Registrar, notifying a company as dissolved under Sect.on 248, may file an appeal to the Tribunal within a period of 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 companiesis not justifiec in view of the absence of any of the grounds on which the onler was passed by the Registrar, it may order restoration af he name of the company in the register of companies; Provided that before passing an order under lhis section, the Tribunal shall give a reasonable oppoftunity oF making representations and of being heard to the Regis1 ar, the companY and all the persons concerned: Provided further that iF the Registrar is satisfied' that the name of the companY has been struck off from the register of companies either inadvertentlY or on basis of iniorrect information furnished by the company or its directors, which requires restoration in the register of companies, he may within a period of three Years from the iiti or pissinq oi the order dissolving the companY under section 248, file an application before the Tribunal seekinq restoration of name of such companY. (2) A copy of the order passed bY the.Tribunal shall be Filed bY the companywith the Registrar within thirty days from the date of the order and on receipt of the order' the aigistrar shall cause the name of the company to be reitored in the register of companies and shall issue a fresh certi ficate of i nco rPoratio n. (3) If a companY, or any member or creditor or worker'tiereof feels aggrieved bY the companY having its name struck off from the register of companies' the Tribunal or an application made by the company' member' ,iriditoro, workman before the expiry of twenty years from lni iuatication in the officiat Gazette of the notice under sub-lsection (5) of section 248, if satisfied that--the company iis, at tne ti'me of its name being struck off' carrying on business or in operation or otherwise it is just that the name ii tn\" ,r*prny be restored to the register of companies' order the name of the company to be restored to the .register -o,t-io.,prni\"t, and the Tribunal may, by the order' give such itier directions and make such provisions as deemed just for placing the company and all other persons in the -same iotitiirr'ut nearlY as maY be as if the .name .o.f the 'ri.pury has not been struck off from the register of comPanies, 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 samer 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 d isqua lification of the directors, and deactivation of their DINs' In the present case, the petitioners are only aggrieved by their disqua lification as directors and deactivation of DINS' but not about striking off companies as such' Hence, Section 252 of the Act' cannot be an alternative remedy for seeking that relief' and the contention of thelearnedAssistantSolicitorGeneral,inthisregard,meritSfor rejection. 6 13. Under Section 164(2)(a) of the Act, if the Director of a company fails to file financial statements or annual r,:turns for any continuous periodof three financial years, he shall nor 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 /vhich the said company fails to do so. The said provision under the Act 1g of 2013, came into force with effect from 01,.04.2014, and the petitioners are disqualified as directors under the said provision. At t:his stage, the issue that arises for consideration is - whether the I isqua lification envisaged under Section 164(2)(a) of the Act, which grrovision came into force with efFect from 01.04.20L4, can be made ;rpplicable with prospective effect, or has to be given retrospective ope,-ation?In other words, the issue would be, from which financial ye.rr, the default envisaged under Section rcaQ)@) of the Act, has to b() calculated, to hold the director of the company liable? In this regard, the learned counsel brought to the notice of this Court, the Gr:neral Circular No.08/14 dated 4.4.2074 issued by the Ministry of Corporation affairs, which clarifies the applicability of the relevant linancial years. The relevant portion of the said circular is as under: \"A number of provisions of the Companies Act, ;1013 including those relating to maintenance oF books of acc(,unt, preparation, adoption and filing of financial statements ,and documents required to be attached thereto), Auditors reports and the Board of Directors report (Board,s report) ,Bve been brought into force with effect from lst April, 2014. provisions of Schedule II (u;eful lives to compute depreciation) and Schedule III (formnt of financial statements) have also been brought into force ,rom that date. The relevant Rules pertaining to these provi:.ions have also been notified, placed on the website of the Ministry and have come into force from the same date. The Ministry has received requests for clarification with regard to the relevant financial years with effect from v hich such provisions of the new Act relatine to maintenance of books of account, preparation, adoption and filing of finarcial statements (and attachments thereto), auditors report and Board's report will be applicable. Although the position in this behatf is quite clear, to nake things absolutely clear it is hereby notified that the finarciat sfaterDents (and documents required to be atta:hed thereto), auditors report and Board's report in respect of // 7 ,/ financial yearsthat commenced earlier than lst April shall be governed by the relevant provisions/schedules/rules of the Comoanies Act, 1956 and that in respect of financial Years commencinq on or after l't April, 2014, the provisions of the new Act shall apPly.\" A reading of the above circutar makes it clear the financial statements and the documents required to be attached thereto, auditors report and Board's report in respect of financial years that commenced earlier than O:-.O4.2OL4, shall be governed by the provislons 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. 74. At this stage it is required to be noticed that the analogous provision to Section 164(2)(a) of the Act 18 of 2013, is Section 27c(l)(g) ofAct 1 of 1956. The said provision under Act 1 of 1956 is extracted as under for ready reference: Section 274(71 A person shalt not be capable ot being appointed director of acompanY, if' (g) such person is already a director of a public company which, has not filed the annual accounts and annual returns for any continuous three financial years commencing on and after thefirst daY of April, 1999) or (A) (B) Provided that such person shall not be eligible to be appointed as a director of anY other public company for a period of five years from the date on which such public company, in which he is a director, failed to file 'annual accounts and annual returns under sub-clause (A) or has failed to repay its deposits or interest or redeem its debentures on due date or pay dividend referred to in clause (B). A reading of the above provision under Act 1 of 1956, makes it clear that if a person capable of being appointed director of a company and such person is already a director of a public company, which has not filed annual accounts and annual returns for any continuous three financial years commencing on 8 and after the first day of April 1999, shall not be eligible to be appointed as a director of any other public company lor a period of five years from thedate on which such public company, in which he is a director, failed to file annual accounts and annual Ieturns. So the statutory requirement of filing annual accounts and anrlual returns, is placed on the directors of a'public company'. There is no provision under the Act 1of 1956, which places similar oblillations on the directors of a 'private company'. Therefore, non- fi ing of annual accounts and annual returns by the directors of the private company, will not disqualify them as directors under the provisions of Act 1of' 1956. 15. Under Section 164(2) ot the new legislation i.e., Act 18 of 2013, no such distinction between a 'private ccmpany' or a 'public company' is made and as per the said pro rision goes to show that no person who is orhas been a director c,f a 'company', fails to file financial statements or annual returns for :ny continuous period of three financial years, will not be eligible for appointment as a director of a company. As already noted above, the said provision, came into force with effect from 07.04.2014. 16. Coming to the Facts on hand, the 2nd tespondent has disqualified the petitioners under Section 16a(2)(a) o'the Act 18 of 2013, for not filing financial statements or annual rettlrns, for period prior to Ol.A4.2OL4. The action of the 2nd respondent runs contrary to the circular issued by the Ministry of the Corporate Aff;rirs, and he has given the provisions of Act 18 of20l3, retrospective :ffect, which is im perm issible. 9 17. The Apex Court in COMMISSIONER OF INCOME TAX (CENTRAL).I, NEW DELHI V. VATIKA TOWNSHIP PRIVATE LIMITEDT has dealt with the general principles concerning retrospectivity. The relevantportion of the judgment is thus: 27. A legislation, be tt a statutory Act or a s.tatutory Rule or 5 statutory Notificat@n, may pnystcatty consists of words printed on papers' 28. However, conceptually it is a great deal more tnJi rir-oiiiui prose. There is a speciat peculialtY in ti-\" iial ir iirbat communication bv a legislation' A iiidi,itii it nit jutt a series of statements' such. as iie finds in a work of fiction/non fiction or even tn a irii\"i\"it if a court of law There is a technique ','\"\"\"1,t,irii'ti ain u leqislation as well as to understand a 'ilitiioi. Firmer iechnique is known as legislative iirriiii \"ira lafter one E to be found in the various ;;;;;;;i\"; ;r rtii\",pr\"tation or statutes\" vis-e'vis 'ordinarv Drose, a legislation differs in its provenance' iii-rri \"iii.itrres'as atso in the implication as to its- ii\"iiing that arises bY presumptions as to the intent of the maker thereof. 29. Of the various rules guiding how a legislation has ,oiZ iniiror\"t\"a, one estiblished rule is that unless a Joiirui ,ri\"itioi appears, a tegislatlon is pre.sumednot ii oe iitenaea b have a retrospective operaton tne ii\"-u- aiuiiii tn\" rute is that a current law should govern 'i\"i\"i \"iuiiri\"t. Law passed today cannot apply to.the. ur\"iti ii tni putt. If we do something today' we lo it i\";:\";;; ; lie aw of todav and in rorce and not 'iirnorio*'t iui**rro adlustment of it our belief in the iatire of tne law is founded on the bed rock that every ni.r'i,an Ouing is entitled to arrange hts- alfairs by relv,n-q- on the exisiinq taw and should not hnd that hts p@ns niii L\"\"i- *ti*pectivelY upset This principle of law is. iirii ut lex prospictt non respicit : law looks forw-ard not backward As was observed in Phillips vs Lyre ii iilot tn 6 QB 11, a retospecttve legislation .is '.onttarv to the qeneral principle that legislaton DY iiniri it.,\"'ronarri of mankind ts to be regulated when iiiiairia ior the first time to deal with future acts ;;;;;-;;; ti chanse the character of past transac ons ,iiriia o, upon th; faith of the then existing law' 30.The obvious basis of the principle against ,.tiito\"iitirii 6 the principle of'fairness\" which must 'i\" iZ- iitii! oi \"r\"ry tegat rute as was obseNed in ii\"\" J\"iiiio, reported -in L'office cherifien des i'i.tiiitii v. Yamashita-shinnihon Steamship co Ltd' 'iil{siil'-i n iee1. rnus, tesistations which modiried LLriru.i rinntt or which impose obligations or impose. 'r\"*-iJtiii \"i \"it\"ch a new disabititY have to be.teate.d lt\"riiiiitir. intess the tegistative intent is clearlv to ZirZ ,iZ-iiui.\"nt a retoapective efrect; untess the ieoislation is for purpose of supplYing an obvious iirittiii in a former legislation or to explain a former iirttiiti\"i. we need n;t note that cornucopia of case. 'i1i'ZiJiiioi\"- o, the subject because aroresaid tegat 'i.titiii iiirtv- i.erges fim the various decisions and 'tnis tegat position was conceded bY the counsel for the | (zot s)t scct l0 parties. In any caset we shall refer to few judgments containing this dicta, a little later, 31. We would also like to point out, for the sake of completeness, that where a benefit is conferred by a legislation, the rule against a retrospective construction is different. If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generallyt and whereto confer such benefit appears to have been the legislators object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. This exactly is the justification to treat procedural provisions as retrospective. In Government of India & Ors. v. Indian Tobacco Association, [(2005) 7 SCC 396], the doctrine of fairness was held to be relevant factor to construe a statute conferring a benefit, in the context of it to be given a retrospective operation. The same doctrine of fairness, to hold that a statute was retrospective in nature, was applied in the case of Vijay v. State of Maharashtra A Ors., [(2006) 6 SCC 289]. It was held that where a law is enacted for the benefit of community as a whole, even in the absence of a provision the statute may be held to be retrospective in nature. However, we are (sic not) confronted with any such situation here. 32. In such cases/ retrospectivity is attached to benefit the persons in contradistinction to the provision imposing some burden or liability where the presumption attached towards prospectivity. In the instant caset the proviso added to Section 113 of the Act is not beneficial to the assessee. On the contrary, it is a provision which is onerous to the assessee. Therefore, in a case like this, we have to proceed with the normal rule of presumption against retrospective operation. Thus, the rule against retrospective operation is a fundamental rule of law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act, or arises by necessary and distinct implication. Dogmatically framed, the rule is no more than a presumption, and thus could be displaced by out weighing factors. 43. There is yet another very interesting piece of evidenc.e that clarifies that provision beyond any pale of doubt viz., the understanding of CBDT itself regarding this provision. It is contained in CBDT Circular No.8 of 2002 dated 27.8.2002, with the subject \"Finance Act, 2002 - Explanatory Notes on provision relating to Direct Taxes\". This circular has been issued after the passing of the Finance Act, 2002, by which amendment to section 113 was made. In this circular, various amendments to the Income tax Act are discussed amply demonstrating as to which amendments are clarificatory/retrospective in operation and which a me nd men ts a re p ros pecti ve, 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 ol that section are made applicable to block assessments is made clarificatory and would take effect retrospectively from l't 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.\" ti t, 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 topast 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, asalready noted above, the Ministry of Corporation affairs has issued thecircular No.08/2014 dated 4.4.2014 clarifying that financial statements commencing after 01.04.2014, shall be governed by Act 18 of 2013 i.e., new Act and in respect of financial years commencing earlier to 01.04.2014, shall be governed by Act 1 of 1956. At the cost of repetition, since in the present cases, as the 2nd respondent / competent authority, has disqualified the petitioners as directors under Section 164(2)(a) of the Act 18 of 2013, by considering the period prior to 01.04.2014, the same is contrary to the circular, and also contrary to the law laid down by Apex Court in the above referred judg ment. 19. If the said provislon is given prospective effect, as per the circulardated 4.4.2014 and the law laid down by the Apex Court, as stated in the writ affldavits, the first financial year would be from O1-04-2014 to 31.03.2015 and the second and third years financial years would be for the years ending 31'03.2016 and 31.03.2017. The annual returns and financial statements are to be filed with Registrar of Companies only after the conclusion of the annual general meeting t2 of the company, and as per the first proviso to Sectior 96(1) of the Act, annual general meeting for the year ending 31.03 2017, can be held within six months from the closing of financial year i.e., by 30.09.2O77. Further, the time limit for filing annual -eturns under Section 92@) of the Act, ls 60 days from annual gener,rl meeting, or the last date on which annual general meeting ought to have been held with normal fee, and within 27O days with additioral fee as per theproviso to Section 403 of the Act. Learned counsel submit that if the said dates are calculatedf the last date for filing the annual returns would be 30.11.2017, and the balance sheet was to be filed on 30.7O.2Ot7 withnormal fee and with additionirl fee, the last date for filing annual returns is 27.07.2018. In oth,lr words, the d isq ua lification could get triggered only on or after 27.O7.2OLa. But the period considered by the 2nd respondent in the present writ petitions for clothing the petitioners with disqualificr tion, pertains prior to 01.04.2014. Therefore, when the omission, which is now pointed out, was not envisaged as a ground for disque lification prior to L.4.2074, the petitioners cannot be disqualified on the said ground. This analogy is traceable to Article 20( 1) of the Constitution of India, which statesth at \"No person shall be convicted of any )ffence except for violation oi a lawin 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 i1 force at the time of the commission of the offence\". In view of the same, the ground on which the petitioners were disqualified, cE nnot stand to legal scrutiny, and the same is liable to be set aside. 20. A learned Single Judge of the High Court of Karnataka in YASHODHARA SHROFF ys. UNION OF l3 INDIA2 considering Section 164(2)(a) of the Act and other provisions of the Act, and various judgments, passed an elaborate order and held that the said provision has no retrospective operation' he observations of the learned Judge, pertaining to private companies, which are relevant for the present purpose, are extractedas under: 208. In view of the aforesaid discussion, I have arrived at the followi ng conclusions : (a) It is held that Section 164(2)(a) oF the Act is not ultra virus Article 14 of the Constitution. The said provision is not manifestly arbitrary and also does not Fall within the scope of the doctrine of propottionality. Neither does the said provisionviolate Afticle 19( 1)(9) of the Constitution as it is made in the interest of general public and a reasonable restriction on the exercise of the said right' The object and purpose of the said provision is to stipulate the consequence of a disqualification on account of the circumstances stated therein and the same is in order to achieve probitY, accountability, and transparencY in corporate governance. (b) That Article (sic) section 164(2) of the Act applies by operation of law on the basisof the circumstances stated therein, the said provision does not envisage any hearing, neither pre-disqualification nor post-disqualification and this is not in violation of the principles of natural justice, is not ultra vires Afticle 14 of the Constitution. (c) That Section 164(2) of the Act does not have retrospective operation and is therefore, neither unreasonable nor arbitrary, in view of the interpretation placed on the same. (d) .. (e) Insofar as the private companies are concerned, disquatification 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 disquatification coutd 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 principat drawn by way of analogy from Article 20( 1) of the Constitution, as at no point of time prior to the enForcement of the Act, a disqualification based on the circumstances under Section 164(2) of the Act was ever envisaged under the 1955 Act vis-e'vis directors of private companies. Such a disqualification could visit a director of only a pubtic company under Section 27a(1)(q) of 1956 Act and never a director of a private company. Such disqualification of the petitioners who are directors of private companies is hence quashed. (0 (g) Consequently, where the disqualification under Section 16aQ) of the Act is based on a continuous period of three financial years commencing from 01 04,2014, wherein financial statements or annual returns have not been filed by a public or private companh the directors oF such a 2 w.P.No.529l I ol20l7 and batch dated 12.06.2019 11 I t com.pany stand disqualified and the consequence:t of the said disqualification would apply to them unAer the Act. 2t. A learned Single of the High Court of Gujarat at Ahmedabad in oAURANo BALVANTLAL SHAH St/O BALVANTLAL SHAH vs. UNION OFfNDIAS expressed similar view as that of the leaned single Judge of High Court of Karnataka (1 suora), and held that section $aQ) of the Act of zor3, which had come into force with effect from 1.4.2014 would have prospect ve, and not retrospective effect and that the defaults contemplated under Section 164(2)(a) with regard to non-filing of financial statem,lnts or annual returns for any continuous period of three financial years wou ld bethe default to be counted from the financial year 2074_15 only and not 2013- 14. 22. A learned single Judge of the High Cour. of Madras in BHAGAVANDAS DHANANJAYA DAS vs. UNnON OF fNDIAa also expressed similar view. The relevant portion is as unde -: 29. In fine, _ (a) When the New Act 2013 came into effect from 1.4.2014, the second respondent- iu.iii i\", *.lonSry._ given retrospective effeci and \"r, o,n\"ouili otsquatttrcd the petitioner _ directors from 1.1.2016 itseif before the deadline commenced wrongty rixinj iie'nist financial year from 1.4.2013 to 31.3.201i. (b) By virtue of the new Section 164(2)(.,) of the 2013 .Act- using the expression ,for any'irhtinriri period of three financial year,, and in' the iigi;;f section 2(41) defining ,,financial year,, as wet, ai tniir own General circular No,0g/14 dated 4.4.2,)14, tie fist_ financial year would be from l.+..ZOl'C'iJ 31.3.2015, the second financial year would be froi 1.4.2015 to 31.3.2016 and the third finan,:iat yiar would be from 1.4.2016 to 31.3.201a wne.\"as'ii\" se-cond respondent clearly admitted in paras l j and 2i ot the counter affidavit that the default of fitino statutory returns for the finalyears commen:es floi 3Special Civil Application No.22435 of 2017 and batch dated 18. l2.2018 a W.P.No.25455 of 20l7 and batch dare d27.O7.2OtE 15 2013-14, 2014-15 and 2015-16 i.e, one year before the Act 2013 came into force. This is the basic incurable tegal infirmity that vitiates the entire impugned proceedings. 23. In view of the above facts and circumstances and the judgments referred to supra, as the impugned orders in present writ petitions disqualifying the petitioners as directors under Section 16a(2)(a) of the Act, have been passed considering the period prior to 01.04.2014, the same cannot be sustained, and are liable to be set aside to that extent. 24. As far as the contention regarding issuance of prior notice before disqualifying the petitioners as directors is concerned, Section 16a(2)(a) is required to be noticed, and the same is extracted as under for ready reference: 164. Disqualification for appointment of director: (2) No person who is or has been a director of a comPanY which- (a) has not fited financial statements or annual returni for any continuous period of three financial years; or (b)... Sha 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 happeninq of an event i.e., if a person who is or has beena director of a company has not filed financial statements or annual returns for any continuous period of three financial years' shall be inetigible 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 lrovision does not provide for issuance of any prior notice or hearing. A learned single Judge of the High Court of Karnataka in Yashodara Shroff v. Union of India (1 supra), as well as the learned singlt: Judge of the High Court of Gujarat at Ahmedabad in Gaurang Balvantlal Shah s/o Balvantlal Shah vs. Union of India (2 supra). after anirlyzing various provisions of the Act and Rules framed thereunder, an(l by relying on various judgments of the Apex Court, held that Sectiol 16a(2)(a) of the Act applies by operation of law on the basis of the circumstances stated therein, the said provision does not envisage any hearing, neither pre-d isq ua lification norpost-d isq ua lification and this is not in violation of the principles of natural justice and hence, is nol ultra ylres Article 14 of the Constitution. I concur with the said reasoning. 25. Thus, from the above, it is clear that Se(:tion 164(2)(a) of the Act is a deeming provision and the disqualification envisaged under the said provision comes into Force automatically by operation of law on default and Legislature did not provide for i:;suance of any prior notice, but the respondents notified d isq ua lificati,)n even before it incurred, and deactivated DINs, which is illegal arbitrary and against provisions contained in Section $aQ)e) of I he Act. 26. The next grievance of the petitioners ls with regard to deactivationof their DINs. The contention of the learrred counsel for the petitioners is that except for the grounds mentioned under Rule 11 (a) to (f) of the Rules, the DINS cannot be cancelled or deactivated, and the violation mentioned under Sectic,n 164(2)(a) of the Act, is not one of the grounds mentioned under cl;ruses (a) to (f) of Rule 11, and hence for the alleged violation under Section 16a(2)(a) of the Act, DIN cannot be cancelled. l6 t7 77. Cancellation or surrender or deactivation of DIN: The Central Government or Reqional Director (Nofthern Region), Noida or any officer authorized by the Regional Director maY, upon being satisfied on verification of particulars or documentary proof attached with the application received from any person, cancel ordeactivate the DIN in case - 28. Clauses (a) to (f) of Rule 11, extracted above' provides for the circumstances under which the DIN can be cancelled The said grounds, are different from the ground or deactivated. envisaged under 27. Rule 10 of the Rules provide for allotment of DIN and under sub rule (6) of Rule 10, it is allotted for life time. Rule 11 provides for cancellation or deactivation. Rule 11, which is relevant for the present purpose, is extracted as under for ready reference: (a) the DIN is found to be duplicated in respect of the same person provided the data related to both the DIN sha be merged with the va I i d ly reta i n ed n u m ber ; (b) the DIN was obtained in a wrongful manner or bY fraudulent means; (c) of the death of the concerned individual; (d) the concerned individual has been declared as a person of unsound mind by a competent Court; (e) 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; (D on an application made in Form DIR-' by the DIN holder to surrender his or her DIN along with declaration that he has never been appointed as director inanY companY and the said DIN has never been used for fitinq of any document with any authoritY, the Central Government may deactivate such DIN; Provided that before deactivation of any DIN in such case, the Ce ntra I Govern me nt sh a I I v erify e - records. Explanation: for the purposes of clause (b) - (c) The terms \"wrongful manner\" means if the DIN is obtained on the strength oi documents which are not legally valid or incomplete documents are furnished or on suppression of material information or on the basis of wrong ceftification or by making misteading or false information or bY misrePresentation; (ii) the ter; \"fraudulent means\" means if the DIN is obtained with an intent to deceive anY other person or anY authority includinq the Centra I Government. 18 29. Learned Single Judge of the Gujarat Hi(lh Court in the decision cited 2 supra, held as under: \"29. This takes the Court to the next question as tc whether the respondents could have deactivated the DlNs of the )etitioner as a consequence of the impugnedlist? In this reqard, it would be appropriate to refer to the relevant provisions contain)d in the Act and the said Rules. Section 153(3) provides that tto person shall be appointed as a Director of a company, unless he has been allotted the Director ldentification Number unde, Section 154. Section 153 requires every individual intendirg to be appointed as Director of a Company to make an appli:ation for allotment of DIN to the Central Government in such 'orm and manneras may be prescribed. Section 154 states that tt e Central Government shall within one month from the receiltt of the application under Section 153 allot a DIN to an applica|t in such manner as may be prescribed. Section 155 prohiSits any individual, who has already been allotted a DIN under Section 154 from applying for or obtaining or possessing ano-her DIN. Rules 9 and 10 of the said Rules of 2014 prescribe the procedure for making application for allotment and for the allotmelt ofDIN, and further provide that the DIN allotted by th( Central Government under the said Rules would be valid for the life time of the applicant and shall not be allotted toany other per;on. 30, Rule 11 provides for cancellation or surrt)nder or deactivation of DIN. Accordingly, the Central Govefi ment or Regional Director or any authorized officerof Regiona Director mah on being satisfied on verification of partiulars of documentary proof attached with an application from any person, cancel or deactivate the DIN on any of the grounds ntentioned in Clause (a) to (f) thereof. The said Rule 11 joes not contemplate any suo motu powers either with tfu Central Government or with the authorized officer or Regional Director to cancel or deactivate the DIN allotted to the Director, n)r any of the clauses mentioned in the said Rutes contemplates ca,lcellation or deactivation of DIN of the Director of the ',struck off (ompany\" or of the Director having become inetigible under Secti)n 164of the said. Act, The reason appears to be that once an individuat, who is intending to be the Director of a particular cotnpany B allotted DIN by the Central Government, such DIN tvould be valid for the life time of the appticant and on the basi! of such DIN he could become Director in other companies alsa. Hence, if oneof the companies in which he was Director, is,.strucA off,,, his DIN could nat be cancelled or deactivated as that would run counter to the provisions contained in the Rule 1., which specifically provides for the circumstances under which the DIN couldbe cancelled or deactivated. 31. In that view of the matter, the Court is of the opilion that the action of the respondents in deactivating the D'lNs of the l.eliti2n9rs - Directors along with the publication of the itnpugned list of Directors of \"struck off,, companies unaer SectiiniiA, als.o. /as not legally tenabte. Of course, as per Rule 12 of the said Rules, the individual who has been a otted the DIt,t, in the event of any change inhis particulars stated in Form DIi _3 has to intimate such change to the Central Government w thin the e:-e:crib!. time in Form DIR-6, however, if that is not o)ne, the u v coutd not be cancelled or deactivated. The cancettation or deactivation of the DIN coutd be resorted to Oy tne coiiiinea Section 164(2)(a) of the Act. Therefore, for the alleged violation under Section 164 of the Act, DINs cannot be cancelled or deactivated, except in accordance with Rule 11 of the Rules' t9 respondents only as per the provisions contained in the said Rules.\" 30. Learned Assistant Solicitor General appearing for respondents had contended that Section 403 (2) of the Act provides that \"where a company fails or commits any default to submit' file' register, or record any document, fact or information under sub- section (1) before the expiry of the period specified in the relevant section, the company and the offlcers of the company who are in default, shall without prejudice to the liability for the payment of fee and additional fee, be liable for the penalty or punishment provided under this Act for such failure or default\" and he has further contended that as amendment has come into Section 403 with effect from 07-05-2018, the amended section has removed the prescribed 27O days' limitation within which the annual filings can be done excluding the time limit already provided under Sections 92' 96 and 137 of the Act and as per Section 403 of the Act levies rupees one hundred on each day from the date of default till the date of compliance of the mandatory provisions of law' 31. This Court having considered the said submissions is of the considered view that the new amending law also contemplates levying of Rs.lOO/- per each day of default and which permits the regularizing the delay of the petitioners' Therefore' this Court is not inclinedtoaccepttheSaidcontentionofthelearnedAssistantSolicitor General for the respondents. 32. In view of the above facts and circumstances and the judgment referred to supra, the deactivation of the DINs of the petitioners for alleged violations under Section 164 of the Act' cannot be sustained. 70 33. For the foregoing reasons, the impugned orders in the writpetitions to the extent of disqualifying the petitioners under Section 16a(2)(a) of the Act and deactivation of their DINS, are set aside, and the 2nd respondent is directed to activ:rte the DINS of the petitioners, enabling them to function as Directors other than in strike off companies. 34. It is made clear that this order will not lreclude the 2nd respondent from taking appropriate action in accordarce with law for violations as envisaged under Section l6aQ) of the A(:t, giving the said provision prospective effect from 01.04.2074 and f,rr necessary action against DIN in case of violations of Rule 11 of the Fi.ules. 35. It is also made clear that if the pe1:itioners are aggrieved by the action of the respondents in striking off their companies under Section 248 ofthe Act, they are at liberty to avail alternative remedy under Section 252 of the Act. 36. All the writ petitions are accordingly al owed to the extent ind icated above. Miscellaneous petitions pending if any shall stand closed. JUSTICE ABHINAND KUMAR SHAVILI Dt.05-08-2021 kvr "