Sri Pakanati Venkata Raghava Reddy V. Union of India

WP/9153/2021

AI Insights

The case involves Sri Pakanati Venkata Rao Reddy, who filed a writ petition against the Union of India and the Registrar of Companies, challenging his disqualification as a director and the deactivation of his DIN. The disqualification was based on his failure to file financial statements or annual returns for three consecutive years, as per Section 164(2) of the Companies Act, 2013. The court examined whether the law applied retrospectively and found that it did not, leading to the setting aside of the disqualification and DIN deactivation.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 721664 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 12-04-2021
• Assessment Year: misc
• Other Referred Cases: Yashodhara Shroff vs. Union of India, Gaurang Balvantlal Shah vs. Union of India, Bhagavan Das Dhananjaya Das vs. Union of India
• Laws Referred To: Companies Act, 2013, Companies (Appointment of Directors) Rules, 2014, Constitution of India
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: NAMAVARAPU RAO
• Assessee Lawyers: M S GSUMATHI
• Keywords: DIN Deactivation; Director disqualification; Natural justice violation; Writ petition
• Section: 164(2); 226; 455; 248(1)(c)

Judgement Text

"HIGH COURT FOF AI ,,, \" \", \", \"i,i'i\"i#,i[fl l,lj;o * no * o IMONDAY, THE TWELFTH DAY OF APRIL TWO THOUSAND AND fWer.rfV Orrre - rHE HoNouRABLE sRrr.iff3EX[*NAND KUMAR sHAVrLr WRIT PETITION NO: 9153 OF 2021 Between: Sri Pakanati Venkata Raohava .Re_d-dy. S/o pakanati pitchi Reddy, Aged about. 41 years R/o Door r.r'o. a-1 s6/2, - r i s '\"'ilrrrrrr. Near post office, Phirangipuram(Mandaram), prrirangip;r;h, oun\"tur, Anonra pradesh- s22s2g. AND ...PET|T|oNERS 1. Union of lndia, Rep.by its the lvlinistry oj Corporate Affairs, A Wing, Shastri Bhawan, Rajendra pr'asad Road, New Dethi'- t to OOi, iipres\"\"i;i;;li, Secreta ry. 2 The Regis_]rar of Companies, (For State of Telangana), 2no Floor. Corporate Bhawan, GSI Post, Tattiannaram Nagole, Bandla-gudd, ,rd\"rr.OftO=idrod*O$E*ra 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 lrlandamus declaring the action of respondents in disqualifying the petitioner as a director and deactivating the petitioner DIN 05105967 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 arbitrary, illegal, without jurlsdiction, 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 iustice besides violating the petitioner rights guaranteed under 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, tf'.1e if igh Court may be pleased to direct the 1\"t Respondent to resiore the DIN 05105967 so as to enable me to submit pending annual returns and financial statements for the Companies in which I am appointed as d irector Counsel for the Petitioner : M/s. G'SUMATHI Counsel forthe Respondents :SRl NAMAVARAPU RAJESHWAR RAO Assistant Solicitor General The Court made the following: ORDER HON'BLE SRI JUSTICE ABHINAND KUMAR SHAVILI w.P.No.9153 ofZ zl ORDER: When the matter is taken up for hearing, learned counsel on either side faidy concede that the issue involved in this writ petltlon ls squarely covered by the common order dated 18.07.2019 passed by this Court in W.P.No.5422 of 2018 and batch. Following the common order dated 18.07,2019 in W.P.No.5422 of 2018 and batch, this Writ Petition is disposed of. No costs. Pending miscellaneous petitions, if any, shall stand closed. ,TRUE COPY' SD/.K.SAILESHI ASSISTANT REGISTRAR @ SECTION OFFICER To '\" '1 . Th\" Secretary, Union of lndia, the Ministry of 9qp9lul\" Affairs' A Wing' Shastri ' Bh;ff;; Hii6nora Prasad Road, New Delhi -.110 001' 2. The Reqistrarot comi\"aiies,-tlirsiate of Telangana), 2nd Floor, corp-olqJg. ' Bu;;;'esiFi,Jt, iSti;iiij\",m NJsg1e,-P.1r]oligud6' Hvderabad - 500 068' 3. One CC to M/s. G.Sumathi, Advocate tOiUUl 4. One CC to Sri r..ruruljl'**ijii iiiJs-n*ii auo, Assistant Solicitor General [OPUC] 5. Two CD CoPies \" i.'L;,.,g *iih 5 iopy ot the order dated 1}to7 t2o1g in wP No.5422 of 2018 and batch) Ki. , . ,, $,\" HIGH COURT DATED:1210412021 ORDER WP.No.9153 ot 2021 DISPOSING OF THE WRIT PETITION WITHOUT COSTS. b *V 24 APn 2021 'i ll S H 1 ( i':) o U af Ax-ly .4i v ;. 9 26 9 37 1 058. 00 9. 11 o8 1 22 3, 12 ,11 53 8B9, I 1 9 4 4 4 4 4 14409, L4 82 AN D 145 70F2o19 Since, the issue involved in all the writ petitions ls 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 makinE any appl:cation 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 lhe 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 2nd respondent passed the impugned order under Section 164(2) of the Act, disqualifying them as 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 companies fa iled to do so. The Director were also d ea ctivated of the Petitioners 4 4 7 7 7 1 1 1 7 date on which the resPective Identification Numbers (DINs) Aggrieved by the same, the present writ petltions have been filed' 7 ( COMMON ORDER 5 0 1 50. 2262. L2 288. 123 2 t2 20 0, 122 9. 1 215 1.7. L224 t2 L22 4 7 4 2 9 1 1 4 1 o D COMMON ORDER Since, the issue involved in all the writ petltions 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, 2OL3 (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 dlrectors 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 2n0 respondent passed the impugned order under Section 164(2) of the Act, disqualifying them as 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 petitions have been filed. ) 4. This court granted interim orders in the writ pelitions directing the 2nd respondent to activate DINs of the petitioners, to ena,re them to function other than jn strike off companies. 5. Heard the learned counsel appearing writ petitions, Sri K.Lakshman, learned Assistant for the respondents - Union of India. ; detit '1. ONETS nera I So for the ori l, l I i th t C in all the Ge appearing counsel for the Ru le 2(d) of the Rules, 2014 (for 6. Learned counsel for the ,petitioners, contend at 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 oTders are liable to be set aside. 7. Learned counsel submits that Section 16a(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 conlinuous period of three financial years. Learned counsel further submits that this provision came into for:ce with effect from 7.4.20t4, and prior thereto i.e., under Section Zl+(t)(g) of the Companies Act, 1956 (1 of 1956), which is the analogous provision, i th\"r\" *.. no such I requirement for the directors of the private companies. ,They contend that this provision under Act 18 of 2013, wi have prospe+tive operation and hence, if the directors of company fail to comply with the requirements : mentioned in the said provision subsequent to the said laate, tlre authority under the Act, is within its jurisdiction to disquarify them.; But in the present cases, the 2nd respondent, taking the period prior to 1.4,2,0 74, i.e,, giving the provision retrospective effect, disqualified the petitionersr as directors, which is illega I and arbitrary. 8. petitioners Companies With regard to deactivation of DINs, learned submit thar tne DINs, as contemplated under (Appointment and Qualificarion of Directors), short'the Rules), are granted for life time to the applicants under Rule 10(6) of the said Rules, and cancellation of ine OItr: can be made only for the grounds mentioned in clauses (a) to (f) under Rule 11 of the Rules, and the said grounds does not provide for deactivation for having become ineligible for appointment as Directors of the company under Section 164 of the Act. Learned counsel further submits that as against the deactivation, no appeal is provided under the Rules, and appeal to the Tribunal under Section 252 of the Act is provided only against the dissolution of the company under Section 248 of the Act. 9. Learned counsel further submits that 1'r respondent - Government of India represented by the Ministry of Corporate Affairs, has floated a scheme dated 29.L2.2O17 viz., Condonation of Delay Scheme - 2018, wherein the directors, whose DINs have been deactivated by the 2\"d respondent, allows the DINs of the Directors to be activated. However, such scheme is not applicable to the companies which are struck off under Section 248(5) of the Act. In case of active companies, they can make application to National Company Law Tribunal under Section 252 of the Act, seeking for restoration, and the Tribunal can order for reactivation of DIN of such directors, whose DIN are deactivated. However, under Section 252 only the companies, which are carrying on the business/ can approach the Tribunal and the companies, which have no business, cannot approach the Tribunal for restoration. They submit that since the penal provision is given retrospective operation, de hors the above scheme, they are entitled to invoke the jurisdiction oF this court under Article 226 of the Constitution of India. 10. With the above contentions, learned counsel sought to set aside the impugned orders and to allow the writ petitions. 11. On the other hand Iearned Assistant Solicitor General submits that failure to file financial statements or annual returns for any continuous period I of three flnancia I years, a utomatica/iy Seftion 164(2)(a) of the Act and the statute does enta j/ their disq ua Iifica tion under any notice. Hence, the not pro,vide for iss ua n ce of .compiy with the petitioners, who nave failed to statutory requirement under Section 164 of the Act, annot complain of vioiation of principles of natural justice, as it is a deeming provision. Learned counsel further submits that the petitioners have alternative remedy of appeai under Section 252 enterta in ed. of the, Act, and hence writ pqtitions may not be 12. 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. Appeal to Tribunali (1) Any person aqqrieved by-an order of the Registrar, notifying a company as dissolved under Sectron 248. may fite un upp\"ul to ini iiiO,jnur within a perjod of three years from the date of the order of the Registrai anO iiihe rriounal is of the opinion that the removal of the name of_the compiny i-, if.,\" i\"girt\", \";;;;\":;: is not justified in view of the absence oF any of ii,\" irounai on Which the order was passed by-the Registrar, it may order restoiation or[le name oi it e ;;;;;;\"i\" i;; regrster of com oa n ies; ,,..- , lrou,d\"d, that before passing an order under this sectionj the Tribunal shall 9i\"-9-?_l:.:9!ublu opportunity. of making representations and of leing heard to the Kegrsrrar, the company and all the persons concerned: i Provided further that if the Registrar is satisfied, that the name of the company has been struck off from the register of companies eitner inaOverientty oi on basis of incorrect 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 date oF passing of the order dissolvlng the comfany under Section 248, file an application before the Tribunal seeking restoratiori of name of such co m pa ny. (2) A copy of the order passed by the Tribunal shall be filed by the company with the Registrar within thirty days From the date of the order and on recetpt oi the order, the Registrar shall cause the name of the company to be restored in the register of companies and shall issue a fresh certificate of incorporation. (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 companies, the Tribuna or an application made by the company, member, creditor or workman before the explry of twenty years from the publication in the Official Gazette of the notlce under sub-section (5) of Section 248, if Satisfied that the company was/ at the time of its name being struck off, carryinq on business or in operatron or olherwise lt ls lust that the name of the company be restored to the register of compan es, order the name of the company to be restored to the register of companies, and the Tribunal may, by the order, give such other dlrections and make such provisions as deemed just for placing the company and all other persons n the sarne position as nearly as may be as if lhe name of the company has not been struck off from the register of companies, A reading of above provision goes to show that f the companY ls dissolved under section 248 of the Act' any person aggrieved by the same' can file an appeal. Thus the sald provision provides the forum for redressal against the dissolution and striking off the company from the register of companies lt 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 disqualiflcation 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 AssistantsolicitorGeneral,inthisregard,meritsforrejection, 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 flnancial years, he shall not be eligible to be re-appointed as a director of that company or appointed in other company for a period of five years from the date on which the said company fails to do so' The said provision under the Act 1B of 2013, came into force with effect from ol,o4,2oT4,andthepetitionersaredisqualifiedaSdirectorsunderthesaid provision. At this stage, the issue that arises for consideration is - whether the disqualification envisaged under Section 164(2)(a) of the Act, which provision came into force with effect from 07'04'2014, can be made applicable with prospective effect, or has to be given retrospective operation? Inotherwords,theissuewouldbe,fromwhichfinancialyear,thedefault envisagedunderSection164(2)(a)oftheAct,haStobecalculated,tohold 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 maintenance of books of account, preparation, adoption and filing of financiai statements (and documents required to be attached thereto), Auditors reports and the Board of Directors report (Board's report) have been brouqht nto force with 6 j I effect from 1st April, 2014. Provisions of Schedule II (useful ilives to compute depreciation) and Schedule UI (format of financial statementF) have also been brought into force from that date. The relevant Rules pertaining ltb these provisions have also been notified, placed on the webslte of the lvlinistry ahd have come into force from the same date. I The 14inistry has recerved requests for clanficatron with regi financial years with effect from which such provisions of the n maintenance of booxs of account, preparatton, adoption andl statements (and attachments thereto), auditors report and Boa applicable. 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), audltors report and Board's report in respect of financial years that commenced eariier than 1'r 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 1't April, 2014, the provisions of the new Act shall apply. \" A reading of the above circular makes it clear the finanaial statements and thedocumentsrequiredtobeattachedthereto,auditorslreportandBoard,s reportinrespectoffinancialyearsthatcommencedearlierthan0l'04'2014' shall be governed by the provisions under the Companies Act' 1956 and in has not filed the annual continuous three Financial frrst day of APrrl, 1999; or accounts and annual retuTns For years comn.lencing on and after ld to the relevant ew Act relating to filing of financial rd's repgrt wili be 4.2014, the p rovis io ns Itl dhat tne analogous 1' Stction 274(1)(g) of i is lextracted as under any the respect of financial years commencing on or after 01'0 of the new Act shall aPPlY. t4. At this stage it is required to be noticed provision to Section 16a(2)(a) of the Act 18 of 2013' is Act 1 of 1956. The said provision under Act 1 of 1956 for ready reference: section2T4(1)Apersonshallnotbecapableofbeingappolnteddirectorofa company, if - f9) sucn person ls already a director of a public company which' ' (A) (B) Provided that such person shall not be eligible to be appointed as a director of any otn\"l. p\"Ufi. company for a period of five years from the date on which such public .omnanv. in whlch he ls a director, failed to file annual accounts and annual returns i\"^X'J.'ll;li J,jli io; ;\",.i;;;;;;;, 'io ,.\"puv iis deposits or interlst or redeem its Jab\"ntut\"t on due'date or pay dividend referred to in clause (B) , A reading of the above provision under Act 1 of 1956, malies it clear that if a I person capable of being appointed director of a company and such person is I already a director of a publlc company, which has not fil# annual accounts and annual returns for any continuous three financial yeai's commencing on and after the first day of April 1999, shall not be eligible to be appointed as a director of any other public company for a perioci of five years from the date on which such public company, in which he is a director, failed to file annual accounts and annual returns. So the statutory requirement of filing annual accounts and annual returns, is placed on the directors of a 'public company', There is no provision under the Act 1of 1956, which places similar obligations on the directors of a 'private company,, Therefore, non- filing of annual accounts and annual returns by the directors of the private company, will not disqualify them as directors under the provisions of Act 1 of 1956. 15. Under Section 164(2) of the new legislatiQn 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', fairs to fire financial statements or annuar returns for any continuous period of three financial years, wiil not be eligible for appointment as a director of a company. As already noted above, the said provision, came into force with effect from 07.04.2074. 16. Coming to the facts on hand, the 2\"d respondent has disqualified the petitioners under Section rcaQ)e) of the Act 18 of 2013, for not filing financial statements or annual returns, for period prior to 01,04.2014. The action of the 2nd respondent runs contrary to the circular issued by the N4inistry ofthe Corporate Affairs, and he has given the provisions ofAct 1g of 2013, retrospective effect, which is impermissible, 77. The Apex Court in COMMISSIONER OF INCOME TAX (CENTRAL).L NEW DELHI v. VATIKA TOWNSHIP PRIVATE LIMITEDL has dealt with the generar principres concerning retrospectiv ity. The rerevant portion of the judgment is thus: ' lzorslt scc r 27. A legislation, be it a statutory Act or a statutory Rule or a statutory NotiFication, may physically consists of words printed on papers. However, conceptually it is a reat deal more than an ordinary prose, de of verbal commu;i cation by a legislation, peculiarity in the mo ust a series of state s ments, such as one fi court of law. There is one rs to be Found in 8 nds in a work the various pr to its meanin lThere is a s iA leg islation lnon fiction ar nce, lay-out n a judgment of a as well as to understand a leglslation Former techni pecial of fiction is not even a technique required to draft a I eg is latio n drafting and latter gue is known as and features Statutes,. Vis-a-vis ordina as also in the i nt of the ma ke ry prose, a le mplication as leg islative incrples qf .InterPrelation of gislation differs in its provena as to lhe inte g that arises by presumptions r ihereof \",,:3 ,\":: ::iYjl;\"J;,:[i lil-.9 \"\"^ a '|esis,aron r]as ro De ,nrerprered, one no, Lo o\" ,iiu\"'o\"r' ;;';\",:': i;\"-:!':\"f arenrron appears, a les,slar,o-s presumeo tnat a cu.rent 'u* ,nL, i'onJo.ltrosrectrve ooerat.on. Ihe ,dei beh no ,1\"-;;,; ,; to rt e everrs'oii;; r\".\"r; r;';\",-:-\"r'e.t acr,v,rres. La'r pdsseo rooav cannorlp]piv tooav ard ,n ror.L uiJ \"or fnn.'. oo t9l\"tt'',g today' we do rt heeprng rn the 'aw oi n a ru ie or,.,\" [*' i i\", \" o. i'; ;',]{.:+, l*XTfl, i i,\"TiI ;: L:l il t, i:;:ii:i U a.ange l'rs aFfa,rs oy re vr.o on Ltse exr51,.,q \";;;; ;;;\";d ;;r .ind rhar nrs p,ans l\"ave been ret\"ospecuvety uJset. T\"rs or...'pu oiru*,, k;;*;;,,ex prosprcrt non respicrt : law rooks forward ,.rot Dac(ward. e, *r, \"0r\"r\"\"\" in\"rn,,,,o, vs. Eyre [(1870) LR 6 QB 11, a rerrosoect.ve regrstarjon ,;\";;;;;; tne generar prrncipte that.leg,.rarron by which rne conarct oi\"ru\"iino i, i\" i\" .lg\"l\"l\"! wnen .ntroduced for the first time to deal with future acts.ought not to cnunie t'ne character of past t'ansactions ca\"ried on upon tne Faith of the ihen existint i\"rJ- ' '' 29. The obvious basis of the principle against retrospectivity rs the pflncipte of 'fairness', which must be the trasts of eve-ry legat ,uf,i ui *j. observed in the decision reported in L'Offce Cherften des irnoipnates \" va,\",\"rfiii--i-ni\"^tn.\" steamship co. Ltd. t{1994) 1 Ac 4861. Thus, regisrations which modifred accrued rights or which impose obligations or impose new duties or attalh. \"\"*-oiJlr, have to be treated as prospective unless the legislative intent is,cfeiriv to giue thl enactment a retrospective effect; unless the legislation is for purpose of sipolyinq an obvious omission in a former legislation or to explain a foimEr leqislation. 'Wi need not note that cornucopia of case law available on the subject becjuse aforesaid legal position clearly emerges from the various decisions ana iniJ legat position was conceded by the counsel for the parties. In any case, we {hall refer to few judgments containing this dicta, a tittle later. 30. We would also like to polnt out, for the sake of completeness, that where a benefit s conferred by a legisiation, the ruie against a retrospective construction is different. If a leglslation confers a beneflt on some peTsons but without inflic!ng a corresponding detriment on some other person or on the public gqnerally, and where to confer such benefit appears to have been the legislators object, then the presumption would be that such a eg s ation, 9rv ng it a purposive constructjon, would warrant it to be glven a retrospective effect. This exactiy is the lust ficaion to treat procedural provsions as retrospective. In Government ol Indla & Ors. v. Indian Tobacco Association, [(2005) 7 SCC 396], the doctrine offairness was held to be relevant factor to construe a statute conferring a beneFit, in the context oF t tc) be g ven a retrospective operation The same doctrine of fairness, to hold that a statute was retrospective in nature, was appl ed in the case oF Vijay v. State of Maharashtra & Ors., [(2006) 6 SCC 289]. Il was held that wheie a law ls enacted For the benefit of commun ty as a who e, even in the absence of a provision lhe statute may be held to be retrospective in nature. l-lowever; we are (slc not) confronted wrth any such srtuat on here. 31. In such cases, retrospectvity ls attached to benefit the persons ln conlradlstrnct on to the provision lmposing sorne burcen or liabllity where the presumption attached towards prospectivity. In the instant case, the proviso added to Sectlon 113 of the Act is not benefclaL to the assessee. On the contrary, it s a provision which is onerous to the assessee. Therefore, in a case like this, we have to proceed with the normal rule of presumption aga nst 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 ciearly in the terms of the Act, or arises by necessary and distinct implication. Dogmaticaliy framed, the rule is no more tl-lan a presumption, and thus could be displaced by out weighjng factors. 43. There is yet another very interesting piece of evidence that clarifies that provision beyond any pale of doubt viz., the understanding of CqbT itself regarcling this provision. It is contained in CBDT Circular No.8 of 2002 dated 27.8.2002, wrth the subject \"Finance Act, 2002 - Explanatory Notes on provisiod relating to Direct Taxes\". This circular has been issued after the passing ol'the Finbnce 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 clarlflcatory/retrospective in operation and which amendments are prospect ve. 9 For examore, Exoranation P-:':';\"J\"i:1;t? il:ts:i:\"t\"ff iillt* ll,l'l'l$!'i; Lrkewrse, it is mentioned-tl^:\"t\"^\",: i\"\";;;;a \"ssess.nenrs s-made crarificato'v ald that sect'o1 are made applrcaorc f;; i: *y o. lu.y, 1995. whe.l ,t comes to ];'\"1\"r:;,\",'i\"\"'\":iiiliiT,:il,#i*,i1i!:t\";i;gg.1';;\"11'.Ix:il;.i?Ji amendment alonq wlth the- am^e r.,, *l ut\" ef'eit trom 16 2Aa? \" ls.Thus,theApexCourtintheabovejudgment'hasmadeitclear that unless a contrary intention appearsr 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 provislon applicable to past transactions. Further, the Apex Court in the above judgment at paragraph No.43, found that the circular issued by the authority after passing of the legislation, clarifying the position with regard to applicability of the provisions, has to be construed as an important piece of evidence, as it would clarify the provision beyond any pale of doubt. In the present case, as already noted above, the Ministry of.Corporation affairs has issued the circular No.08l2Ol4 daled 4.4.2014 clarlfying that flnancial 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 pres9nt 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 OL.04.2074, 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 provision is given prospective effect, as per the circular dated 4.4.20L4 and the law laid down by the Apex Court, as stated in the writ affidavits, the first financial year would be from 01-04-2014 to 31.03.2015 and the second and third years financial years would be for the years ending 31.03.2016 and 31.03.2017. The annual returns and financial statements are to be filed with Registrar of Companies only after the conclusion ofthe annual general meeting ofthe company, and as per the first l0 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 the proviso to Section 403 of the Act. Learned counsel submit that if the said dates are calculated, the last date for flling the annual returns would be 30.11.2017, and the balance sheet was to be filed on 30.10.2017 with normal fee and with additional fee, the last date for filing annual returns is 27.O7.2078. In other words, the disqualiflcation could get triggered only on or after 27.O7.201,8. But the period considered by the 2nd 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 d isq ua lification prior to t.4.2014, the petitioners cannot be disqualified on the said ground. This analogy is traceable to Article 20(1) of the Constitution of India, which states that \"No persan shall be convicted of any offence except for violation of a law in force at the time of the commission of the act charged as an offence, nor be subjected to a penatty 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 petltioners 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 Karnataka in YASHODHARA SHROFF vs. llNIoN OF 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. The observations of the learned ludge, pertaining to 2 w.P.No.529ll of 2017 andbarchdaled 12.06.2019 lt private companies' which are rerevant for the present purpose, are extracted as under: (0 208. In view of the aforesaid discussion, I have arrived at the following conclusjons: (a) It is hetd that Section 164/ Lonstrtution. rhs ru;6 prou;3)(:)-of the Act E not ultra vit wrthrn the scope of the oo.,,lln-lt.'ot 'nu\"lL'i'v u,.o]l'lJ.r'Iff i::ti\".#;l i:; viorate erucre 'r-9 ii )i; ) \"\";;il::: -?ropo'tiona litv. Neither does tire saio p.oul,o\"\" #: il:,ti\";f 1,\":1 i;:;,.1..,13,[ lT'fi : :: ::J,: J\"T in'J,'l :' \"': ,.\" \" ; i s \" \" \" I i d squarirication on account \", i;:'::::l-:t*i\"*.\"i;'r;,\"' ;n:: i#:::r\"'r:: \":i\"tj order to \"ci,iere p.ooit,). '\"r !rrrurr'srd'lces stated therc,o and the same is ii governance. '' --''/' accountablljty, and transparency rn corpo.ate (c) That Sectron 164(2) of thF therefore' \"\"'tn\",-''7.u\"u'o''5^l't: ^o-o\": not have retrosrect on the same. -___, _bre nor arbrr.a-y, ,\"-\",\", \"ii.nJ,l\"\",\":Sff,l:; ;:\".\"; (d) . . . (e) Insofar as the private comoa circurn51646s5 !i\"i;; ;;;L\"::t-t' :le :919-efied' drsquarirrcati( n,,Tff Tr:.il jril!:l\"iif ).:*:ifi i,;1i\"ti#.-\"*:r,t\"\",,*#; considerarion \"\"t -;\";;;;\";;;;\",\"\"''o\"r'.tSllrBlf ,il?tet compuanies ov -t.[rq'-i\"i; ;tt:*[li:i*]1,,{it[f fliri{,,,,r:i. j[#,;,;irr,rr:ff :;:x3 o,squar ricarion based on ,n; 'lil 3i-t:T\" ,;\"' i; ;;;'\"\";H,I.:Hll$tii\"\"l.'J \"j eve. envisaqed ,\"0\"i,n\" i n\"rl'TUrn sta nces Jnder section 164(2) of ,r.,\" a.i'*\"| :,iffll;i, :,J: i,..\",11 J :.:#:!: jj\"i, :l,x\":,T;,?:,:#te co m pa n es s uih i;.,i;,JI2\"il,:i',..\"XT,i:1\"1\";T\":.i,;::,:;::,;,:H:T{\"i\"il:\"J:,^:i:: (b) That Artrcle (s/c) Sectron 164 or the crrcumstan.\", ,,u,\"0(3]:'-:le Act aopl'es bv operatron ot law on the basjs nearrns, neitrrei p;;-. d #:'\"],..:-\".f: rn ' lhe sa'd provrs,on doe vrorarron of rhe principres ort'-t::'o.:, 'o,- poti'oitqruijr,.r,]Jr\"t ^ot envrsage a'rv constitutron. v narL,/al ;,rt,.\"..,r nli rri;;,,;f,\"j;i,r.T\"r ii i:i;i (g) ConsequenUy, where the drsc on a contrnuous pe.od ot ,111'^t':,u_,1o\" \"\"0.r section t6ae) of rhe Act is baseo wne.ein tnanclal ;;;\";\";,.'i:\": trnaocia' vea's commencrng rron-, or.oo )oiq\" private compinf.-i;; ;:r\":',\"\"-1 t l: ua I returns nave not beeiritei o, \" oro1,\".'\"\"; . o n, \"q,. n.u'.I / i d ;. ; ;H\",:i,:; ; : :^_ :, ff ff : ; r, \"'f * : m::ill'::i .i\".i ilJ 21. A learned Single of the High Court of Gujarat at Ahmedabad in GAURANO BALVANTLAL SHAH S//O BALVANTLAL SHAH vs. UNION OF INDIA3 expressed similar view as that of the leaned single Judge of High court of Karnataka (1 supra), and held that section t64(2) of the Act of 2013, which had come into force with effect from 1.4.2074 would have prospective, and not retrospective effect and t under Section 164(2)(a) with regard to non_fil hat the defaults contemplated ing of financial statements or r/Special Civil Applicarion No.22435 of 20 I 7 and batch dated 18, I 2.20 I S annual returns for any continuous period of three financial years would be t2 c0unted from the financial year 2014-15 only and not the defa ult to be 2013-14. 22. A learned singre Judge of the High court of Madras in BHAGAVAN DAS DHANANJAYA DAS vs. IJNION OF INDIA4 atso expressed similar view. The relevant portion is as under: 29. In fine, (a) When the New Act Z0l3 came into efFect from 1.4.2014, the second respondent herein has wrongly given retrospective effect ?1d ^ ^\"f lol\"oyrly disquatified the perit-ioner - direilors from -L.t.zul.b ttsetr betore the deadline commenced wrongly fixing the first financial year From l.4.ZOI3 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 l,inancial year would be from 1.4.2014 to 31,3.2015, the second financial year would be from 1.4.2015 to 31.3,2016 and the third financiat year would be from 1.4.2016 to 31.3.2017, whereas the second respondent clearly admttted in paras 15 and 22 of the counter affidavit that the default of filing statutory returns for the final years commences from 2013-14, 20t4-f5 and 2015-16 r.e, one year before the Act 2013 came into force. This is the basic incurable legal infirmity that vitiates the entire impugned proceed ing s. 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 164(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 164(2)(a) is required to be noticed, and the same is extracted as under for ready reference: 164. Disq ualification for appointment of director: 'w p Nn.2545,s o1 2017 and barch dared 27.0?.2018 13 (2) No person who is or has been a director of a company whlch- (a) has not filed financial statements oT annual returns for any continuous period of three financial Years; or (b)... Shall be eligible to be re-appointed as a drrector of that company or appointJ in otnei.6rnpuniu, fo' u p\"'ioti of five years from the date on which the said companY fails to do so. A reading of the above provision makes it clear that it provides disqualification on happening of an event i e , if a person who is or has been a director of a company has not filed financlal statements or annual returns for any continuous period of three financial years, shall be ineligible to be re- appointed as a director of that company or appointed in any other company for a period of five years from the date on which the said company fails to do so. The provision does not provide for issuance of any prior notice or hearinq. 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 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 16+(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 u a lification nor post-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 sa id reasoning. 25. Thus, from the above, it is clear that Section 164(2)(a) of the Act is a deeming provision and the disqualification envisaged under the said prov;sion 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 disq ua lificatio n even before lt incurred, and deactivated DINs, which is illegal arbitrary and against provisions contained in Section 164(2)(a) of the Act. 14 26 The next grievance or the petitioners is with regard to deactivation of thejr DLr,Js, The contention of the learned counsei For the petitioners is that except for the grounds mentjoned under Rule 1 the DINs cannot be cance,ed or deacrivated, \"r. :^:ti::.::t:::::: under Section 164(2)(a) of the Act, is not one of the g;rounds mentioned under crauses (a) to (f) of Rure 11, and hence for the areged vioration under Section 164(2)(a) ofthe Act, DIN cannot be cancellbd. .r , 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. Rute cancellation or deactivation. Rule 11, which is relevant purpose/ is extracted as under for ready reference: 11. Cancellation or surrender or deactivation of DIN: The Central Government or Regional Director (Northern nugio;i Noi,ju ii \"iy offi.\"|. authorized by the Regionai Di196161 .\", upon being.rtiiri\"i'on u\"-.li.aii9n of particutars or documentary proof arrached witn tne appticatio\" r-;;\";uj;;;;;;y person, cancet or deactivate the DIN in case - the DIN is found to be.duplicated in respect of the same person provided the data related to both the DIN shalt be merged wiih the vatidly retaineJ number; the DIN was obtained in a wrongful manneT or by fraudulent means; of the death of the concerned individual: the concerned individual has been declared as a person of unsound mind by a com petent Court; if the concerned individual has been adjudicated an insolvent; Provided that before cancellation or deactivation of DIN pursuant to clause (b), an 0pportunity of being heard shall be given to the concerned individual; on an application made in Form DIR_5 by the DIN holder to surrender his or her DIN along with declaration that he has never been appointeJ u, Oir\"itor in any company and the said DIN has never been used for filing of any document with any authority, the Central Government may deactivate sucn Dtru; Provided that before deactivEtion of any DIN in such case, the Central Government shall verify e-records. Explanation: for the purposes of clause (b) - The terms \"wrongful manner', means if the DIN is obtained on the strength of documents whlch are not legally valid or incomplete documents are furnished or on suppression of material information o[ on the basis of wrong certification or by making misleading o,r false information or by misrepresentation; (ii) the term \"fraudulent means'' means f the DIN is obtained with an intent to deceive any other person or any authorily lncluding the Central Govern me nt. 11 provides for for the present (a ) (b) (c) (d) (e) (f) o 28, Clauses (a) to (f) of Ru e 11, clrcumstances u rder which the DIN can said grounds, are different from extracted above, provides for the be cancelled or deactivated. The the ground envisaged under 15 Sectlon 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' 29. Learned Single Judge of the Gujarat High Court ln the decision cited 2 supra, held as under: \"29. This takes the Court to the next question as to whether the respondents could have deactivated the DINs of the petitioner as a consequence of the impugned list? In this regard, it would be appropriate to refer to the relevant provisions contalned in the Act and the said Rules. Section 153(3) provides that no person shall be appointed as a Director of a company, unTess he has been allotted the Dlrector Identification Number under Section 154. Section 153 requires every indvdual lntendlng to be appolnted as Dlrector of a Company to make an application for allotment of DIN to the Centra Government in such Form and manner as may be prescribed. Section 154 states that the Central Government shall within one month from the rece pt of the application under Sectron 153 ailot a DIN to an applicant in sucl'r manner as may be prescribed. Section 155 prohibits any individual, who has already been alotted a DIN under Sect on 154 from app ying for or obtaining or possessing another DIN, Rules 9 and 10 of the said Rules of 2014 prescribe the procedure for making app lcatlon for alotment and For the ailotment of DIN, and further provide that the DIN allotted by the Central Government under the said Rules would be valld for the life time of the app icant and shall not be allotted to any other person. 30, Rule 11 provides for cancellation or surrender or deactivation of DIN. Accordingly, the Central GoveTnment or Regional D rector or any authorized officer of Regional Director may, on being satisfied on verfication of particulars of documentary proof attached with an app ica on from any person, cancel or deactivate the DiN on any of the grounds menloned tn Clause (a) to (f) thereof. The said Rule 11 does not contemplate ary suo motu powers etther with the Central Government or with the authorized officer or Regional Director to cancel or deactivate the DIN allotted to the Dlrector, nor any of the clauses mentioned in the said Rules contemplates cancellation or deactivation of DIN of the Djrector of the \"struck off company\" or of the Director having become ineliqible under Section 164 of the said Act. The reason appears to be that once an individual, who is intending to be the Director of a particular eompany is allotted DIN by the Centra'i Government, such DIN would be valid for the ljfe time of the applicant and on the basis of such DIN he could become Director in other companies also. Hence, if one of the companies in which he was Director, js \"struck off,,, his DIN could not be cancelled or deactivated as that would TUn counter to the provjsions contained in the Rule 11, which specifically provides for the circumstances under whjch the DIN could be cancelled or deactivated. 31, In that view of the matter, the Court is of the opinion that the action of the respondents in deactivating the DINs of the peti|oners - Directors along with the publication of the impugned list of Directors of..struck off,, companies under Sectlon 248, also was not legally tenable. Of course, as per Rue 12 of the said Rules, the individual vvho has been allotted the DlN, n the event of any change ln his partculars stated ln Form DIR -3 has to ntimate such change to the Central Government within the prescribed time n Form DIR-6, however, if that is not done, the DIN could not be cancelled or deactivated. The canceliation or deactivaton of the DIN couid be resorted to by the conceTned respondents on y as per the provisions contained in the said Rules.\" 30. In view of the above facts and circumstances and the judgment referred to supra, the deactivation of the DINs of the petitioners for alleged be su sta in ed. violations under Section 164 of the Act, cannot t6 31. For the foregolng reasonsr the impugned orders in the writ petitions 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 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 respondentfromtakingappropriateactioninaccordanceWithlaWfor violations as envisaged under Section 164(2) of the Act, giving ttre said provisionprospectiveeffectfromOl.04.20T4andfornecessaryaction against DIN in case of violations of Rule 11 of the Rules' 33. It is also made clear that if the petitioners are aggrieved by the action of the respondents in striking off their companies under Section 248 of the Act, they are at liberty to avail alternative remedy under Sectlon 252 of the Act. 34. All the writ Petitions are accordingly allowed to the extent ind icated a bove. 35. Interlocutory applications pending, if any, shall stand closed' No order as to costs. A,RAJASHEKER, REDDY,J DATE: 18-07-2019 AVS "