SRI HARI PRASAD VENKATA SUBRAHMANYA MANDAVILLI V. Union of India and another

WP/31295/2022

AI Insights

The case revolves around a writ petition filed by Sri Hari Prasad Venkata Subrahmanya Mandavilli, challenging the deactivation of his DIN and disqualification as a director due to non-filing of financial statements and annual returns for three consecutive years. The petitioner argued that the actions taken by the respondents were arbitrary, illegal, and contrary to the provisions of the Companies Act, 2013, and the Companies (Appointment and Qualification of Directors) Rules, 2014. The respondents, represented by the Ministry of Corporate Affairs and the Registrar of Companies, contended that the disqualification was automatic under Section 164(2)(a) of the Companies Act, 2013, due to the statutory non-compliance. The court, referencing a similar case (W.P.No.11434 of 2021), ruled in favor of the petitioner, highlighting the prospective application of the law and the lack of prior notice as a violation of natural justice.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 721498 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 02-08-2022
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax (Central)-I, New Delhi v. Vatika Township Private Limited, Yashodhara Shroff v. Union of India, Gaurang Balvantlal Shah s/o Balvantlal Shah vs. Union of India, Bhagavan Das Dhananjaya Das vs. Union of India
• Laws Referred To: Companies Act, 2013, Companies (Appointment and Qualification of Directors) Rules, 2014, Constitution of India
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: NAMAVARAPU RAO
• Assessee Lawyers: G SUMATHI
• Keywords: Director Identification Number; Disqualification; Financial Statements; Statutory Returns; Writ of Mandamus; Deactivation
• Section: 151; 226; 248; 252; 164(2)(a)

Judgement Text

"HIGH COURT FOR THE STATE OF TELANGANA,AT HYDERABAD (Special Original Jurisdiction) TUESDAY ,THE SECOND DAY OF AUGUST TWO THOUSAND AND TWENTY TWO PRESENT THE HONOURABLE SRI JUST]CE K.LAKSHMAN WRIT PETITION NO: 31295 0F 2022 Between: AND lA NO: 1 oF 2022 1 2 sri Hari Prasad venkata subrahmanya Mandaviili, S/o sri M S Ramana. Aoed about 37 years, R/o 3-13, Hanumah^N_rgrr, S;r;;i;;, n ffii ?'?j\"r.\"; K. V Ranga Reddy, Telangana state - 5000610 ...PETITIONER Union of rndia and another, -Rep.by_its the Ministry of corporate Affairs. A wino. shastri Bhawan. Raierdra pr\"ria'ntrii, N\"*'ollhi:iiddbi, dffi#t# [V its Secretary. The Regis-tr_ar of Companies (For State of Telangana), 2nd Floor, Corporate Bhawan, GSt post, Tdrtiannaiam r,rigore, B;ili;;;;;, Hvo\".l,-nuJ--iioiibda. ...RESPONDENTS Petition under Articre 226 ot the constitution of rndia praying that in the circumstances stated in the affidavit fireo tnerewiirr, the High co;rt;\"y n\" pr\"u.\"o to pass an order or direction or any other proceedings one in the nature of writ of Mandamus decraring the .action br resjonoenls in o.actiraGs-i;; [utitionu,. Director ldentification Number 06496827 'ano reitricting the petitiJners riom titing statutory returns, i.e., the annuar returns and financiar ,ilt\"r\"nii Li tr.,\" coirprni\". in which they are Directors as arbitrary, iilegat, without jurisdiction, contiaif\"or tne provisions of the companies Act, 2013'and iure 11 of the companil, inpp.'ini.\"\"t of Directors) Rures, 2014.,.viorative of the piincipres or natlrri lu.'iiJJ\"o\"rio\". violating the petitioners rights guaranteed und'er Rrlicte ta ,no nitiJr\" i6:(rlisl or the Constitution of lndia. Petition under section 151 cpc praying that in the circumstances stated in the affidavit filed in support of the petition, ihu\"High corrtn.\"v o\" pru\"ruilJoir\"\"t the 1st Respondent to restore the the petifione, oirector rdentiiication Number (DIN) 06496827 so as to enabre.him to submit p\"nJing annuar returns and financiar statements for the Company in which she is appointe:d as directoi ;;; ;.. Counsel for the petitioner: M/S. G SUMATHI 9:yl-\":]Ig ltre Respondents: SRt. NAMAVARAPU RAJESHWAR RAO, ASST. SOLICITOR GENERAL The Court made the following: 1 THE HONOURABLE SRI JUSTICE K. LAKSHMAN WRIT PETITION No.31295 of 2022 ORDER: This Writ Petition is filed by the petitioner seeking a Writ of Mandamus' declaring the action of respondents in . deactivating the petitioner Director Identification Number (DIN) . 06496827 and restricting the petitioner from filing statutory returns i.e., the annual returns and financial statements of the Companies in which he is Director, as illegal, arbitrary and contrary to the provisions of the Companies Act, 2013 and Rule 1 I of the Companies Rules, 2014. 2. Heard learned counsel for the petitioner and the learned Assistant Solicitor General of India representing the respondents who submitted that in similar circumstances, this Court allowed W.P.No.11434 of 2021 and Batch vide common order dated 05.08.2021 and this Writ Petition may be disposed of in terms of said order. 3. In view of the same and for the reasons alike in the common order dated O5.O8.2O21 passed in W.P.No. 1 7434 of 2021 and Batch, this Writ Petition is also allowed in terms of the said order. There shall be no order as to costs. 2 Miscellaneous petitions, if any, pending in this Writ Petition, shall stand closed. 4 //TRUE COPY// 1. The Ministry of Corporate Affairs, Union of lndia A Wing, Shastri Bhawan, Rajendra Prasad Road, New Delhi - 110 001, Represented by its Secretary. 2. The Registrar of Companies (For State of Telangana), 2nd Floor, Corporate Bhawan, GSI Post, Tattiannaram Nagole, Bandlaguda, Hyderabad - 500 068. 3. One CC to M/s. G Sumathi, Advocate [OPUC] 4. One CC to Sri. Namavarapu Rajeshwar Rao, Asst. Solicitor General [OPUC] 5. Two CD Copies. 6. One Spare Copy (along with a copy of order dated 0510812021 in WP.No. 11434 of 2021 and batch) SD/-K.AMMAJI ASSISTANT REGISTRAR fr SECTION OFFICER To, PM S8 *},, HIGH COURT DATED:02 t0812022 ORDER WP.No.31295 of 2022 Allowing the WP Without costs. 1HE S r4 r5 c ( + ,J () 11 AUE 2W 7 * q- I / ,/ @ 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 some of them have been struck off from the register of companies under Section 248(1)( c ) of the Act, for not carrying on any business operation for the specified period mentioned in the said provision, and for not making any application within the specified period, for obtaining the status of a dormant company under Section 455 of the Act. 3, The petitioners, who were directors of the struck off companies, and who are presently directors of active companies, during the relevant period in question, failed to file financial statements or annual returns for a continuous period of three years Therefore, the 2\"d respondent passed the impugned order under Section 164(2) of the Act, disqualifying them asdirectors, 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 (DlNs) of the petitioners were also I I I I I W.P.Nos. 11.134. ll94l. 12240. 13780. 14963. 14992. 15139. 15856 & 16161 of2021 I deactivated. Aggrieved by the same. the present writ petitions have been filed. 4. This court granted interim orders in the writ petitions directing the 2\"d respondent to activate DINs of the petitioners, to enable them to functionother than in strike off companies. 5. Heard the learned counsel appearing for the petitioners in all the writ petitions, Sri Namavarapu Rajeswara Rao, learned Assistant Solicitor General 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 violation of principles of natural 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 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 f.4.21t4, and prior thereto i.e., under section 27ao)(il 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 fail 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 disqualify them. But in the present cases, the 2\"d respondent, takjng the period prior to 1.4.2014, i.e., giving the provision retrospective effect, disqualified the petitioners as directors, whichis illegal and arbitrary. 8, With regard to deactivation of DINS, learned counsel for thepetitioners 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 ofthe Rules, and the said grounds does not provide for deactivation for having become ineligiblefor 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 aqainst 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 daled 29.L2.2017 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 I I I approach the Tribunal for restoration. They submit that since the penal provision is given retrospective operation, de iors 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 counsel sought to set aside the lmpugned orders and to allow the writ petjtions. 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 lif ication 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 to comply with thestatutory requirement under Section 164 of the Act, cannot complain of violation of principles of natural justice, as it is a deeming provision. Learned counsel further submits that the petitioners have alternative remedy ofappeal under Section 252 of the Act, and hence writ petitions may not be enterta ined. L2. To consider the contention of the learned Assistant Solicitor General with regard to alternative remedy of appeal under Section 252 of theAct, the said provision is required to be considered, and the same is extracted as under for better appreciation: 252. Appeal to Tribunall (1) Any person aggrieved by an order of the Registrar, notifying a company as dissolved under Section 248, nay flle an appeal to the T bunal within a period of three years frcm the date of the order of the Registrar and if the Tnbonal is of the opinion that the removal of the narne of the campany fram the register of companiesis not justified in view af the absence of any of the grounds on which the order was passed by the Registnr, it may order restoration of the name of the company in the register of companies; Provided that before passing an order under this section, the Tribunal shall glve a reasonable oppoftunity of making representations and of being heard to the Registraa t ! I I the company and all the pesons concemed: Provided fur-ther 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 incorrect infarmation 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 date of passing of the order dissolving the company under Section 24q fib an application beFore the Tribunal seeking restoration of name of such company, (2) A copy of the ordet 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 Reqistrar shall cause the name of the company to be restored in the register of cofipanies and shall issue a fresh certifi cate of inco rporatio n, (3) If a company, or any member or creditor or worker thereof feels aggrieved by the company having its name struck off from the register of cofipanies, the Tribunal or an application made by the company, menber, crcditoror workman before the expiry of twenty years from the publication in the Official Gazette of the notice under sub-sedion (5) of Section 248, if satisfied that the company was, at the time of its name being struck off, carrying on business or in operation or othetwise it is iust that the name gf the company be restored to the register of conpanies, order the name of the cofipany to be restorcd to the register of companies, and the Tribunal may, by the order, give such other directions and make such ptovisions as deemed just for placing the company and all other persons in the same Dosition as nearly as may be as if the name of the company has not been struck olf 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 same, can file an appeal. Thus the said provision provides the forum for redressal against the dissolution and striking off the company from the reqister 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 disquatification 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. i I I t I ! 13. Under Section 16a(2)(a) of the Act, if the Director of a company fails to file financial statements or annual returns for any continuous periodof 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 0L.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 envisaged under Section 154(2Xa) of the Act, which provision came into force with effect from 01.04.2014, can be made applicable with prospective effect. or has to be given retrospective operation?In other words, the issue would be, from which financial year, the default envisaged under Section 164(2Xa) 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 4.4.2014 issued by the Ministry of corporation affairs, which clarifies the applicability of the relevant financial years. The relevant portion of the said circular is as under: \"A number of provisions of the Companies Act, 2013 including those relating to naintenance of books of account, preparalion, adoption and liling of financial statements (and documents required to be attached thercto), Auditors reports and the Board of Directors repoft (Eoardb report) have been brought into force with effect from 1st April, 2014, Provisions of Schedule II (useful lives to compute depreciation) and Schedule I (format of financial statements) have also been brought into force from that date. The relevant Rules peftaining to these provisions 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 which such provisions of the new Act relating to maintenance af books of account, preparation, adoption and filing of financial statements (and attachfients thereto), auditors report and EoarCE repoft will be applicable. Although the position in this behalf ls quite clear, to rnake things absolutely clear it is hereby notified that the financial statements (and documents requircd to be attached thereto), auditors report and Board's report in respect of I I I i i i I I I i I linancial yea6that cofimenced earliet than lst April shatt be qoverned by the relevant provisions/schedules/rules of the Companies Act, 1956 and that in respect of financial years commencing on or after 1* April, 2014, the provlsions of the new Act shall apply.\" 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.O4.2014, shall be governed by the provisions under the Companies Act, 1956 and in respect of financial years commencing on or after 0L,04.20L4, the provisions of the new Act shall apply. !4, 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 274(1)(9) of Act 1 of 1956. The said provision under Act 1 of 1956 is extracted as under for ready reference: section 274(71 A peEon shall not be capable of being appointed director of acompany, if- (g) such person is already a directot of a public company which, (A) 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 (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 ,ub-clause (A) o. has failed to repay its deposits or interest or redeem its debentures on due date or pay dividehd referred to ih 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 t and after the first day of April 1999. shall not be eligible to be appointed as a director of any other public company for a period of five years from thedate on which such public company, in which he is a director, failed to file annual accounts and annual returns. So the statutory requirement of filing annual accounts and annual returns, is placed on the directors of a 'public company'. There is no provision under the Act 1 of 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 1of 19 56. 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' ismade and as per the said provision goes to show that no person who is orhas 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 OL.04,2074. 16. Coming to the facts on hand, the 2\"d respondent has disqualified the petitioners under Section 164(2)(a) of the Act 18 of 2073, fot not filing financial statements or annual returns, for period prior to 01.04.2014. The action of the 2\"d respondent l.rn. aontrury to the circular issued by the Ministry of the Corporate Affairs, and he has given the provisions of Act 18 of2013, retrospective effect, which is impermissible. I , I I I I I I 17. The Apex Court in COMMISSTONER OF INCOME TAX (CENTRAL)-I, NEW DELHI v, VATIKA TOWNSHIP PRIVATE LIMITED| has dealt with the general principles concerning retrospectivity. The relevantportion of the judgment js thus: 27. A legislation, be it a statutory Act or a statutory Rule or a statutory Notification, may physically consists of words printed on papeE, 28. However, 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 statemehts, 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 daft 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 p nciples ol 'Interpretation of Statutes'. Vis-e-vis ordinary prose, a legislation differs in its provenancel lay-out and features as also in the lmplication as to its meaning that arises by presufiptions as to the inteht of the maker thereof. 29, Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a cont.ary intention appearst a legislation is presufiednot to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past, If we do something today, we do it keepinq in the law of today and io force and not tomorrow's backward adjustment of it, Our belief in the nature of the law is founded on the bed rock that every human beihg is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset, This principle of law is known as lex prospicit non respicit : law looks fotward not backward, As was obseNed in Phillips vs, Eyre [(1870) LR 6 QB 1], a retrospective legislation is contrary to the general principle that legislation by which the conduct of mankind is to be regulated when introduced for the first time to deal with future acts ought not to change the character of past transactions carried on upon the faith of the then existing law. 30.The obvious basis of the Ninciple against retrospectivity is the principle of'fairness', irhich most be the basls of every legal rule as was observed in the decision repofted in L'Office cherifien des Phosphates v. Yamashita-Shinnihon Stea mship Co. Ltd. [{1994) 1 Ac 486]. Thus, legislations which modilied accrued rights or vlhich itupose obligations or impose new duties ot attach a new disability have to be treated as prospective unless the legislative intent is clearly to qive the enactfient a retrcspective effect; unless the leqislation is for purpose of supplying an obvious ofiission in a former legislation or to explain a forfier legislation. We need not note that cornucopia of case law available on the sublect because aforesaid leqal position clearly emerges fram the various decisions and this legal position was conceded by the counsel for the | (2ot s)t scct pafties. ln any case, we shall refer to few iudgments containing this dictat a little later' 31, We would also like to point out, for the sake af compteteness, that where a benefit is confeied by a legistation, the rule against a retrospective construction is different. If a legislation confers a benefit on some persons but without inflicting a corresponding detriment an some other person or on the public generatty, and whercto confer such benefit appears to have been the legislators obiect, then the presufiption would be that such a legislation, giving it a purposive construction, would waffant it to be given a retrospective effect. This exactly is the justification to treat procedural provisions as retrospective. In covernment of India & Ors. v, Indian Tobacco Assoctation, [(2005) 7 SCC 396], the doctrine of fairness was held tobe relevant factor to construe a statute conferring a benefit, in the context of it to be given a retrospective operation, The same doctrine of faimess, to hold that a statute was retrospective in naturc, was applied in the case of Vijay v, State of Maharashtra & Ors., [(2006) 6 SCC 289]. It $/as held that where a law is enacted fot the benefit of camfiunity 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 sohe burden or liability t/here the presumption attached towards prospectivity, In the instaot case, the proviso added to Section 1li of the Act is not beneficial to tf,e assessee. On the contmry, it is a provision which is onerous to the assessee. Therefore, in a case like this, we have to proceed with the narmal 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 frafied, 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 evidence that clarifies that provision beyond any pale of doubt viz., the undeEtanding of CBDT itself regarding this provision. It is contained in CBDT Circular No,8 of 2002 dated 27.8.2002, with the subiect \"Fioance 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 sect)on 113 was made. In this circular, various amendments to the Income tax Act are discussed amply demohstrating as to which amendments are clanficatory/retrospective in ope.ation and which a me nd ments a re P rosqective. For example, Explanation to section 158'BB is stated to be clarificatory in nature. Likewise, it ls mentioned that amendments in Section 145 whereby provisions of that section are made applicable to block assessmerts is made clarificatory and would take effect retrospectively from 15t 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 fron 1,6.2002.\" 1 l I I I I 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 intentlon, 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 07.O4.20!4, 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 circulardated 4.4.2Of4 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 Reqistrar of Companies only after the conclusion of the annual general meeting of the company, and as per the first proviso to Section 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 30.09.2017. 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 theproviso to Section 403 of the Act. Learned counsel submit that if the said dates are calculated, the last date for filing the annual returns would be 30.11.2017, and the balance sheet was to be filed on 30.10.2017 withnormal fee and with additional fee, the last date for filinq annual returns is 27,O7.2018. In other words, the disqualification could get triggered only on or after 27.07.2018. But the period considered by the 2id respondent in the present writ petitions for clothing the petitioners with disqualification. pertains prior to 01.04,2014. Therefore, when the omission. which is now pointed out, was not envisaged as a ground for disqualification prior to 1,4.2074, the petitioners cannot be disqualified on the said ground. This analogy is traceable to Article 20(1) of the Constitution of India, which statesthat \"No person shall be convicted of any offence except for violation of 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 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 Single Judge of the High Court of KATNAIAKA iN YASHODHARA SHROFF YS. UNION OF i i I I IND(A2 consideting Section f64Q)G) 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 vlew of the aforesaid discussion. I have affived at the Fo I Iow inq co nc lusio ns : (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 proportionality. Neither does the said provisionviolate Atticle 19(1Xd 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, accountabilitL and transparency in corporate 9overnance. (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 a nd 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 operatian and is therefore, neither unreasonable nor arbitrary, in view of the interpretatian placed on the same, (d) (e) Insofar as the private companies are concernedl disqualification on account of the circumstances stated under Section 164(2)(a) ot the Act has been brought into force for the first time under the Act and the consequences of disqualification could not have been imposed on directors of private companies by taking into consideration any period priot to 01.04.2014 for the purpose of rcckoning continuous period of three financial years under the said provision. The said conclusion is based on the principal drawn by way of analogy from Afticle 20(1) of the Constitution, as at no point af time prior to the enforcement of the Act, a disqualification based on the circumstances under Section 1&(2) of the Act was ever envisaged under the 1956 Act vis-e-vis dtectors of private companies. Such a disqualification coutd visit a director of only a public company under Section 274(1)( of 1956 Act and never a director of a private company. Such disqualification of the petitioners who are dircctors of private companies is hence quashed, (a (g) Consequently, where the disqualification under Section 164(2) of the Act is based on a continuous period of three financial yea6 commencinq frcm 01,04,2014, wherein financial statements or annual returns have not been filed by a public or private company, the directots of such a I l I I l 2 w.p.No.529l I of20l7 and barch dared 12.06.2019 i I I i I t I , l company stand disqualified and the consequences of the said disqualification would apply to them under the Act, 2L. A learned Single of the High Court of Gujarat at Ahmedabad in GAURANG BALVANTLAL SHAH S/o BALVANTLAL SHAH vs, UNION OFINDIAs expressed similar view as that of the leaned single]udge of High Court of Karnataka (1 supra), and held that section 164(2) of the Act of 2013, which had come into force with effect from 1.4.2014 would have prospective, and not retrospective effect and that the defaults contemplated under Section 16a(2Xa) with regard to non-filing of financial statements or annual returns for any continuous period of three financial years would bethe default to be counted from the financial year 2O74-L5 only and not 2013- 14. 22. A learned single Judge of the High Court of l\"ladras in BHAGAVAN DAS DHANAN]AYA DAS VS, UNION OF INDIA4 AISO expressed similar view. The relevant portion is as under: 29. ln fine, (a) when the New Act 2013 came into effect from 1.4,2014, the second respondent herein has wrongly given retrospective effect and erroneously disqualified the petitioner - directors from 1.1.2016 itself before the deadline commenced wrongly lixing the first financial year from 1.4.2013 to 31.3.2014. (b) By virtue of the new Section 164(2)(a) of the 2013 Act using the expression 'for any continuous period of three financial year\" and in the light of section 2(41) defining \"financial year\" as well as their own General circular No,08/14 dated 4,4.2014, the first financial year would be from 7.4.2014 to 31.i.2015, the second financial year would be from 1.4,2015 to 31.3.2016 and the third financial year would be from 1.4.2016 to 31.i.2017, whereas the second respondent clearly admitted ia paras 15 and 22 of the counter affidavit that the default of filing statutory returns for the finalyears commences from 3spe.ialCivil Application No,22435 of20l7 and batch dated IE,l2.20l E 4 w.P.No.25q5J of20l? and batch dared 27.07.2018 : 1 I 2013-14,2014-15 and 2015-16 i.e, one year before the Act 2013 came into force. This is the basi incurable legal 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 b 07.44,2074, 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 extracted as under for ready reference: 164. Disqualitication for appointment of director: (2) No person who is or has been a director of a company which- (a) has not filed financial statements or annual retums for any continuous period of three financial years; (b) Shall be eligible to be re-appointed as a director of that company or appointed in gther 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 beena 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 I i I I I i I I I I i date on which the said company fails to doso' 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 ludge of the 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 164(2)(a) of the Act applies by operation of law on the basis of the circumstances stated therein, the saidprovision does not envisage any hearing' neither pre-d isqua lification norpost-disqualification and this is not in violation of the principles of natural justice and hence, is nol ultra vlres Article 14 of the Constitution' I concur with the sald reasoning' i:5. Thus, from the above, it is clear that Section 164(2)(a) of the Act is a deeminq provision and the disqualification envisaged under the said Provision comes into force automatically by operation of law on default and Legislature did not provide for issuance of any prior notice, but the resPondents notified disqualification even before it incurred, and deactivated DINS, which is illegal arbitrary and against provisions contained in Section 16a(2)(a) of the Act' 26, The next grievance of the petitioners is with regard to deactivationof their DINS. The contention of the learned 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 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 16a(2)(a) of the Act, DIN cannot be cancelled. I : i I ,7. Cancetlation or surrender or deactivation of DIN: The Central--Govemment or Regional Dlrector (Nofthern Region), Noida or any. officer auth_orized by the Regional Director maly, ipon teiiq sa.tisfied on verification of pafticulars or docufientary proof attacheid with the application received from any pe5on, cancel o;deactivate the DIN in case - (a) the DIN ts found to be dupticated in respect of the same person provided the data related to both the DIN shalt be merged w'ith the va I id ly reta i ned n u h ber; (b) the DIN was obtained in a wrongful manner or by fraudulent (c) (d) means; of the death of the concerned individual; the concerned individual has been declared as a person of unsound mind by a competent Coutt; 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 (f) on an application 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 inany company and the said DIN has Lever le:en used for filing of any document with any authority, the Central Government may deactivate such DIN; Provided that before deactivation of any DIN in such case, the Cen t@ lG ovem me nt sha tl verify e- records Explanation: for the purposes of clause (b) - (c) The terms \"wrongful manner- means if the DIN is obtained on the strength oF documents which are not legally valid or incomplete documents are fumished or on suppression of material information or on the basis of wrong ceftification or by making misleading or false information or by misrepresentation; (ii) the term \"fraudulent fieans\" means if the DIN is obtained with an intent to deceive any other peEon or any authority including the Central Government, 28. Clauses (a) to (f) of Rute 11, extracted above, provides for the circumstances under which the DIN can be cancelled or deactivated. The said grounds, are different from the ground envisaged under (e) i I I I I i I I jl l rI t I i I I i ; j i I I I I l I I I i l i i I 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 retevant for the present purpose, is extracted as under for ready reference: i Section under 164(2Xa) of the Act. Therefore, for the alleged violation Section 164 of the Act, DiNs cannot be cancelled or in the i I I I I I L ; deactivated, except in accordance with Rule 11 of the Rules' 29. Learned Single Judge of the Gujarat High Court decision cited 2 supra, held as under: ''2g This takes the Court to the next question as to whethe' the respondents could have deactivated the DINs of the pettttoner it u ,ini.qu\"nr\" of the impugnedlist? In this regard' t! w9tlld -le aDDrooriate to relet to the relevant provisions contained ]n tne ;;t and the satd Rutes. Sectlon 153(3) provides that no person shalt be appointed as a Director of a cofipany' unless he nas been allotted the Director Identification Number under section 7iq, section 153 requires every individual intending to be appointed as Director of a Conpany to make- an appltcatto,n tor i'liotment of DIN to the Central Govemment in such fom and iiiiniirit ,rv t\" prescribed. section 154 states that the central Cireinnent snau nithin one month from the receipt of the iiptrcatnn under sectlon 153 allot a DIN to an applicant in such nanner as may be prescribed, Section 155 prohibits any individual, who'has already been atlotted a DIN uoder. Section ')is iii apptvtng for or'obtalning or possesslng another D.IN' nutes S and 1o oithe said Rules of 2014 prescdbe the procedure fir iaking application for allotment and for the allotment ofDIN' ina iiiiei'provide that the DIN allotted bv the cent@t Govenment under the said Rules woutd be valid for the life time of the applicant and shatl not be allotted toany other person jO, Rule 11 provides for cancellation or surrender or deactivation of DiN. Accordingly, the Centrcl Government or niiionat oirecto, or anv authorized officerof Regional Diredor iiu. on aeins satisied on verification of pafticulars of do;umentary piol attached with an application from any person'. cancel or deactivate the DIN on any ol the grounds nentione'l in ctause (a) to (f) thereof, The said Rule 11 does not contem}late anY suo motu powers either with the Central Government or with the authorized officer or Regional Dhector to iniel oi deactivate the DIN allotted to the Director, nor anY of ihe clauses mentioned in the said Rules contemplates cancellation or deactivatign of DIN of the Director of the \"struck off compahy\" ;r of the Director having become ineligible under section 164of ihe said Act. The reas;o appears to be that once an individual, who is intending to be the Director of a paiicular company -is atlotted DIN bi the Cent.at Goeernment, such DIN would be valid for the liie time of the applicant and on the basis of such iti ni coutd become Director in other companies also. Hence, if oneaf the companies in which he was Director, is \"struck off\", his DIN could noi be cancelled or deactivated as that would run counter to the provisions contained in the Rule 11, which specifica y provides for the circumstances under which the DIN couldbe cancelled or deactivated 31. In that view of the matter, the Cout-t is of the opinion that the action of the resgondents in deactivating the DINS af the ;;t,tione/5 - Diectors alonq with the pubhcation of the impugned lr,t of Drectors of \"sttuck off companies under Section 248, alsc was not legally tenabte. Of course, as per Rule 12 of the said Rules, tne individual who has been allotted the DIN, in the event of any change inhis pafticulag stated in Form DIR -3 has to intifiate such ihange to the Central Government vrithin the otescribed ttme ,n Fori, DIR'6, however' if that is nat done, the 'DIN coutd not be cancelled or deactivated The cancellatrcn ot deactivation of the DIN could be resorted to by the concemed I I { I I I I I { I I ! ,;:E::!\"rrt onty as per the provisions contained in the said 30. Learned Assistant Solicitor General appearing for respondents had contended that Secuon 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 officers 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 270 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 ta 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.100/- per each day of default and which permits the regularizing the delay of the petitioners. Therefore, this Court is not inclined to accept the said contention of the learned Assistant Solicitor 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. ! I i I I I I I I l I I I l I I I I I { t I I I I i I I , I I I l ; 33. For the foregoing reasons, the impugned orders in the writpetitions to the extent of disqualifying the petitioners 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, enabting them to function as Directors other than in strike off comPanies. 34. 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 164(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' 35. lt is also made clear that if the petitioners are aqgrieved 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 allowed to the extent indicated above. 37. closed. Dt.05-08-2021 kvr Miscellaneous petitions pending if any shall stand JUSTICE ABHINAND KUMAR SHAVILI ) I { I 'I I ; I I i I i i I "