Sri Girdhar Lal Rathi V. Union of India

WP/4795/2021

AI Insights

The case involves Sri Girdhar Lal Rathi and Smt. Mamta Rathi, who challenged their disqualification as directors and the deactivation of their DINs by the Registrar of Companies, Telangana. The disqualification was based on their failure to file financial statements and annual returns for three consecutive years, as per Section 164(2)(a) of the Companies Act, 2013. The petitioners argued that the action was arbitrary, illegal, and violated principles of natural justice, as it was applied retrospectively despite the provision being prospective in nature. The court found that the Registrar's action was contrary to the law and the circular issued by the Ministry of Corporate Affairs, which clarified the prospective application of the Act from 01.04.2014.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 677383 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 18-07-2021
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax (Central), I, New Delhi v. Vatikatownship Private Limited, Yashodhara Shroff v. Union of India, Gaurang Balvantlal Shah s/o Balvantlal Shah v. Union of India, Bhagavan Das Dhananjaya Das v. Union of India
• Laws Referred To: Companies Act, 2013, Companies (Appointment of Directors) Rules, 2014, Constitution of India
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: NAMAVARAPU RAO
• Assessee Lawyers: ANGOTHU NEHRU
• Keywords: Director Identification Number; Disqualification; Financial Statements; Natural Justice; Retrospective effect
• Section: 151; 226; 248; 252; 164(2)(a)

Judgement Text

"Between: AND 1 2 1. Sri Girdhar Lal Rathi, S/o Shanker Lal Rathi, Aged about.61 years, R/o 1-1 1- 252126, ltAoli Lal Nehru Nagar, Ugl2 ForTune Residency, Secundrabad, Hyderabad, Telangana State-500016. 2. Smt. Mamta Rathi W/o Sri Girdhar Lal Rathi, Aged about.56 years, Fl/o R/o 1- 11-252126. Moti Lal Nehru Nagar, Ug/2 ForTune Residency, Secundrabad' Hyderabad, Telangana State-500016 ...pETlTloNERS Union of lndia, Represented by its Ministry of Corporate Affairs, Shastri Bhawan, Dr. Raiender Prasad Road, New Delhi - 110001 The R'egistrar of Companies, Telangana State,2nd Floor, Corporate Bhawan' GSI Post, Tattiannaram Nagole, Bandlaguda, Hyderabad - u0l.lf!rr.*DENTS 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 disqualifying the petitioner as a directors and deactivating the petitioner Director ldentification Number (DlN) 02,107581 and 2nd petitioner Director ldentification Number (DlN) 02241074 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 1 .1 of the companies (Appointment of Directors) Rules, 2014, violative of the principles of natural justice besides violating the petitioner rights guaranteed tinder Article 14 and Article 19 (1 ) (g) of the Constitution of lndia. lA NO: 1 OF 2021 Petition under Section 151 CPC praying that in the circumstances stated in the affidavit filed in support of the petition, the High court may be pleased to direct the 1st Respondent to restore the 1st petitioner Director ldentification Number (DlN) 02107581 and 2nd petitioner Director ldentification Number (DlN) 02241074 so as to enable petitioners to submit pending annual returns and financial statements for the Companies in which they are appointed as directors' Counsel for the Petitioner: SRI ANGOTHU NEHRU Counsel for the Respondents: SRI NAMAVARAPU RAJESHWAR RAO' ASSISTANT SOLICITOR GENERAL HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD (Special Original Jurisdiction) MONDAY, THE FIRST DAY OF MARCH TWO THOUSAND AND TWENTY ONE PRESENT THE HON'BLE SRIJUSTICE ABHINAND KUMAR SHAVILI wRtT PET|TION NO. 4795 0F 2021 The Court made the following: ORDER HON'BtE SRI JUSTICE ABHINAND KUMAR SHAVILI WR|T pEItItON No.4795 of 2021 ORDER: The petiiioners chollenge their disquolificotion from Directorship under Section l6a{ of lhe Componies Acl, 2013, tor ihe olleged defouit in firing finoncior stoiement/Annuor Returns, ond consequenfly seek restorotion of their Director ldentificoiion Numbers (DtNs) viz.. O21OtSg1 ond 02241074. Leorned counser for ihe petitioners submiis thot rhe issue roised in the present Writ petition is squorely covered by lhe common orderdoled 1A.07.2019 in W.p.No.5422 of 20lB ond bo1ch. Leorned Assistont Solicitor Generol oppeoring for the 2nd respondenl - Registror of componies does not dispute the oforesoid submission. Operotive porlion of the qforesoid order reods os under \"For lhe foregoing reosons, lhe impugned orders in lhe writ petillons lo the exlent of disquolifying the petilioners under Seclion 16AQ)@) of the Acl ond deocrivol,on of their DtNs, ore sel oside. ond lhe 2nd respondenl is directed lo oclivote the DlNs of lhe pelilioners, enobling lhem to function os Direclors olher thon in slrike ofl componies. It is mode cleor lhot this order will nol preclude the 2nd respondenl from toking oppropriole oclion in occordonce wilh low for violotions os envisoged under Section 164(2) ollhe Acl, giving lhe soid provision prospective eflecl ,rom 01.04.2014 ond for necessory oclion ogoinst DIN . Rules. tn cose o, viololions of Rule .l I of lhe ll is olso mode cleor lh( rh e o*i on o,h e res po n d e n,, ]:'l:r: jr':lTl: :: - \":ilJ :H: 2 ln view of the soid order doted l8'07'20]9 ond for the reosons recorded therein, ihis Writ Petiiion is olso ollowed in terms thereof ' No costs lr/iscelloneousPetitions,ifonypending'shollsiqndclosed SD/.N.CH ANDRA SEKHAR RAO ASSTSTANT REGIS //TRUE COPY// SECTIO oFFICER To, ffiffi$6,5igC-?'wtit; ***; il:i:*\".Hlt!, \"?^?3%',\"0 8lJl\" common order dated 18 07 201e in 1. 2. J 4 ( l,4P seclion 248 ol lhe Act, lhey ore ot liberty lo ovoil ollerndlive remedy under 5e clion 252 of the Act' All lhe writ pelitlons ote occoldingly ollowed to lhe extenl indicoted obove\"' HIGH COURT DATED:01 10312021 ORDER WP.No.479S ot 2021 ALLOWING THE WRIT PETITION WITHOUT COSTS lli.- 1 6 tlAB 2021 * lA S E 'ri ( PniCH o * 2 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 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 buslness operation for the specified period mentioned in the said provision, and for not making any application within the specified period, for obtaining the status of a dormant company under Section 455 of the Act. 3. The petitioners, who were directors of the struck off companies' andwhoarepresentlydirectorsofactivecompanies,duringtherelevant period in question, failed to file financial statements or annual returns for a continuous period of three years' Therefore' the 2nd respondent passed the impugnedorderundersection164(2)oftheAct'disqualifyingthemas directors, and further making them ineligible to be re-appointed as directors of that company, or any other company' for a period of five years from the date on which the respective companies failed to do so' The Director Identification Numbers (DINs) of the petitioners were also deactivated' Aggrieved by the same, the present writ petltions have been filed' THE HON'BLE SRI JUSTICE A.RAJASHEKER REDDY W.P.NOs.5422. 12184, 13520. 13743, 13855. 14166.24os1' 3o993' 6tqo. aq.eq, azsg. aesa. asse. oget. toot. looe, zotq,loq6,1069, 7 07 3, 7 LOs, 7 432, 7 454. 7 57 2. 7 595, 7732. 7 7 65. 7 7 68, 7 A24. 7 97 8 - irrr. ezzs. gsge. esgo, gggg, gg+o. gggr. g+68' gs63' gsg+. gezg. 9726,9737, 10058, 10099, 11208, 11223. 11239. 11263. 11889, ttggt, tiois. tzoze. tzoqo. tzoog. tztoe. tztqq. tztes, tztgq, tzzoa tzzog. tzzts. tzztl. tzzqg, tzzoo. tzzoz. tzzge. t??4?. liio. iziii, tzqgz. tz+zz. tzqge, tzsoo. tzszq. tzsga. tzozt' flTozlrzzst 127+0. rzs+s. tzeso. rzs0s. tzsso. rsorg. rgs18' iEiso. Ls74s. tgtzg. Btee. tsezg. tzass. tgezg. tzgtz' tz?!4' iJ6is. tqtot. tqtiq. tqzoz. tqzso. tqgot, lcggo' tqsgz' tqggt' 14409. 14582 AND 14597 0F 2019 'l 4' This court granted interim orders in the writ petitions directing the 2nd respondent to activate DINs of the petitioners, to enabre them to function other than in strike off companies. 5' Heard the rearned counser appearing for the petitioners in a, the writ petitions, Sri K.Lakshman, learned Assistant Solicitor General appearing for the respondents _ 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 vioration of principres of naturar justice, and on this ground alone, the impugned orders are liable to be set aside. 7. Learned 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 fired financiar statements or annuar returns of the company to which he is director, for any continuous period of three financial years. Learned counsel further submits that this provision came into force with effect from 7.4.2014, and prior thereto i.e., under Section 274(t)(g) of the Companies Act, 1956 (1 of 1956), which is the analogous provision, there was no such requirement for the directors of the private companies. They contend that this provision under Act 18 of 2013, will have prospective operation and hence' if the directors of company fair to comply with the requirements mentioned in the said provision subsequent to the said date, the authority under the Act' is within its jurisdiction to disquarify them. But in the present cases, the 2nd respondent, taking the period prior to t.4.20L4,i.e., giving the provision retrospective effect, disquarified the petitioners as directors, which is illegal and arbitrary. 8. With regard to deactivation of DINS, learned petitioners submit that the DINs, as contemplated under Companies (Appointment and Qualification of Directors), counsel for the Rule 2(d) of the Rules, 2014 (for 3 short'the Rules), are granted for life time to the applicants under Rule 10(6) of the said Rules, and cancellation of the DIN can be made only for the grounds mentioned in clauses (a) to (f) under Rule 11 of the Rules, and the said grounds does not provide for deactivation for having become ineligible for appointment as Directors of the company under Section 164 of the Act. Learned counsel further submits that as against the deactivation, no appeal is provided under the Rules, and appeal to the Tribunal under section 252 of the Act is provided only against the dissolution of the company under Section 248 of the Act. g. Learned counsel further submits that 1st respondent - Government of India represented by the Ministry of Corporate Affairs' has floated a scheme dated 29.12'2o17 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 Section 248(5) of the Act' India. the companies which are struck off under In case of active companies' they can make application to National Company Law Tribunal under Section 252 of the Act' seeking for restoration' and the Tribunal can order for reactivation of DIN of such directors, whose DIN are deactivated However' under Section 252 only the companies, which are carrying on the business' can approach the Tribunal and the companies' which have no business' cannot approach the Tribunal for restoration They submit that since the penal provision is given retrospective operation' de hors the above scheme' they are entitled to invoke the jurisdiction of this court under Article 226 of the Constitution of lO. 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 I oF three financial years, automatically entail their disqualification unde, 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 the statutory requirement under Section 164 of the Act, cannot complain of violation of principres of naturarjustice, as it is a deeming provision. Learned counsel further submits that the petitioners have alternative remedy of appeal under section 252 0f the Act, and hence writ petitions may not be entertained. L2. To consider the contention of the learned Assistant Solicitor Generar with regard to arternative remedy of appear under section 252 0f the Act, the said provision is required to be considered, and the same is extracted as under for better appreciation: 252. Appeat to Tribunat ,, o,rr\"[\"']o tlro jr\"!.\"\".?,jf T;\".\"\"j l, €n order or the Resistrar, notiryins a company three years rr\",,'-irr\" i]i\" i-,uJ ^'-u.v, r't\" an. appeal to th; Trbunat wrthin a period of opinion that tt,\" .\"r\"rlltoitrrine order of the Reqjstrar and rf the r.iuunur L''oiii,l rs not Justified in view of the \"^llT.u oltn\" companv from the register of companres passed- by ti,\" n\"gi.,r\"i' ii',;;:t-::* \"r anv of the grounds on *ii.l, tn\" \"i65. *li register of compi;;;;; ' '' \"ro/ order restoration of the name , ,n\" .\"ror\"r',\" ?,ii provided that before o; grve a reasonabre opportunjtv i?tl?,.u:-oto\"t under thrs sectjon, the Tribunar shal Resistrar, ,i,\".o'npJ,iv \",0':i,;;+J'lt\"j\"j\"T.:T,:jons and or t;i,; h;;;d\";\"-i;; provided further that i .,:fr*q*1i##l{il*tr'fru*fT I jil'f Tgii'\"i#*'*iii\"'i1q1[*d:[:.* jri#f i:f:\"1#;Fiti :ggTr\"f) or\",i\"'?Iiill; o,l.31l 1:'0\". or creditor or worker rhereor reers **ffmffi#-ffiffi 5 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 18 of 2013, came into force with effect from 01.04.2014, and the petitioners are disqualified as directors under the said provision. At this stage, the issue that arises for consideration is - whether the disqualification envlsaged under Section 16a(2)(a) of the Act' which provision came into force with effect from Ot'o4'20L4' can be made applicable with prospective effect' or has to be given retrospective operation? In other words, the issue would be' from which financial year' the default envisaged under Section 164(2)(a) of the Act' has to be calculated' to hold the director of the company liable? In this regard' the learned counsel brought to the notice of this Court' the General Circular No'08/14 dated 4.4.20L4 issued by the Ministry of Corporation affairs' which clarifies the applicabllity of the relevant financial years' The relevant portion of the said circular is as under: Hil'i:n!:;fi .l':i#;i,il,:*.rf#\"i};-i-\"\"{.*,,\";,tti{},\"i#\"1*fl the Board of Directors 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 disqualification of the directors, and deactivation of their DINs. In the present case, the petitioners are only aggrieved by their disq ua 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 the learned Assistant Solicitor General, in this regard, merits for rejection' 6 A reading of the above circular makes it clear the financial statements and the documents required to be attached thereto, auditors report and Board's report in respect of financial years that commenced earlier than 01,04.2014, shall be governed by the provisions under the Companies Act, 1956 and in respect of financial years commencing on or after 07.O4.2Ol4t the provisions of the new Act shall apply. 74. At this stage it is required to be noticed that the analogous provision to section 16a(2)(a) of the Act 18 0F 2013, is section 274(1)(9) of Act 1 0f 1956. The said provision under Act 1 0f 1g56 is extracted as under for ready reference: Section-274(1) A person shall not be capable of being appointed director of a company, if - (g) such person is already a director of a public company which, _ (A) effect from 1st April, 2014 Provisions of Schedule ll (useful lives to compute i\"pi\".iuiio\"i and\" schedule III (format of financial statements) have also been [iirs hi i\"i\"'r\"*\" from that date. tne relevant Rules pertaining to these provisions tr\"ru'ufao been notified, placed on the website of the lYinistry and have come into force from the same date. The Ministry has received requests for clarification with .regard to the .relevant fi\";;;i y;;;; with effect from which such provisions of the new Act relating to maintenance of books of account, preparation, adoption and filing of financial statements (and attachments thereto), auditors report and Board's report will be a pp licable. Although the position in this behalf is quite clear, to make things absolutely clear it is hereby notified that the financial statements (and documents required to be attached thereto), auditoB report and Board's report in respect of financial years that commenced earlier than 1't April shall be governed by the relevant provisions/schedules/rules of the Companies Act, 1956 and that in respect of financial years commencing on or after |'t April, 2014, the provisions of the new Act shall apply. \" has not filed the annual accounts and annual returns for any continuous three financral years commencing on and after iire first day of Aprili 1999; or (B) Provided that such person shall not be elrgible to be appointed as a director of any other p-ubtic cqT?aly for a peraod of five -years ir; t;;l;i;'\", which such pubtic company, in which he is a director, faired to fire unnr\"l *.oriti and annuar returns under sub-clause (A) or has failet. to .repay it;;;;il;; i;i\"r\"., o,. redeem its debentures on due date or pay dividend .Jr\"l.\"J t\"ll Jrr.\"'frjil 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 pubric company, which has not fired annuar accounts and annual returns for any continuous three financial years commencing on 7 andafterthefirstdayofAprillggg,shallnotbeel|gibletobeappointedas a director oF any other public company for a period of five years from the dateonwhichsuchpubliccompany,inwhichheisadirector,failedtofile annual accounts and annual returns. So the statutory requirement of filing annual accounts and annual returns, is placed on the directors of a 'public company'. There is no provision under the Act 1of 1956' which places similarobligationsonthedirectorsofa'privatecompany\"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 eligible for appointment as a director of a company' As already noted above' the said provision, came into force with effect from 01'04'2014' 16. Coming to the facts on hand' the 2nd respondent has disqualified the petitioners under Section 164(2)(a) of the Act 18 of 2013' for not filing financial statements or annual returns' for period prior to O1'04'2014' The action of the 2nd respondent runs contrary to the circular issued bY the Ministry of the Corporate Affairs' and he has given the provisions of Act 18 of 2013, retrospective effect' which is impermissible' 17. The Apex Court in COTilMISSIONER OF INCOME TAX (CENTRAL).I, NEW DELHT V. VATIKATOWNSHTP PRIVATE LIMITEDL has dealt with the general principles concerning retrospectivity ' The relevant portion of the judgment is thus: 27. A resisration, bea,ll,\".\"',l3.li!Xroit\";: i,-iii::t\"S i'l;\":i \" ;:*l'\"# Notiiiiation, maY PhYsrc '(zots)t scct conceptually it is a great deal more than an ordinary prose. There is a special peculiarity in the mode of verbal communication by a legislation. A legislation is not just a series of statements, such as one finds in a work of fiction,/non fiction or even in a judgment of a court of law. There is a technique required to draft a legislation as well as to understand a legislation. Former technique is known as legislative drafting and latter one is to be found in the various principles of'Interpretation of Statutes'. Vis-a-vis ordinary prose, a legislation differs in its provenance, lay-out and features as also in the implication as to its meaning that arises by presumptions as to the intent of the maker thereof. 28. Of the various rules gutding how a legislation has to be interpreted, one established rule is that unress a contrary intention appears, a regisration is presumed not to be intended to have a retrospective operation. The idel behind the rure is that a current law should g-o_vern current activities. Law passed toOay cannofippiy to the events_of the past. If we oo something i;;;y;;;'d\" it keeping in the law of today and in force and not tomorrow's backwird adiustment of it. orir belef rn re nature of the raw is founded on the bed rock that every human being is entitred t; arrange his affairs bv rerving on the existing raw and shourd \"\"t]i\"iit.i rri, pL,i. h.r: 9\"\"n retrospecUvety upset. Thjs princi'ple of f.*li tno*n as tex prospicit non respicit : law looks forward not backward. as was obierveO in phillips ,Ir.- -eyiu [(1870) LR 6 eB 11, a retrospective tegislation is coniraiv to the generat principle that regrsration bv which the,cbnduci \"i?\"-ii,io I i\"'i\"'.19u,.,\"a when introduced for the first time to deal will.fut-ufe *t;;;ilf\";';\"?alge tne character of past transactions carried on upon the r\"itn J$r\" ir.,\", \"-r,j\"g ij*. 29. The obvious basis of the pflnciple agajnst retrospectivity is the principle of 'fairness., which must be the basis \"; il,i i;;;i;#.u, *u, observed in the decision reported in L,office qh\"r]!91 +, bi,\"-.,pfr.i\"i v. yamashita-shinnihon Steamship Co. Ltd. [{1994)-1 Ac 486j. inrr, Ltiri\"ii\"* which modrfied accrued 'gnts or which impose obrigatrons o. impose \"\"*-o-rii\"r'\",- attach a new drsabrrrtv have to be treated as prosoective untess.ihl ,\"sir,\"*i;ri\"\", is ctearly to give the enactment a retrospective effect; unless ,r,\" i\"i,r-i\"i,\", ,..i ;:\":T:?'\":iJif:i\":\"i:;J;,.r\"',- resisration oiio J';r; ; J?:#:?E,:ff:::'il: tegat position crel;;-;;\"\"'r\"#: or-case law available on the sublect 0\"..',-,.\" li\"i\"rllJ' conceded by ;h\" ;\";;;;ii's trom the varrous decisions \"\"0 itir l\"g\"];;ii;;;:; judsments;,i;;,;;\"i;;,:?:, Ii,i\"'ijlii: In anv case, we shalr ,\"r\".'io 'r* 30. We would also like t( :ilt\".,::l;:,T\",,J,T;ji\"X ,.\"\"#U{1!];jX\",::,1.: l',?i[3i\"J:lli,;#,1#i,:,f : corresponding detriment on ,'i1: u. P\"n\"fit on some persons. but *,ahiri j\"r]\"i,\"\"i l to conrer .;;-;;;;;i;l;;:I: \"l.,j\"ll:j.:,1^ol o.l the pubrc aeneraily, and where r***[**''*r#srr+t siven a retros;;.ir\"-\"01,'\"i,3,i,\"Y1\"\".:j;\":',:8.?,i,T\"jl,;l lt .\"\",;';; ni;;; ,.rn:Tjnft 1i..;fi ilur,l+,1lirr,#*:r j:r:ffi tlJrir+i:T statute may be h#'l;\";J'.^1:: whole, even in the abser conrronted with any such ,,.\";::'\"'i?::,.r\" ,\"'r\",r'.\"'l't;ffi:i:?,\"li 5;:'i:',:\"r*; 31. In such cases, retr contradistinctio; ,, -*'oll),3iJ\"\"'|}|tJ, ;: i[i.,.j\"oo,,.l1\"o?,ent . the persons in ff iirr',-ir;!TlHt*h,**5$;i,;nt,,;'n1,$ffi to proceed with the normat r l[l',t\"tn i # | \" f\", \",J\".i.i:i:T o : !!lf truction'pp\"\"^,\".vli'\"\"1,t?iTi\",fi:?'ir1\"i::,i::iX'::t#l\"..\"'*iff :,; flT ff : J TjJff Hi .,T:3'li\"J'J.';:*i;j[*J]i:ff: it\",,l,n\" \" a presu m pt on, *:iffi uf**r,t+\"uti:+:mgirg *i:*tr\".d,* jl:i.i?,.,***i5-#-#*t*#ff*#n,**$ 3 I For example, Explanation to section 1SB-BB is stated to be clarificatory in nature. Likewise, it is mentioned that amendments jn Sectjon 145 whereby piovisions of that section are made applicable to block assessments is made clarificatory and would take effect retrospectively from 1\"t day of july, 1995. When it comes to amendment to Section 113 of the ActT 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 t.6.2OO2.\" 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 impoftant piece of evidence, as it would clarify the provision beyond any pale of doubt' In the present case' as already noted above, the Ministry of Corporation affairs has issued the circular No.0B/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 flnancial years commencing earlier to 01'04'2014' shall be governed by Act 1 of 1956' At the cost of repetition' since in the present cases, as the 2nd respondent / competent authority' has disqualified the petitioners as directors under section 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 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 flrst financial year would be from 01-04-2014 to 3 r.03.2015 years endin statements conclusion and the second and third years financial years would be for the g 31.03,2016 and 31'03'2017' The annual returns and financial are to be filed with Registrar of Companies only after the of the annual general meeting of the company, and as per the first I proviso to Section 96(1) of the Act, annual general meeting for the yea, ending 31.03.2OL7, can be held within six months from the closing of financial year i.e., by 30.09.2017. Further, the time limit for filing annual returns under Section 92@) of the Act, is 60 days from annual general meeting, or the last date on which annual general meeting ought to have been held with normal fee, and within 270 days with additionar fee as per the proviso to secuon 403 0f the Act. Learned counsel submit that if the said dates are carcurated, the rast date For firing the annuar returns wourd be 30.1L.2077, and the balance sheet was to be filed on 30.10.2017 with normar fee and with additionar fee, the rast date for firing annuar returns is 27.O7.20t8. In other words, the disq ua lification coutd get triggered only on or after 27'07'2079' But the period considered by the 2nd respondent in the present writ petitions for crothing the petitioners with disq ua rification, pertains prior to O'.O4.ZOL4. Therefore, when the omission, which is now pointed out, was not envisaged as a ground for disqualification prior to 1'4'2014' the petitioners cannot be disquarified on the said ground. This analogy is traceable to Article 20(1) of the constitution of India, which states that \"flo person sha, be convicted of any offence except for viotation of a raw in force at the time of the commission of the act charged as an offence, nor be subjected to a penarty greater than that which might have been infricted under the law in force at the time of the commission of the offence,,. In view of the same, the ground on which the petitioners were disqualified, cannot stand to legal scrutiny, and the same is liable to be set aside. 20. A learned Singte YASHODHARA SHROFF Section L6ae)@) of the Act and other judgments, passed an elaborate order and retrospective operation. The observations l0 Judge of the vs, UNIoN High OF Court of Karnataka in fNDfA2 considering provisions of the Act, and various held that the said provision has no of the learned Judge, pertaining to W.P.No.529l I of 2017 and batch da ted t2.06.2019 ll private companies, which are relevant for the present purpose, are extracted as under: 208. In view of the aforesaid discussion, I have arrived at the following conclusions: (a) It is held that Section 164(2)(a) of the Act is not u/tra 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 proportionality. Neither does the said provision violate Article 19(1)(g) ofthe constitution as it is made in the interest of general public and a reasonable restriction on the exercise of the said right The object und purpote of the said provision is to stipulate. the consequence of a disqualification on account of ihe 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 basis '-' ofihe circumsiances stated therein, the said .provision does not envisaqe any hearing, neither pre-oisquiitLaiion ' nor post-disqualiflcation and this is not in violation of the principles \"i \"\"i'lir justice' is not u/tra vires Article 14 of the Constitution (c) rhat section 16o(rl -\"j-:1:b[.,\"j:::r 1,.\"#i1\"\",:\",1']1\".T'li\"?l:J,\"\"'19,J\" ;l*J; therefore, neither unreasor on the same. (d)... (e) lnsofar as the private companies are concerned' disqualification on account of the circumstances .tut\"o unoJfi\"'*t\" iioiilt\"l of the-Act has been brought into force for the first trme ,^o#i'rtl oli un6'th\" ton'\"q'^untut :: ffi'\"lifi\"lii: xr,''ffi ff{:fr:{ftltf$lili}\"ii;l{ffi ;,,\"J\",}ffi tt;litr\";+:nfl*x4ffirl';l*$:ii;'r drsqualification of the PeI quashed ' (0 ' c..tinn 164(2) of the Act is bas'd \"'1ilili,*i5;;,i.5ffi1l*:#+il;i;;i;1g flttg;'ffi [ona\"q'\"nt\"t of the sal( 21, A learned Single of the High Court of Gujarat at Ahmedabad in GALFRANG BALUAN LALSHAH S/o BALVANTLALSHAH vs' UNION oF INDlA3expressed similar view as that of the leaned single Judge of High court of Karnataka (1 supra), and held that section 16a(2) of the Act of 2013, which had come into force with effect from t'4'2014 would have prospective, and not retrospective effect and that the defaults contemplated under Section 164(2)(a) with regard to non-flling of financial statements or I r/Special civil Application No ll1 35 of 201? and batch dated 18 12 2018 t2 29. In fine, (a) When the New Act, 2013.came into effect from 1.4.2014, the :::\" \":, ff^'#Jr1 i \"-. l\"^i_\"1 ?..n \". * r\" \" g-r v -s r\" \" re t ro s pe cti ve e rre ct i.,.zo:it\",Mii'h,\"..j.:lli!:l#: ji,j,\"\"LI;,.,9-';\",;,;li\"Jl\"jl' first financiar year from t.4.zo: t, ii.j..ii,il], (b) Slrl:'rtii:^\"i;:\"\"fs*--su\"'on 164(z)(a) oF the 2013 Acr usins the \" i r, \" -r, g-; i ;i;\":i;:,'??l ii :'' i, : ; ?,? \"*.ji; f\":' ::,* \"l:] i;,':l ;]J i:ffi\"t\"' ?ii3. .': gtt; ;;iJ' ;:;:;1'4, the ri rst Fina nciar i:;I wijii i: ril ir1,ii#,i1?i:;?1,;_fi,:;:;# tl;ffi ,m,*\"*il;;:*jl,\"lii,ll,\".\",,i9,;;,-!i;;\"1:;ff j# fti',t:15:ff\"\"'-':#if+iTi#;\"if j'ffi ilf :tl proceedings. ' - s! YrlroLes rne entire impugned 23. In view of the above facts and circumstances and the judgments referred to supra, as the impugned orders in present writ petitions disquarifying the petitioners as directors under Section 164(2)(a)of the Act, have been passed considering the period prior to or.o4.2or4, the same cannot be sustained, and are liable to be set aside to that extent. 24. As far as the contention regarding issuance of prior notice before disqualifying the petitioners as directors is concerned, Section 164(2)(a) is required to be noticed, and the same is extract reference: -\"e Jq,rti rs extracted as under for ready 164. Oisqualification for appointment of director: annual returns for any continuous period of three financial years would bt the default to be counted from the financial year 2014-15 0nly and not 20L3-14. 22. A rearned singre Judge of the High court of Madras in BHAGAVAN DAS DHANANJAyA DAS vs. UNION OF INDIA4 also expressed similar view. The relevant portion is as under: .P.No.254i5 of20l7 and batch dated 22.07.2018 I3 (2) No person who is or has been a director of a company which_ 0\".,\"0 \"ltJrlTrfi?t :flr:::l':\"J statements or annuar returns ror anv continuous (b)... Shall be eljgible to be re_appointed as a director of that company or appointed in other companres 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 d isq ua lification on happening of an event i.e., if a person who is or has been a director of a company has not fired financial statements or annuar returns for any continuous period of three financial years, shall be ineligible to be re- appointed as a director of that company or appointed in any other company for a period of five years from the date on which the said company fails to do so. The provision does not provide for issuance of any prior notice or hearing. A learned single Judge of the High Court of Karnataka in Yashodara shroff v. Union of India (1 supra), as well as the learned single Judge 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 basis of the circumstances stated therein' the said provision does not envisage any hearing, neither pre-disqualification nor post-disqua lification and this is not in violation of the principles of natural justice and hence, is not u/fra vlres Article 14 of the Constitution' I concur with the said reasonlng. DlNs, which is illegal arbitrarY Section 164(2)(a) of the Act' L-- and against provisions contained in 25'Thus,fromtheabove,itisclearthatSectionl64(2)(a)oftheAct is a deeming provision and the d isqua lification envisaged under the said provision comes into force automatically by operation of law on default and Legislature did not provide for issuance of any prior notice' but the respondents notified disqualification even before it incurred' and deactivated l4 26. The next grievance of the petitioners is with regard to deactivation of their DINs' The contention of the rearned counser for the petitioners is that except for the grounds mentioned under Rule 11 (a) to (f) of the Rules, the DINS cannot be cancefled or deactivated, and the vioration mentioned under Section rcae)@) of the Act, is not one of the grounds mentioned under crauses (a) to (f) of Rure 11, and hence for the areged violation under Section 764(2)(a) of the Act, DIN cannot be cancelled. 27. Rule 10 of the Rules provlde for allotment of DIN and under sub rule (6) of Rule 10, it is allotted cancellation or deactivation. Rule for life time. Rule 11 provides for 11, which is relevant for the present purpose, is extracted as under for ready reference: (a) (b) (c) (d) (e) (f) ^ 11. Cancellation or .ry.l'*'*tq,r*,:*+f frr*f ,:-l**,}Tt*#iti,#-l.f fl the DIN is found tr tr.,\"a\"i\".\"i\".t\" jt;\"*:^.,,ifJB\",,,r.U:,ii.j}.:,::f ;,;f, Tr\"\"l\"ffi i?:?Jiff j Ir,uJBruil;*u. ootui, or ti,u ou.ir., Jiii: ::;:\":#\",iXlllfl:;1,\", or by rraudurenr means; the concerned inarr gf ;;;-J\"t'.\"\"i'l1l'lYu' n\"t been decrared as a person or unsound mrnd Ir the concerned rndividual has been adjudicated an insolvent; \", \";;\"\"\".',1\",iliT,ff:\"Jffi[.:l]:il\"*:i\"::\"\"iilfl;,?Hi\":,'[H;,,:[,T c'ause (b), fr itrfihlfli[1,.:',ffi l]ii$\"i1rdi:l;i;=:i,$[*,ffi :; oo,\",.\",.llil'3n'3,, [1ii:!',::\":.::.tivation or any DrN in such case, the centrar Explanation: for the purposes of clause (b) _ r*,,[+**Xi:*t:*n+i,=\",,:1,,,1*id*hr:*:,+*,f ( ) *: L:#l;ii:i;:'ff ii; \" ff\"il; ;'ii : iJ : Ji,,::B rir *, l, (i) 28. Clauses (a) to (f) of Rule 11, extracted above, provides for the circumstances under which the DIN can be cancelied or deactivated. The said grounds, are different from the ground envisaged under f l5 Section 16a(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' 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 tne-oirus oi tne petitioner as a-consequence of the impugned r.iz- rn tn, resard, t l\"*t\":i lll**,:\"Tl:i#r*\"\";:fli:til:Hfii !i:iiT:'.Siili\"t\".iT ;l;:'A ;i-u'o'p-v.'-u\"r\"ss^'n5 nus oe\"n arrotted the Director Identific\"tion ru#i\"\"'-'na\"f s\"ttion i54' ' Section 153 requires everv m*ffi*#ffff**ffi said Rules would be vallo any other Person ^..'\"?a,\"iili#.:l?y:it\"i:;\"ff:\"':iTiit]L!fl 3l'W f; \"'F\"jItil:3 ;[1; l:'::\"ll:lli ';;J;. may, on beine sausrreo !' ,:;; ;;; person, cancer o.r 9l -l:sl:l:^'..'\"#,,iu.ii\"o lfi^ -i: X t*l-n\"XiX' .i,1,',\" ? iio' (rl- tn\"'\"or ::::fr,'ii:','*b;l^:l^\"J,.;j,:T\"ij,\".:::;;;;;ilio*\",s \"itn\"' *ith the central r he sarq nure ^,^ II--,.- ,r,\" \"\",t\"TXl'\"T \"\"r1.:# \"i- itb'\"nal . Director to cancer or Governmenr \",--::''ri,^,;^; ,\" ,i\"\"''3:rt\".$1::L'\"J*^Jt\".n.']:yses mentioned in tne deacwate T\"-y^':^ilH';\";;\"lruuon o, deactiva-tron or .,ri:,il\"t5o?'l\"rtJ:ffit [; ffii.n{$ffi trtr$fr *li+.\":lffi ,f#ft:$ :? t\"\"::HT,?lI jxll * :t*.: :::'::\" 11\" :llil\" \"J#il \"! .i, r' \" \"0 \"'n \" i',,|!'i'il,ii,.i.i,;'iti'urrv,p.ol'l#?'r'J''i]\"\"'i\"-u-\"un'\"'uno u l**ws**ffffiff6gw 30' In view of the above facts and circumstances and the judgment referred to supra' the deactivation of the DINs of the petitioners for alleged violations under Section 164 of the Act' cannot be sustained' 16 31' For the foregolng reasons' the impugned orders in the wr \" petitions to the extent of disqualifying the petitioners under Section 164(2)(a) of the Act and deactivatio6 6f lfreir DINS' are set aside' and the 2nd respondent is directed to activate the DiNs of the petitioners' enabling them to function as Directors other than in strike off companies' 32. It is made clear that this order will not preclude the 2nd respondent from taking appropriate action in accordance with law for violations as envisaged under Section 16a(2) of the Act' giving the said provision ProsPective effect from 01,04.2014 and for necessary action against DIN in case of violations of Rule 11 of the Rules' 33'Itisalsomadeclearthatifthepetitionersareaggrievedbythe action of the respondents in striking off their companies under Section 248 of the Act, they are at liberty to avail alternative remedy under Section 252 of the Act. 34. All the writ petltlons are accordingly allowed to the extent indicated above. 2tr Interlocutory applications pending, if any' shall stand closed' No order as to costs' A.RAJASHEKER REDDY,] DATE: 18-07-2019 AVS "