Sri. Ramesh Chukapalli V. Union of India,

WP/31487/2018

AI Insights

The case involves Sri. Ramesh Chukapalli, the petitioner, who challenged the action of the Union of India and the Registrar of Companies in deactivating his DIN and disqualifying him as a director based on non-filing of financial statements and annual returns for three consecutive years. The petition argued that the actions were arbitrary, illegal, and violated principles of natural justice and constitutional rights under Articles 14 and 19(1)(g). The court examined whether the disqualification and DIN deactivation were applicable retrospectively and whether proper notice was given before such actions were taken.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 677359 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 10-08-2021
• Assessment Year: misc
• Other Referred Cases: COMMISSIONER OF INCOME TAX (CENTRAL).I, NEW DELHI V. VATIKA TOWNSHIP PRIVATE LIMITED, YASHODHARA SHROFF vs. UNION OF INDIA, GAURANG BALYANTLAL SHAH S/O BALVANTLAL SHAH vs. UNION OF INDIA, BHAGAVANDAS DHANANJAYA DAS vs. UNION OF INDIA
• Laws Referred To: Companies Act, 2013, Companies (Appointment of Director) Rules, 2014, Constitution of India
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: N RAO
• Assessee Lawyers: D NAIK
• Keywords: Director Identification Number; Disqualification of director; Natural Justice; Retrospective Legislation; Writ of Mandamus
• Section: 151; 164(2); 226; 403; 455; 248(1)(c)

Judgement Text

"HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD (Special Original Jurisdiction) TUESDAY,THE TENTH DAY OF AUGUST TWO THOUSAND AND TWENTY ONE PRESENT THE HONOURABLE SRI JUSTICE ABHINAND KUMAR SHAVILI WRIT PETITION NO: 31487 OF 2018 Between: Sri. Ramesh Chukapalli, S/o. Sankara rao Chukapalli, Aged About 58 Years, Rlo. 4-5,1 5112, llnd Lane, Vidyanagar, Guntur, 522001, Andhra Pradesh. ...PETITIONER AND 1 Union of lndia, represented by its Secretary, The tt4inistry of Corporate Affairs, A Wing, ShastriBhawan, Ralendra Prasad Road, New Delhi, Delhi 110001. Registrar of Companies, (Andhra Pradesh and Telangana) 2nd Floor, Corporate Bhawan, GSI Post, Tattiannaram, Nagole, Bandlaguda, Hyderabad,Telangana - 500 068. ..,RESPONDENTS Petition under Article 226 of the Constitution of lndia praying that in the circumstances stated in the affidavit filed therewith, the High Court may be pleased toto pass an order or direction or any other proceedings one in the nature of Writ of Mandamus declaring the action of Respondents dated 12.09.2017 so far as deactivating the DIN numbers 00055943 of the Petitioner and listing the name at Si. No. 27095 as disqualified Director and thereby restricting the Petitioner from filing statutory returns, i.e., the annual returns and f inancial statements of the companies in which Petitioner are Director, as arbitrary, illegal, without jurisdiction, contrary of the provisions of the Companies Act, 2013 and Rule 1'1 of the Companies (Appointment of Director) Rules, 2014, violative of the principles of natural justice besides violating the Petitioner rights guaranteed under Article 14 and Article 19 (1 ) (g) of the Constitution of lndia. Petition under Section 151 CPC praying that in the circumstances stated in the affidavit filed in support of the petition, the High Court may be pleased to direct the 1st Respondent to stay the disabling and restore the Director ldentification Number 00055943 of the Petitioner so as to enable them to submit the annual returns and financial statements of the companies in which he is a Director. Petition under Section 151 CPC praying that in the circumstances stated in the affidavit filed in support of the petition, the High Court may be pleased to stay operation of the disqualification of the Director ldentification Number 00055943 pursuant to the lmpugned Order of the 2nd respondent in so far as the Petitioner is concerned (at S1.No. 27095 in the notification Gounsel for the Petitioner:SRl. D NARENDAR NAIK Counsel for the Respondents: SRl. N RAJESHWAR RAO, ASST. SOLICITOR GENERAL 2 The Court made the following: lA NO: 1 OF 2018 lA NO: 2 OF 2018 HON'BLE SRI JUSTICE ABHINAND KUMAR S]-IAVILI W.P.No.31487 of 2018 ORDER: When the matter is taken up for hearing, learned counsel on either side faidy conceded that the issue invol.red in this writ petition is squarely covered by the common order dated 05.08.2021 passed by this Court in W.P.No.11434 ot'2027 and batch. Following the common order dated 05.{)8.2021 in W.P.No.11434 of 2021and batch, this Writ Petition is disposed Pending miscellaneous petitions, if any, shall stand closed. //TRUE COPY// SD/.B.SATYAVATHI ASSI:STANT REGISTRAR SE TION FFICER To, pm 1. The Secretary, The Ministry of Corporate Affairs, Union of lnlia, A Wing, Shastri Bhawan, Rajendra Prasad Road, New Delhi, Delhi 110001. 2. Registrar of companies, (Andhra pradesh and rerangana) 2nd Floor, corporate Bhawan, GSI Post, Tattiannaram, Nagole, Bandlagudl, Hyd,trabad,Telangana _ 500 068. 3. One CC to Sri. D Narendar Naik, Advocate [OPUC] a. ]wo ccs to sri. N. Rajeshwar Rao, Asst. soricitor benerar, riigh court for the State of Telangana. (OUT) 5. Two CD Copies. ^ (Along with a copy of order dated 05/08/2021 Wp 1j434 of 2O2j & batch.) ,Dr (/ of. No costs. !- ! HIGH COURT DATED:10i08/2021 ORDER WP.No.31487 of 2018 Disposing of the WP Without costs. 1 3 SEP 2021 7- C $E s14 14. ::ipAT ( * n c; /5 c o J.^ .a,- IION'BI-E SRI JUSTICE ABHINAND KUMAR SHAVILI '.P.Nos. 11434.11941 .12240 I 3780.11963 .14992.15139. 15856 COMMON ORDER Since, the issue involved in all the writ petitions is one and the same,they are heard together and are being disposed of by this common order. 2. The petitioners are the directors of the private companies, registered under the Companies Act, 2013 (18 of 2013) (for short 'the Act')' Some of the such companies are active' and someofthemhavebeenstruckofffromtheregisterofcompanies under Section 248(1)( c ) of the Act, for not carrying on any business operation for the specified period mentioned in the said provision' and for not making any application within the specified period' for obtaining the status of a dormant company under Section 455 of the 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 t64(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 whlch the respective companies failed to do so' The Director Identification. Numbers (DINs) of the petitioners were also & 1616l of202l deactivated. Aggrieved by the same, the present writ petitions have been filed. 4. This court granted interim orders in the vrit petitions directing the 2nd respondent to activate DINs of the p,-.titioners, 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 llao, learned Assistant Solicitor General for the respondents - Union of India. 6. Learned counsel for the petitioners, contenrl that before passing the impugned order, notices have not been is;ued, giving them opportunity, and this amounts to violation of Principles of natural justice, and on this ground alone, the impugnerl 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 r€turns of the company to which he is director, for any continuous period 9f 16ra\" financial years. Learned counsel further submits that this provision came into force with effect from L.4.2014, and prior thereto i.e., under Section 274(1,)(9) of the Companies Act, 1956 ( t of 1956), which is the analogous provision, there was no such reqL irement for the directors of the private companies. They conten(l 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 tc disquarify them. But in the present cases, the 2nd respondent, takjng the period prior to 7.4.2074, i.e d isqua lified the petitioners giving the provision retrospective effect, as directors, whichis illegal and arbitrary, 8. With regard to deactivation of DINS, learned counsel for the petitioners submit that the DINs, as contemplated under Rule 2(d) of the Companies (Appointment and Qualification of Directors), Rules, 2014 (for short 'the Rules), are granted for life tlme to the applicants under Rule 10(6) of the said Rules, and cancellation of the DIN can be made only for the grounds mentioned in clauses (a) to (f) under Rule 11 of the Rules, does not provide for deactivation for having and the said grounds under Sectlon become inelig ible for 164 of the appointment as Directo rs Act. Learned counsel of the company submits that as against the further deactivation, no appealis provided under the Rules, and appeal to the Tribunal under Section 252 of the Act is provided only against the dissolution of the company under Sectlon 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 ascheme dated 29.12.2OL7 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 2a8$) 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 4 approach the Tribunal for restoration. They submit ttlat since the penal provision is given retrospective operation, de hcrs the above scheme, they are entitled to invoke the jurisdiction.of this court under Article 226 of the Constitution of India. 10. With the above contentions, learned coursel sought to set aside the impugned orders and to allow the writ petit ons. 11. On the other hand learned Assistant Sol citor General submits thatfailure to file financial statements or annu:l returns for any continuous perlod of three financial years, autometically entail their disqualification under Section 16a(2)(a) of the Act and the statute does not provide for issuance of any notice Hence, the petitioners, who have failed to comply with thestatutor) requirement under Section 164 of the Act, cannot complain of violation of principles of natural justice, as it is a deeming provi!;ion. Learned counsel further submits that the petitioners have alternative remedy ofappeal under Section 252 of the Act, and hence writ letitions may not be entertained. 12. To consider the contention of the learrred 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 appreciati,)n: 252. Appeal to Tribuna I (1) Any person aggrieved by an order of the Registrar, notifying a company as dissolved under Section 248, may file an appeal to the Tribunal within a periad of three years from the date of the order of the Registrar and if the Tribunal is of the opinion that the removal of the name of the company from the register of companiesis not justified tn view of the absence of any of the grounds on which the orda'r was passed by the Registrar, it may order restoration of the name of the company in the register of companies; Provided that before passing an order under th,s section, the Tribunal shall give a reasonable opportunity ef making representations and of being heard to the Registra,-, ) the company and all the Dersons cancerned: Provided further that if the Registrar is satisfied, that the name of the company has been struck off from the register of companies either inadveftently or on basis of incorrect information furnished by the company or its directors, whi1h requires restoration in the register of companiest he may within a period of three years from the date of passing of the order dissolving the company under Section 248, file an application before the Tribunal seeking restoration of name of such campany. (2) A copy of the order passed by the Tribunal shall be filed by the companywith the Registrar within thirty days from the date of the order and on receipt of the order, the Registrar shall cause the name of the company to be restored in the register of companies and shall issue a fresh ce rti fi ca te of i n cor po ra tio n. (3) It a companyt or any member or creditor or worker thereof feels aggrieved by the company having its name struck off from the register of companies, the Tribunal or an application made by the company, member, creditoror workman before the expiry of twenty years from the publication in the Official Gazette of the notice under sub-section (5) of Section 248, if satisfied that the companY was, at the time of its name being struck off, carrying on business ar in operation or otherwise it is just that the name af the company be restared to the register of companies, order the name of the company to be restored to the register of companies, and the Tribunal may, by the order, give such other directions and make such provisions as deemed just for placing the company and all other persons in the same pasition as nearly as may be as if the name of the company has not been struck off fram 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 dissolutibn and striking off the company from the register of companies. It does not deal with the disq u a lification of the directors, and deactivation of their DINs. In the present case, the petitioners are only aggrieved by their disqualification as directors and deactivation of DINS, but not about striking off companies as such. Hence, Section 252 of the Act, cannot be an alternative remedy for seeking that relief, and the contention of the learned Assistant Solicitor General, in this regard, merits for rejection. 6 13. Under Section 16a(2)(a) of the Act, if th<: 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 vuhich the said company fails to do so. The said provision under the A(:t 18 of 2013, came into force with effect from 0L.04.2074, and the t)etitioners are disqualified as directors under the said provision. At tlis stage, the issue that arises for consideration is - whether the (lisq ua lification envisaged under Section 164(2)(a) 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 yea', the default envisaged under Section 16a(2)(a) of the Act, has to be calculated, to hold the director of the company liable? In this regar(j, the learned counsel brought to the notice of this Court, the General Circular No.0B/14 dated 4.4.2074 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: The Ministry has received requests for clarification with regard to the relevant financial years with effect from wnich such provisions of the new Act relating to maintenance of books of account, preparation, adoption and filing of Finar cial statements (and attachments thereto), auditars report )nd Board's repaft wi be applicable. Although the position in this behalf is quite clear, to make things absolutely clear it is hereby notified that the finarcial statements (and documents required to be attached thereto), auditors report and Board's report in respecr af \"A n.umber of provisions of the Companies Act, 2J13 including those relating to maintenance of books of acco,nt, preparation, adoption and filing of financial statements (1nd documents required to be attached thereto), Auditars rep)rts and the Board af Directors report (Board's report) have been brought into force with effect from 1s' April, 2014. Provisions of Schedule (u*ful lives to compute depreciation) and Schedule III (forma: of financial statements) have also been brought into force f,-om that date. The relevant Rules pertaining to these provistons have alsa been notified, placed on the website of the Mini;try and have come into force from the same date, l financial yearsthat commenced earlier than 1\"1 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 lst April, 2014, the provisions 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 Ol.O4.2OL4, shall be governed by the provisions under the Companies Act, 1956 and in respect of financial years commencing on or after OL.O4.2OL4, the provisions of the new Act shall apply. L4. 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 27aO)G) of Act 1 of 1956. The said provision under Act 1 of 1956 is extracted as under for ready reference: Section 274(71 A person shall not be capable of being appointed director of acompanY, if - (q) such person is already a director 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 sub-clause (A) or has failed to repaY its deposits or interest or redeem its debentures on due date or pay dividend referred to in clause (B). A reading of the above provision under Act 1 of 1956, makes it clear that if a person capable of being appointed director of a company and such person is already a director of a public company, which has not filed annual accounts and annual returns for any continuous three financia I years commencing on I and after the first day of April 1999, shall not be eligible to be appointed as a director of any other public company fcr 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 anrual returns, is placed on the directors of a'public company'. There s no provision under the Act 1 of 1956, which places similar obligations on the directors of a 'private company'. Therefore, non- flling of annual accounts and annual returns by the directors of the pri'/ate company, will not disqualify them as directors under the provisi()ns of Act 1of '. 1956. 15. Under Section 164(2) of the new legislat on 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 orhas been a director of a 'company', fails to file financial statements or annual returns for.rny continuous period of three financial years, will not be eligible for appointment as a director of a company. As already noted above, the said provision, came into force with effect from 01.04.2074. 16. Coming to the facts on hand, the 2nd respondent has disqualified the petitioners under Section 164(2)(a) of the Act 18 of 2O!3, for not filing financial statements or annual returns, for period prior to 07.O4.2014. The action of the 2nd respondent rl.tns contrary to the circular issued by the Ministry of the Corporate Affairs. and he has given the provisions of Act 18 of2013, retrospective t:ffect, which is impermissible. 17. The Apex Court in COMMISSIONER OF INCOME TAX (CENTRAL).I, NEW DELHI V. VATIKA TOWNSHIP PRIVATE LIMITEDI has dealt with the general principles concerning retrospectivity. The relevantportion of the judgment is thus: 27. A legislation, be it a statutory Act or a statutory Rule or a .statutory Notification, may phYsically consists af words printed on papers. 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 tegislation is not just a series of statements, such as one Finds in a work of fiction/non fiction or even in a judgment of a court of law. There is a technique required to draft a legislation as well as to understand a legislation. Former technique is known as legislative drafting and latter one is to be found in the various principles of 'lnterpretation of Statutes' Vis-d-vis ordinary prose, a legislation differs in its provenance, lay-out and features as also in the implication as to its meaning that arises by presumptions as to the intent of the maker thereof. 29. Of the. various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumednot 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 keeping in the law of today and in force and not tomorrow's backward adjustment af it. Our belief in the nature of the law is founded on the bed rock that every human being is entitted to arrange his affairs by relYing on the existing law and shauld not find that his plans have been retrospectively upset. This principle of law is known as lex prospicit non respicit : law laoks forward not backward. As was abserved in Phillips vs. Eyre t(187A) LR 6 QB 11, 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 3O.The obvious basis of the principle against retrospectivity is the principle of'fairness', which must be the basis of every legal rule as was observed in the decision reported in L'Office Cherifien des Phosphates v. Yamashita-shinnihon Steamship Co. Ltd' t{1994) 1 Ac 4861. Thus, legislations which modified accrued rights or which impase obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation is for purpose of supplyinq an obvious omission in a former legislation or to explain a former legislation. We need not note that cornucopia of case laiw available on the subiect because aforesaid legal position clearly emerges from the various decisions and this legal position was conceded bY the counsel for the ! eats)t scct 9 i0 parties. In any case, we shall refer to few judgments containing this dicta, a little later. 31. We would also like to point out, for the sake of completenesst that where a benefit is conferred by a legislation, the rule against a retrospective construction is different. If a legislation confers a benefit on some persons but witbout inflicting a corresponding detriment on some other person or on the public generally, and whereto confer such benefit appears to have been the legislators object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. This exactly is the justification to treat procedural provisions as retrospective. In Government of India & Ors. v. Indian Tobacco Association, [(2005) 7 SCC 396], the doctrine of fairness was held to be relevant factor to construe a statute conferring a beneFit, in the context of it to be given a retrospective operation. The same doctrine of fairness, to hold that a statute was retrospective in nature, was applied in the case of Vijay v. State of Maharashtra & Ors., [(2006) 6 SCC 289]. It was held that where a law is enacted for the benefit of community as a whole, even in the absence of a provision the statute may be held to be retrospective in nature. However, we are (sic not) confronted with any such situation here. 32. In such cases, retrospectivity is attached to benefit the persons in contradistinction to the provision imposing some burden or liabiltty where the presumption attached towards prospectivity. In the instant case, the proviso added to Section 113 of the Act is not beneficial to the assessee. On the contrary, it is a provision which is onerous to the assessee. Therefore, in a case like this, we have to proceed with the normal rule of presumption against retrospective operation. Thus, the rule against retrospective operation is a fundamental rule of law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act, or arises by necessary and distinct implication. Dogmatically framed, the rule is no more than a presumptiont 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 understanding of CBDT itself regarding this provision. It is contained in CBDT Circular No,8 of 2002 dated 27.8.2002, with the subject \"Finance Act, 2002 - Explanatory Notes on provision relating to Direct Taxes\". This circular has been issued after the passing of the Finance Act, 2002, by which amendment to section 113 was made. In this circular, various amendments to the Income tax Act are discussed amply demonstrating as to which amendments are clarificatory/retrospective in operation and which amendments are prospective. For example, Explanation to section 158-BB is stated ta be clarificatory in nature. Likewise, it is mentioned that amendments in Section 145 whereby provisions of that section are made applicable to block assessments is made clarificatory and would take effect retrospectively from 1't day of )uly, 1995. When it comes ta amendment to Section 113 of the Act, this very circular provides that the said amendment along with the amendments in Section 158-BE, would be prospective i.e., will take effect from 1.6.2002.\" 11 18. Thus, the Apex Court in the above judgment, has made it clear that unless a contrary intention appears, a legislation has to be presumed to have prospective effect. A reading of Section 164 of the Act does not show that the legislation has any intention, to make the said provision applicable to past transactions. Further, the Apex Court in the above judgment at paragraph No'43, found that the circular issued by the authority after passing of the legislation, clarifying the position with regard to applicability of the provisions, has to be construed as an important piece of evidence, as it would clarify the provision beyond any pale of doubt ln the present. case, asalready noted above, the lvlinistry of Corporation affairs has issuedthecircularNo'08/2014dated4,4.2oL4clarifyingthatfinancial 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 Ol.O4.2Ol4, 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 rcaQ)@) 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 taid down by Apex Court in the above referred judgment' 19. If the said provision is given prospective effect' as per the circulardat ed 4.4.201'4 and the law laid down by the Apex Court' as stated in the writ affidavits, the first financial year would be from o|.o4-2oT4to3l.03.20l5andthesecondandthirdyearsfinancial years would be for the years ending 31'03'2016 and 31'03'2017 The annual returns and financial statements are to be filed with Registrar of Companies only after the conclusion of the annual general meeting tl of the company, and as per the first proviso to Secti('}n 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 financie I year i.e., by 30.09.2017. Further, the time limit for filing annual returns under Section 92@) of the Act, is 60 days from annual general meeting, or the last date on which annual general meeting!ough: to have been held with normal fee, and within 270 days with additicnal fee as per theproviso to Section 403 of the Act. Learned counsel submit that if the said dates are calculated, the Iast date for filing the annual returns would be 30.71.2017, and the balance sh€et was to be. filed on 30.10.2017 withnormal fee and with additiottal fee, the last date for filing annuai returns is 27 .O7.2018. In ot ler words, the disqualification could get triggered only on or after 27.07.2018. But the period considered by the 2nd respondent in the present writ petitions for clothing the petitioners with disqualifi<:ation, pertains prior to 01.04.2014. Therefore, when the omission, which is now pointed out, was not envisaged as a ground for disqu alification prior to 7.4.2014, the petitioners cannot be disqualified on the said ground. This analogy is traceable to Article 20(1) of the Const tution 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 penal):y greater than that which might have been inflicted under the law in force at the time of the commission of the offence\". In view o1'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 iigh Court of Karnataka in YASHODHARA SHROFF vs, UNION OF t3 INDIA2 considering Section 164(2)(a) of the Act and other provisions of the Act, and various judgments, passed an elaborate order and held that the said provision has no retrospective operation. he observations of the learned ludge, pertainlng to private companies, which are relevant for the present purpose, are extractedas under: 208. In view of the aforesaid discussion, I have arrived at the fol lowi ng concl usions : (a) It is held that Section 164(2)(a) of the Act is not ultra virus Article 14 of the Constitution. The said pravision is not manifestly arbitrary and also does not fall within the scope of the doctrine of proportiona lity. Neither does the said provisionviolate Article 19(1)(q) of the Constitution as it is made in the interest of general public and a reasonable restriction on the exercise of the said riqht. The object and purpose of the said provision is to stipulate the cansequence of a disqua lification on account of the circumstances stated therein and the same is in order to achieve probity, accountability, and transparencY in corporate qovernance. (b) That Article (sic) section 164(2) of the Act applies by operatian of law on the basisof the circumstances stated therein, the said provision does not envisage any hearing, neither pre-disqualification nor post-disqualification and this is not in violation of the principles of natural justice, is not ultra vires Article 14 of the Constitution. (c) That Section 164(2) of the Act does nat have retrospective operation and is therefore, neither unreasonable nor arbitrary, in view of the interpretation placed on the same. (d) (e) Insofar 'as the private companies are concerned, disqualification on account of the circumstances stated under Section 16a(2)(a) of 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 prior to 01.04.2014 for the purpose of reckoning continuous period of three financial years under the said provision. The said conclusion is based on the principal drawn by way of analogY from Article 20(1) ot the Constitution, as at no point of time prior to the enforcement of the Act, a disqualification based on the circumstances under Section 164(2) of the Act was ever envisaged under the 1956 Act vis-e-vis directors of private companies. Such a disqualification could visit a director of only a public companY under Section 274(1)(9) of 1956 Act and never a director of a private company Such disqualification af the petitioners who are directors of private companies is hence quashed. (D (g) Consequently, where the disqualificatian under Section 164(2) ot the Act is based on a continuous periad of three financial . years commencing from 01.04.2014, wherein financial statements or annual returns have not been filed by a public or private company, the directors of such a 2 w.P.No.5291l of 2017 and batch dated 12.06.2019 14 companY stand disqualified and the consequences of the said disqualification would apply to them under the Act 27. A learned Single of the High Court of Gujarat at Ahmedabad in GAURANG BALYANTLAL SHAH S/O BALVANTLAL SHAH vs. UNION OF INDIA3 expressed similar.. view as that of the leaned single iudge of High Court of Karnataka (1 sttpra), and held that Section 164(2) of the Act of 2OL3, which had come into force with effect from 7.4,2074 would have prospec:ive, and not retrospective effect and that the defaults contemplate(l under Section 164(2)(a) with regard to non-filing of financial statenrents or annual returns for any continuous period of three financial years would bethe default to be counted from the financial year 2014-15 only and not 2013-14. 22. A learned single Judge of the High Court of Madras in BHAGAVANDAS DHANANJAYA DAS vs. IINION AF INDIAa also expressed similar view. The relevant portion is as und:r: 29. In fine, (a) When the New Act 2013 came 'nto effect from 1,4,2014, the second respondent terein has wrongly given retrospective effect and e.roneously disqualified the petitioner - directors from 1:1..2016 itself before the deadline commenced wrongly fixin,l 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 ':ontinuous period of three financial year\" and in the light of section 2(41) defining \"financial year\" as well as their own General circular No.0B/14 dated 4.4.2014, the first financtal year would be from 1..t.2014 to 31.3.2015, the second financial year woul.l be from 1.4.2015 to 31.3.2016 and the third financial year would be from 1.4,2016 to 31,3,2017, wltereas the second respondent clearly admitted in paras 15 and 22 of the counter affidavit that the default of filing statutory returns for the finalyears comm?nces from 3Special Civil Application No.22435 of20l7 and batch dated 18.12.2018 a w.P.No.25455 of 2017 and batch d ated 2'7 .o'7 .2018 15 2013-14, 2014-15 and 2015-16 i.e, one year before the Act 2013 came into force. This is the basic incurable legal infirmity that vitiates the entire impugned proceedings. 23. In view of the above facts and circumstances and the judgments referred to supra, as the impugned orders in present writ petitions dlsqualifying the petitioners as directis under Section 16a(2)(a) of the Act, have been passed considering the period prior to 01.04.2014, the.same cannot be sustained, and are liable to be set aside to that extent. 24. As far as the contention regarding issuance of prior notice before disqualifying the petitioners as directors is concerned, Section 16a(2)(a) is required to be noticed, and the same is extracted as under for ready reference: 164. Disqualification for appointment of director: (2) No person who is or has been a director of a company which- (a) has not filed tinancial statements or annual returns .for any continuous period of three financial Years; or (b)... ' Shalt be eligible to be re-appointed as a director of that company or appointed in other companies for a period of five years from the date on which the said company fails to do so. A reading of the above provision makes it clear that it provides d isq ua lification 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 16 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 Judge of the High Court of Gujarat at Ahmedabad in Gaurang Balvirntlal Shah s/o Balvantlal Shah vs. Union of India (2 supra), after analyzing various provisions of the Act and Rules framed thereunder, anl by relying on various judgments of the Apex Court, held that Secticn 16a(2)(a) of the Act applies by operation of law on the basis of the circumstances stated therein, the said provision does not envisage any hearing,. neither pre-d isq ua lification norpost-disqualification ar d this is not in violation of the principles of natural justice and hen<:e, is not ultra vfes Article 14 of the Constitution. I concur with the seid reasoning. 25. Thus, from the above, it is clear that Se:tion 164(2)(a) of the Act is a deeming provision and the disqual.ifice tion envisaged under the said provision comes into force automatical y by operation of law on default and Legislature did not provide for issuance of any prior notice, but the respondents notified disqualificatlcn even before it incurred, and deactivated DINs, which is illegal arbitrary and against provisions contained in Section 16a(2)(a) of ]:he Act. 26. The next grievance of the petitioners is with regard to deactivationof their DINs. The contention of the learrred counsel for the petitioners is that except for the grounds mentioned under Rule 11 (a) to (f) of the Rules, the DINs cannot bt: cancelled or deactivated, and the violation mentioned under Sectic,n 16a(2)(a) of the Act, is not one of the grounds mentioned under cl;ruses (a) to (f) of Rule 11, and hence for the alleged violation under Section 16aQ)@) of the Act, DIN cannot be cancelled. t7 27. Rule 10 of the Rules provide for allotment of DIN and under sub rule (6) of Rule 10, it is allotted for Iife time. Rule 11 provides for cancellation or deactivation. Rule 11, which is relevant for the present purpose, is extracted as under foi ready reference: 77. Cancellation or surrender or deactivation of DIN: The Central Government or Regional Director (Northern Region), Noida or any afficer authorized by the Regional Directort may, upon being satisfied on verification ot particulars or documentary proof attached with the application received from any person, cancel ordeactivate the DIN in case - (a) the DIN is found to be duplicated in respect of the same person provided the data related to both the DIN shall be merged with the valid ly retai nedn umber; (b) the DIN was obtained in a wrongtul manner or by fraudulent means; (c) of the death of the concerned individual; (d) the concerned individual has been declared as a person of unsound mind by a competent Court; (e) if the concerned individual has been adjudicated an insolvent; Provided that before cancellation or deactivation of DIN pursuant to clause (b),an opportunity of being heard shall be given to the concerned individual; O on an application made in Form DIR-' by the DIN holder to surrender his ar her DIN along with declaration that he has never been appointed as director inany company and the said DIN has never been 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 tra I Gov ern men t s h a I I veri fy e - reco rds. Explanation: for the purposes of clause (b) - ( ii) (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 furnished or on suppression of material information or on the basis of wrong certification or by making misleading or false information or by misrepresentation ) the term \"fraudulent means\" means if the DIN is obtained with an intent to deceive any other person or any authority including the Centra I Government, 28. Clauses (a) to (f) of Rule 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 l8 Section 164(2)(a) of the Act. Therefore, for the alleged violation under Section 764 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 Hillh Court in the decision cited 2 supra, held as under: \"29. This takes the Court ta the next question as tc whether the respondents could have deactivated the DINS of the )etitioner as a consequence of the impuqnedlist? In this regard, it would be appropriate to refer to the relevant provisions contain,ld in the Act and the said Rules. Section 153(3) provides that ro person shall be appointed as a Director of a company, unless he has been atlotted the Director ldentification Number unde- Section 154. Section 153 requires every individual intending to be appointed as Director of a Company to make an application for allotment of DIN to the Central Government in such brm and manneras may be prescribed. Section 154 states that the Central Government shall within one month from the receitt of the application under Section 153 allot a DIN to an applicart in such manner as may be prescribed. Section 155 prohioits any individual, who has already been allotted a DIN unde' Section 154 from applying for or obtaining or possessing anolher DIN. Rules 9 and 1O of the said Rules of 2014 prescribe the t'rocedure for making application for allotment and for the allotmelt ofDIN, and further provide that the DIN allotted by the Central Government under the said Rules would be valid for th€ life time of the applicant and shall not be allotted toany other per.;on. 3A, Rule 11 provides for cancellation or surntnder ar deactivation of DIN. Accordingly, the Central Goverrment or Regional Director ar any authorized officerof Reqiona, Director may, on being satisfied on verification of parti(ulars of documentary proof attached with an application from an / persan, cancel or deactivate the DIN on any of the qrounds ntentioned in Clause (a) to (f) thereof. The said Rule t1 'loes not contemplate any suo motu powers either with the Central Government or with the authorized officer or Regional Director to cancel or deactivate the DIN allotted to the Director, n)r any of the clauses mentioned in the said Rules contemplates ca lcellation or deactivatian of DIN of the Director of the \"struck aff (ompany\" ar of the Director having become ineligible under Sectbn 164of the said Act. The reason appears to be that once an ittdividual, who is intending to be the Director of a particular conpany is allotted DIN by the Central Government, such DIN ntould be valid for the life time of the applicant and on the basi:; of such DIN he could become Director in other companies also. Hence, if oneof the companies in which he was Director, is \"strucll off\", his DIN could not be cancelled or deactivated as that vould run counter to the provisions contained in the Rule 11, which specifically provides for the circumstances under which the DIN couldbe cancelled or deactivated. 31. In that view of the matter, the Court is of the op nion that the action of the respondents in deactivating the Dllls of the petitioners - Directors along with the publication of the inpugned list of Directors of \"struck off\" companies under sec:ion 248, also was not legally tenable. Of courset as per Rule :.2 of the said Rules, the individual who has been allotted the DlN, in the event of any change inhis particulars stated in Form D.'R -3 has to intimate such change to the Central Government A'ithin the prescribed time in Form DIR-6, however, if that is not done, the DIN could not be cancelled or deactivated. The cancellatian or deactivation of the DIN could be resofted to by the concerned 19 respondents only as per the provisions cantained in the said Rules.\" 30. Learned Assistant Solicitor General appearing for respondents had contended that Section 4O3 (2) of the Act provides that \"where a company fails or commlts 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 27O days' Iimitation within which the annual filings can be done excluding the time Iimit already provided under Sections 92,96 and 137 of the Act and as per Section 403 of the Act levies rupees one hundred on each day from the date of default till the date of compliance of the mandatory provisions of law. 31 . This Court having considered the said submissions is of the considered view that the new amending law also contemplates levying of Rs.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. 20 33. For the foregoing reasons, the impugn€d orders in the writpetitions to the extent of disqualifying tlre petitioners under Section 764(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 Directo-s other than in strike off companies. I 34. It is made clear that this order will n rt preclude the 2nd respondent from taking appropriate action in accordance with law for violations as envisaged under Section 164(2) of th€ Act, giving the said provision prospective effect from 01.04.2014 anrl for necessary action against DIN in case of violations of Rule 11 of the Rules. 35. 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 ofthe Act, they are at libefty to avail alternative remedy under Section 252 of the Act. 36. All the writ petitions are accordingly allowed to the extent indicated above. )/. Miscellaneous petitions pending if any shall stand closed. JUSTICE ABHINAND KUMAR SHAVILI Dt.05-08-2021 kvr "