Sri Ravi Prakash Venkata Kunchem V. Union of India and Another

WP/18811/2020

AI Insights

The case revolves around the disqualification of Sri Ravi Prakash Venkata Kunchem from directorship and the subsequent deactivation of his DIN by the Registrar of Companies, based on alleged defaults in filing financial statements and annual returns for three consecutive years. The petitioner challenged these actions, arguing they 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 procedural safeguards were followed. The court found that the actions taken were not in accordance with the law, particularly noting the retrospective application of a provision that was intended to be prospective, and the lack of required procedural safeguards.

• Counselvise Citation: [2020] 140 COUNSELVISE.COM (IT) 743907 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 21-10-2020
• 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 Balvantlal Shah s/o Balvantlal Shah vs. Union of India, Bhagavan Das Dhananjaya Das vs. Union of India
• Laws Referred To: Companies Act, 2013, Companies (Appointment of Directors) Rules, 2014, Constitution of India
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: NAMAVARAPU RAO
• Assessee Lawyers: K SANDEEP
• Keywords: Director Identification Number (DIN); Disqualification of Directors; Natural Justice; Retrospective effect; Writ of Mandamus
• Section: 226; 248; 252; 164(2)(a)

Judgement Text

"HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD (Special Original J urisdiction) WEDNESDAY THE TWENTY FIRST DAY OF OCIOBER TWO THOUSAND AND TWENTY PRESENT THE HON'BLE SRI JUSTICE CHALLA KODANDA RAM WRIT PETITION NO: 18811 OF 2020 Betwee n: Srl Ravi Prakash Venkata Kunchem, S/o. Late Kunchem Subba Rao, Aged about: 60 years, R/o. Block A S 11, Ramalakshmi Apadment, Pedawaltair, Visakhapatnam, Andhra Pradesh - 530017. ...PETITIONER AND 1. Union of lndia, Rep. by its the lvlinistry of Corporate Affairs, 'A' Wing, Shastri Bhawan, Rajendra Prasad Road, New Delhi - 110 001, Represented by its Secretary. 2. The Redistrar of Companies, (For State of Telangana), 2nd Floor, Corporate Bhawan, GSI Post, Tattiannaram Nagole, Bandlaguda, Hyderabad - 500 068. ...RESPONDENTS Petition under Afiicle 226 of the Constitution of lndia praying that in the circumstances stated in the affidavlt 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 It4andamus declaring the action of respondents in disqualifying the petitioners as a directors and deactivating the petitioner Director ldentification Number (DlN) A2841477 and restricting the petitioner to incorporate new companies Under Companies Act. 2013 as arbitrary, illegal, without jurisdiction, contrary of the provrsrons of the Companies Act, 2013 and Rule 1 1 of the Companres (Appointment of Drrectors) Rules, 2014, violat ve of the principles of natural lust ce besides violating the petitroner rights guaranteed under Article '14 and Article 19 (1) (g) of the Constitut on of lnd ia. lA NO; 1 OF 2020 Petrtion under Section 151 CPC praying that in the circumstances stated in the affidavit filed in support of the petition, the High Courl may be pleased to direct the 1'' Respondent to stay the d isq ua lificatio n and restore the petitioner Director ldentification Number (DlN) 02841477 the petitioner so as to enable the petitioner to incorporate new companies Under Companies Act. 2013. Counsel for the Petitioner: SRI K. SANDEEP Counsel for the Respondents: SRI NAMAVARAPU RAJESHWAR RAO, ASSISTANT SOLICITOR GENERAL The Court made the following: ORDER tl THE HON'BLE SRI JUSTICE CHALLA KODANDA RAM WRIT PETITION No.18811 of 2O2O ORDEI!: -l-he petitioner challenges his disqualification from Directorship under Section 16a(2) of the Companies Act, 2013, for alleged default in filin(l financial statement/Annual Returns, and consequently seeks restoration of his Director Identification Number (DIN) viz., 02847477, Vhen the matter is taken up, it is submitted by the learned counse for the petitioner that the issue raised in the present Writ Petition is squarely covered by the common order dated 18.07.2019 passed in W.P.No,5422 of 2018 and batch. Learned Standing Counsel for the Registrar of Companies (For the State of Telangana) appeering for respondent No.2 does not d ispute rhe aforesaid submission. Operative portion of the aforesaid order reads as under: \"For the foregoing reasons, the impugned orders in the writ petitions to the extent of disqualifying the petitioners under Section 154(2)(a) of the Act and deactivation of their DINs, are set aside, and the 2'd r,espondent is directed to activate the DINS of the petitioners, errabling them to function as Directors other than in strike off companies. It is rflade clear that this order will not preclude tlre 2nd respondent from taking aPpropriate action in accordance with law for violations as envisaged under Section 164(:Z) of the Act, giving the said provision prospective effect from O1.04.2014 and for necessary action against DIN in case of violations of Rule 11 of the Ru les. It is also made clear that if the petitioners are a,3grieved by the action of the respondents in striking off their companies under Section 248 of the Act, they are at liDerty to avail alternative remedy under Section 252 of the Act. : I All the writ petitions are accordingly allowed to the exten t indicated above.\" Accordingly, in view of the Common Order dated 19.07.2019 passed in W.P.No.5422 of 2018 and batch, and for the reasons recorded therein, this Writ Petition is also allowed in terms thereof. No costs. I 4iscellaneous Petitions, if any pending, shali stand disposed of, SD/.N.CHANDRA SEKHAR R ASSISTANT REGI R ,TRUE COPY// SECTIO OFFICER 1. The Secretary, N/inistry of Corporate Affairs, Union of lndia, 'A' Wing, Shastri Bhawan, Rajendra Prasad Road, New Delhi - 1 10 001 . 2. The Registr'ar of Companies, (For State of Telangana), 2 '' Floor, Corporate Bhawan, GSI Post, Tattiannaram Nagole, Bandlaguda, Hyderabad - 500 068. 3. One CC to Sri K. Sandeep, Advocate tOPUCI 4. One CC to Sn Namavarapu Rajeshwar Rao, Assistant Solicitor General (OPUC) 5. Two CD Copies. Along with a Copy of the Common Order dated 18 47 .2419 in W.P No,5422 of 2018 To, I ,4P u .^ tu' .\" ,,- HIGH COURT DATED:21 it1012020 ORDER WP,No.18tl11 of 2020 ALLOWIN(G THE WRIT PETITION WITHOUT COSTS , S 'l . . f, cci>'cl )rrt 29 0w 2W0 tC !j 1- 1HE ti i^ .tircH D .r->)-t) 'i< vA THE HON'BLE SRI JUSTI CE A,RAJASHEKER REDDY W,P.NOs,5422, 72784, 73520- 83. 13855. 74766. 24057.30993. 4 30F 8 6 7 o47 60 7 A L4n6 444 6 7 53 6eEa 60te 6(lR1 7on 1 7no8 7014 7046 70 A9 flrrr Rrr? RqR6 gEqn q??? q?4() q?Rl q46R qE6? qEQ4 06r? 9726.9737. LOOsA. LOO99. tt20A. t1223. L1239. 1t263, tL889. 11991, 1201a, 12036, L2040, L2069, 12108, 12144, L21A6, t2L94, 12200. L2209, 12215. L22L7. 12243. L2260, L2262. t22AA. L2342. 12350, 124L7, L2432, L2472, 12494, 12506, L2574, 12598, t2621, t2702, 12735. L2740. t2a4s. L2450, t286s, L2466. t3013. t36la. L3730. L3749. 13779. 137aa. 13a39, 13855, t3a7A, L3912. t3917. 13945, t4LOt. 14174, 14207, 143sO, 14361, 1439o. 14392. L4397, 14409. 14582 AND L4597 0F 20t9 COMMON ORDER Since, the issue involved in all the writ petitions is one and the same, they are heard together and are being disposed of by this common order. 2. The petitioners are the directors of the private companies, registered under the Companies Act, 2013 (18 of 2013) (for short 'the Act'). Some of the such companies are active, and some of them have been struck off from the register of companies under Section 248(l)( 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 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-appolnted 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. 707 3, 7 LOs, 7 432, 7 454. 7 57 2. 7 595. 77 32. 77 65. 7 7 68. 7A24. 7 978. l 4. Tlis court granted interim orders in the writ petitions directing the 2nd respondent to activate DINs of the petitioners, to enable them to function other than in strike off companies. 6. Learned counsel for the petitioners, contend that before passing the impugned order, notices have not been issued, giving them opportunity, and this anrounts to violation of principles of natural justice, and on thls ground alone, the impugned orders 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 fiied financial statements or annual returns of the company to which he is direct,lr, for any continuous period of three financial years. Learned counsel further submits that this provision came into force with effect from 7.4.2074, and prior thereto i,e., under Section 27a$)@) of the Companies Act, 1956 (1 of 1956), vrhich is the analogous provision, there was no such requirement for the directors of the private companies. They contend that this provision under Act 18 of 2013, will have prospective operation and hence, if tfre directors of company fail to comply with the requirements mentioned in the said provision subsequent to the said date, the authority under the Ar--t, is within its jurisdiction to disqualify them. But in the present cases, the 2'd respondent, taking the period prior to 1.4.2074, i.e., giving the provision retrospective effect, disqualified the petitioners as directors, which is illega I and arbitrary. B. V,/ith regard to deactivation of DINs, learned counsel for the petitioners s,ubmit that t.he DINs, as contemplated under Rule 2(d) of the Companies lAppointment and Qualification of Directors), Rules, 201'4 (for 5. Heard the learned counsel appearing for the petitioners ln all the writ petitiorrs, Sri K,Lak:;hman, Iearned Assistant Solicitor General appearing for the respondents - Union of india. -) short 'the Rules), are granted for life time to the applicants under Rule 10(6) oF the said Rules, and cancellation of the DIN can be made only for the grounds mentioned in clauses (a) to (f) under Rule 11 of the Rules, and the said grounds does not provide for deactivation for having become ineligible for appointment as Directors of the company under Section 164 of the Act' Learned counsel further submits that as agalnst 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't respondent - Government of India represented by the Ministry of Corporate Affairs, has floated a scheme dated 29.12.2017 viz., Condonation of Delay Scheme - 2018, wherein the directors, whose DINs have been deactivated by the 2\"' 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 companles, 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 asjde the impugned orders and to allow the writ petitions. 11, On the other hand learned Assistant Solicitor General submits that failure to file financial statements or annual returns for any continuous period -1 of three financlal years, automatically entail their disqualification under Section rc (2)(a) of the Act and the statute does not provide for issuance of any notice. Hence, the petitioners, who have failed to comply with the statutory rr:quirement under Section 164 of the Act, cannot complain of violation of principles of natural justice, as it is a deeming provision. Learned counsel further submit:; that the petitioners have alternative remedy of appeal tindr:r Section 252 of the Act, and hence writ petitions may not be entertained 12. To consider the contention of the learned Assistant Solicitor General with regard to alternative remedy of appeal under Section 252 of the Act, the said provision is required to be considered, and the same is extracted as under for better appreciation: 252. Appeal to fribunal Provided that before passing an order under this section, the Tribunal shall give a reilsonable opportunity of making representations and of being heard to the Registrar, the company and all the persons concerned: Provided further that if the Registrar is satisfied, that the name of the company has been strucl( off from the register of companies either inadvertently or 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 frorn 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 com pa n y, (rl) A copy of the order passed by the Tribunal shall be filed by the company with the tlegistrar 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 oi companies and shall issue a fresh certificate of incorporation. (:) If a company, or any member or creditor or woTker thereof feels aggrieved by the company having its name struck off from the register of companie;, the Tribunal or an application made by the company, member, creditor or workman before the expiry of twenty years from the publication in the Official Gazette c,f the notice under sub-sectaon (5) of Section 248, if satisfied that the company was, at the time of its name being struck off, carrying on business or in operation or otherwise it is just that the name of the company be restored to the register o: 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 sucl provisions as deemed just for placing the company and all other persons in the sarne position as nearly as may be as if the name of the company has not been strur:k off from the register of companies. (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 period of three years from the date of the order of the Registrar and if the Tribunal is of the opinion that the removal of the name of the company from the register of companies is not juslrfied in view of the absence of any of the grounds on which the order was passed by the Reg strar, it may order restoration of the name of the company in the register of com panies; ) A reading of above provision goes to show that if the company is dissolved Under Section 248 of the Act, any person aggrieved by the same, can file an appeal. Thus the said provision provides the forum for redressal against the dissolution and striking off the company from the register of companies, It does not deal with the disqualiflcation 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, 13. Under Section l6a(2)(a) of the Act, if the Director of a company fails to file financial statements or annual returns for any continuous period of three financial years, he shall not be eligible to be re-appointed as a director of that company or appointed in other company for a period of flve years from the date on which the said company fails to do so. The said provision under the Act 18 of 2013, came into force with effect from 01.04.2014, and the petitioners are disqualified as directors under the said provision. At this stage, the issue that arises for consideration is - whether the disqualification envisaged under Section f64(2)(a) of the Act, which provision came into force with effect from 07.O4.2074, can be made applicable with prospective effect, or has to be given retrospective operation? In other words, the issue would be, from which financial year, the defau t envisaged under Sectlon 16+(2)(a) of the Act, has to be calculated, to hold the director of the company liable? In this regard, the learned counsel brought to the notice of this Court, the General Circular No.08/14 dated 4.4.2014 issued by the lvlinistry of Corporatlon affairs, which clarifies the applicability of the relevant financral years. The relevant portion of the said circu la r is as under: \"A number of provisions of the Companies Act, 2013 including those relating to maintenance of books of account, preparation, adoption and fiting of financial statements (and documents required to be attached thereto), Auditors reports and the Board of Directors report (Board's report) have been brought into force with 6 The Ministry has received requests for clarification with regard to the relevant financial years with effect from which such provisions of the new Act relating to maintenance of books of account, pieparation, adoption and filing of financial statemenls (and attachments thereto), auditors report and Board's report wrll be a pplrca ble. Althoulh the posrtion in this behalf is quite clear, to make things absoiuteiy clear it is hereby notified that the financial statements (and docurnents required to be attached thereto), auditors report and Board's report in respect of financial years that conrmenced earlier than 1't April shall be governed by the relevant provision:;/schedules/rules of the Conlpanies Act, 1956 and that in respect of financial )/ears commencing on or after 1't April, 2014, the provisions of the new Act shail 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 re:;pect of financial years that commenced earlier than 0L.O4.2014, shall be gorrerned by the provisions under the Companies Act, 1956 and in respect of financial years commencing on or after 07.O4.2014, the provisions of the new ltct shall apply. 74. At this stage it is required to be noticed that the analogous provision to Section 164i2)(a) of the Act 18 of 2013, is Section 27aQ,)G) of Act 1 of 1956. The said provision under Act 1 of 1956 is extracted as under for ready rei'erence: Section 274(11 A person shall not be capable of being appointed director of a compa ny, if - (g) such person s already a director lf a public company which, - (A) has not filed the annual accounts and annual returns for any continuous three financial years commencing on and after the frst day of April, 1999; or (B) Provided l:hat 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 flled annual accounts and annual 'eturns for any continuous three financial years commencing on effect frcm 1tt April, 2014. Provisions of Schedule II (useful lives to compute depreciation) and Schedule III (format of financial statements) have also been brought into force from that date. The relevant Rules pertaining to these provisions have alsc, been notified, placed on the website of the Ministry and have come into force fronr the same date. 7 and after the first day of April 1999, shall not be eligible to be appointed as a director of any other public company for a period of five years from 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 legislation i.e., Act 18 of 2013, no such distinction between a 'private company' or a 'public company' is made and as per the said provision goes to show that no person who is or has been a director of a 'company', fails to file financial statements or annual returns for any continuous period of three financial years, will not be eligible for appointment as a director of a company. As already noted above, the said provision, came into force with effect from 01.O4.20L4. 16. Coming to the facts on hand, the 2nd respondent has disqualified the petitioners under Section f6a(2)(a) 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 2\"d respondent runs contrary to the circular issued by the l 4inistry of the Corporate Affairs, and he has given the provisions of Act 18 of 2013, retrospective effect, which is impermissible. L7. The Apex Court in COMMISSIONER OF INCOME TAX (CENTRAL)-L NEW DELHI v. VATIKA TOWNSHIP PRMTE LIMITEDL has dealt with the general principles concerning retrospectiv ity. The relevant portion of the judgment is thus: 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, r(:ors)l sccr E conceptually it is a great deal more than an ordinary prose. There is a special peculiarit'r' in the mode of verbal communication by a legislation, A legislation is not just a series of statements, such as one finds in a work of fiction/non fiction or even in a judgrnent 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-i-vis ordinary prose, a legislation differs in its provenance, lay-out and features as also in the implication as to its meaning that arises by presumptions as to the intent of the maker thereof. 28. Crf the vaTious rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law shoulcl govern current activities. Law passed today cannot apply to the ev(rnts of the past. If we do something today, we do it keeping in the law of today ancl in force and not tomorrow's backward adjustment of it. Our belief in the nature of the law is founded on the bed rock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have beerr retrospectively upset. This principle of law is known as lex prospicit non respicit i law looks forward not backward. As was observed in Phillips vs, Eyre [(1870) LR 6 QB 1], a retrospective leqislation is contrary to the general principle that legis ation by which th€ 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 transacticns carried on ullon the faith of the then existing law. 29. 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 Steamshit) Co. Ltd, [{1994) 1 Ac 486]. Thus, legislations which modified accrued rights or which impose 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 supplying an obvioL s omission in a former legislation or to explain a foTmer legislation. We need not note that cornucopia of case law available on the subject because aforesaid legal posilion clearly emerges from the various decisions and this legal position was conceded by the counsel for the parties. In any case, we shall refer to few judgments containing this dicta, a little later. 30. We would also like to point out/ for the sake of completeness, that where a benefit is conferred by a legislation, the rule against a ret.ospective construction is different. If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators object, then the presumpton 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 Tolracco Association, [(2005) 7 SCC 396], the doctrine of fairness was held to be relevant factor to construe a statute conferrinq 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 Maharashlra & Ors., [(2006) 6 SCC 289]. It was held that where a law is enacted for the beneflt of community as a whole, even in the absence of a provision the statute nray be held to be retrospective in nature. However, we are (src not) confronteil wrth any such situalion here. 31. ,n such cases, retrospectivity is attached to benefit the persons in contradrstinction to the provisron imposing some burden or liability where the presumpt on attached toh,ards prospectivity. In the instant case, the proviso added to Sectior, 113 of the Act is not benefi(ial to the assessee. On the contrary, it is a provisron which is onerous to the assessee. Therefore, in a case like this, we have to proceed wrth 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 slrch a construction appears very clearly in the terms of the Act, or arises by necessary and distinct inrplication. Dogmatically framed, the rule is no more than a presumption, and thus (:ould be displaced by out weighing factors. 43. Tl'rere 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 provi:;ion. It is contained in CBDT Circular No.8 of 2002 dated 27.8.2002, with the subjer:t \"Finance Act, 2002 - Explanatory Notes on provision relating to Direct Taxes\". This circular has been issued aiter the passing of the Finance Act, 2002, by which am,:ndment 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. 9 For example, Explanation to section 158-BB is stated to be clarificatory in nature. Likewise, it is mentioned that amendments in Section 145 whereby provisions 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 to amendment to Section 113 of the Act, this very circular provides that the said amendment along with the amendments in Section 158-BE, would be prospective i.e., will take effect from t.6.2002.' 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 appllcable 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 plece of evidence, as it would clarify the provision beyond any pale of doubt. In the present case, as already noted above, the N4inistry of Corporation affairs has issued the circular No.08/2014 dated 4.4.2014 clarifying that financial statements commencing after 01.04.2014, shall be governed by Act 1B of 2073 i.e., new Act and in respect of financial years commencing earlier to 01.04.2014, shall be governed by Act 1 of 1956. At the cost of repetition, since in the present cases, as the 2nd respondent / competent authority, has disqualified the petitioners as directors under Section 16a(2)(a) of the Act 18 of 2013, by considering the period prior to 07.O4.2074, the same is contrary to the circular, and also contrary to the law laid down by Apex Court in the above refe rred judg ment. 19. If the said provision is given prospective effect, as per the circular dated 4.4.2014 and the law laid down by the Apex Court, as stated in the writ affidavits, the 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 conclusron of the annual general meeting of the 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 closinq of financial ye;ar i.e., by 3t).09.2017. Further, the time Iimit for filing annual returns uncer 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 liection 403 of the Act. Learned counsel submit that if the said dates are calculated, the last date for filing the annual returns would be 3O.L1.2O17, 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.O7.2018. In other words, the d isq ualification could get triggered only on or after 27.O7.2078. But the period considered by the 2nd respondent in the present writ petitions for clothing the petitioners with disqualification, pertains pri,lr to 01.04.20L4. Therefore, when the omission, which is now pointed out, was not envisaged as a ground for disqualification prior to 1.4.2014, tlre petitioners cannot be disqualilied on the said ground. This analogy is traceable to Article 20(1) of the Constitution of Indla, which states that \"I'lo person shall be convicted of any offence except for violation of a law in force at the time of the commissicn of the act charged as an offence, nor be subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the commission of the offence\". In view of the same, the ground on which the petitioners were disqualified, cannot stand to legal scrutiny, and the same is liable to be set aside. 20. A learned Single Judge of the High Court of Karnataka in YASHODHATRA SHROFF vs, UTUION OF INDIA2 considering Section 1,6aQ)@) of the Act and other provisions of the Act, and various judgments, lassed an elaborate order and held that the said provision has no retrospectivr: operation. The observations of the learned Judge, pertaining to t ,.l,.Nn.5l9ll ol 20l7 and i)arch darcd 11.06.1019 ll private companies, which are relevant for the present purpose, are extracted as under; 2OB. In view of the aforesaid discussion, I have arrived at the following conclusions: (a) It is held that Section 164(2)(a) of the Act is not u/tra virus Article 14 of the Constitution. The said provision is not manifestly arbitrary and also does not fall within the scope of the doctrine of proportionality. Neither does the said provision violate Article 19(1)(9) of the Constitution as it is made in the interest of general public and a reasonable restriction on the exercise of the sajd right. The object and purpose of the said provision is to stipulate the consequence of a disqualification on account of the circumstances stated therein and the same is in order to achieve probity, accountability, and transparency in corporate 9OVernance. (b) That Article fslc) Section 164(2) o't the Act applies by operation of la' on the basis of the circumstances stated therein, the said provision does not envisaqe any hearing, neither pre-disqualification nor post-disqualification and this is not in violation of the principles of natural justice, is nol ultra yires Article 14 of the Constitution. (c) That Section 164(2) of the Act does not have retrospective operation and is therefore, neither unreasonable nor arbitrary, in view of the interpretation placed on the same. (d) (0 (g) Consequently, where the disqualification under Section 164(2) of the Act is based on a continuous period of three financial years commencing from 01.04.2014, wherein financial statements or annual returns have not been frled by a public or private company, the directors of such a company stand disqualified and the consequences of the said disqualificatjon would apply to them under the Act. 21. A learned Single of the High Court of Gujarat at Ahmedabad in cAURANG BALVANTLAL SHAH S/O BALVANTLAL SHAH vs. UNION OF INDIA3 expressed similar view as that of the leaned sjngie Judge of High Court of Karnataka (1 supra), and heid that Section 164(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 that the defaults contemplated under Section 16a(2)(a) with regard to non-filing of financial statements or r r/Special Civil Application No.22435 of2017 and batch dated 18.12.20 t 8 (e) Insofar as the private companies are concerned, disqualification on account of the circumstances stated under Section 164(2)(a) of the Act has been brought into force for the first time under the Act and the consequences of disqualification could not have been imposed on directors of private compan es by taking into consideration any period ptiot lo 0L.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) of the Constitution, as at no point of time prior to the enforcement of the Act, a disqualificataon based on the circumstances under Section 764(2) of the Act was ever envisaged under the 1956 Act vis-d-vis directors of private companies, Such a disqualification could visit a director of only a public company under Section 274(l)(9) of 1956 Act and never a director of a private company. Such disqualification of the petitioners who are directors of private companies is hence q uas hed. t2 annual returns for any continuous period of three financial years would be the default to be count.ed from the financial year 2014-15 only and not 2073-14. 22, A, learned sinqle Judge of the High Court of [4adras in BHAGAVAN DAS DHAN.ANJAYA DAS vs. UNION OF INDIA4 also expressed similar view. The rrllevant portion is as under: 29. In fine, (a) When the New Act 2013 came into effect from 1.4.2014, the second rt-'spondent herein has wrongly given retrospective effect and erroneously disqualified the petitioner - directors from 1.1.2016 itself before the deadline commenced wrongly fixlng the First Financial year from L.4,2073 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.0B/14 dated 4.4.20!4, the first financial 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 financial year would be from 7.4.2076 lo 37.3.2077, whereas the second respondent clearly admitted in paras 15 and 22 of the counter affidavit that the default of filing statutory returns for the final years commences from 20L3-74, 2074-15 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 proceed ing s. 23. In view of thr: 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 Iiable to be set aside to that extent. 24. t:rs 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 refe re n ce : 164. Disqua lification for appointment of directori 'W.1,.No.15455 ol 20l7 and batch darcd 27.07.2018 l3 (2) No person who is or has been a director of a company which- (a) has not filed financial statements or annual returns for any continuous period of three financial years; or (b) Shall be eligible to be re-appointed as a director of that company or appointed in other companies for a period of five years from the date on which the said company fails to do so. A reading of the above provision makes it clear that it provides disqualification on happening of an event i.e., if a person who is or has been a 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 date on which the said company fails to do so. The provision does not provide for issuance of any prior notice or hearing. A learned single Judge of the High Court of Karnataka in Yashodara Shroff v. Union of India (1 supra), as well as the learned single Judge of the High Court of Gujarat at Ahmedabad in Gaurang Balvantlal Shah s/o Balvantlal Shah vs. Union of India (2 supra), after analyzing various provisions of the Act and Rules framed thereunder, and by relying on various judgments of the Apex Court, held that Section 164(2)(a) of the Act applies by operation of law on the basis of the circumstances stated therein, the said provlsion does not envisage any hearing, neither pre-disqualification nor post-disqualification and this is not in violation of the principles of natural justice and hence, is not ultra vires Article 14 of the Constitution. I concur with the said reasoning. 25. Thus, from the above, it is clear that Sectjon t6+(2)(a) of the Act is a deeming provision and the disqualification envisaged under the said provision comes into force automatically by operation of law on defauit and Legislature did not provide for issuance of any prior notice, but the respondents notified disqualification even before it incurred, and deactivated DINs, which is illegal arbitrary and against provisions contained in Section 16a(2)(a) of the Act. (a) I'l 26. The next grievance of the petitioners is with regard to deactivation of thelr DINS. The contention of the learned counsel for the petitioners ls that except tor the grounds mentioned under Rule 11 (a) to (f) of the Rules, the DINs cannot be cancelled or deactivated, and the violation mentioned under Section 16a(2)(a) of the Act, is not one of the grounds mentioned under clause:s (a) to (f) of Rule 11, and hence for the alleged violation under Section l6a(2)(a) of the Act, DIN cannot be cancelled. 27. Fl.ule 10 of the Rules provide for allotment of DIN and under sub rule (6) of Rule 10, it is allotted for life time. Rule 11 provides for cancellation or deactivation. Rule 11, which is relevant for the present purpose, is extracted as under for ready reference: 11. r:ancellation or surrender or deactivation of DIN: The Central Governm€nt or Regional Director (Northern Region), Noida or any oFficer authorized by the Regional Director may, upon being satisfied on verification of particulars or documentary proof attached with the application received from any person, cancel or deactivat€ the DIN in case - the DIN is four'rd to be duplicated in respect of the same person provided the data related to both the DIN shall be merged with the validly retained nu m ber; the DIN was obtained in a wrongful manner 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 competent Court; if the concerned individual has been adludicated an insolvent; Proviced that before cancellation or deactivation of DIN pursuant to clause (b), an opportJnity of berng heard shall be given to the concerned individua ; on an application made in Form DIR-5 by the DIN holder to surrender his or her DII',] along with declaration that he has never been appointed as director in any company and the said DIN has never been used for filing of any document with any authority, the Centra Government may deactivate such DIN; Provided that before deactivation of any DIN in such case, the Central Governm€rnt shail verify €-recoTds. (b) (c) (d) (e) (f) E>.planation: for the purposes of clause (b) - () The terms \"wrongful manner\" rneans if the DIN is obtained on the strength i)f documents t{hich are not legally valid or incomplete documents are furnished or on suppression of material information or on the basis of wrong certificatic)n or by making misleading or false information or by misrepresentation; (ii) the term \"fraudulent means\" means if the DIN is obtained with an intent to deceive any other peTson or any authority including the Central Government. 28. Clauses (a) to (f) of Rule 11, extracted above, provides for the circumstanc'3s under which the DIN can be cancelled or deactivated. The said grourrds, are different from the ground envisaged under l5 Section 164(2)(a) of the Act. Therefore, for the alleged violation under Section 164 of the Act, DINS cannot be cancelled or deactivated, except in accordance with Rule 11 of the Rules. 29. Learned Single Judge of the Gujarat High Court in the decision cited 2 supra, held as under: \"29. This takes the Court to the next question as to whether the respondents could have deactivated 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 contained in the Act and the said Rules. Section 153(3) provides that no person shall be appointed as a Director of a company, unless he has been allotted the Director Identification Number under 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 form and manner as may be prescribed. Section 154 states that the Central Government shall within one month from the receipt of the application under Section 153 allot a OIN to an applicant in such manner as may be prescribed. Section 155 prohibits any individual, who has already been allotted a DIN under Section 154 from applying for or obtaining or possessing another DIN. Rules 9 and 10 of the said Rules of 2014 prescribe the procedure for making application for allotment and for the allotment of DIN, and further provide that the DIN allotted by the Central Government under the said Rules would be valid for the life time of the applicant and shall not be allotted to any other person, 30, Rule 11 provides for cancellation or suTrendeT or deactivation of DIN. Accordingly, the Central Government or Regional Director or any authorized officer of Regional Director may, on being satisfied on verification of particulars of documentary proof attached with an application from any person, cancel or deactivate the DIN on any of the grounds mentioned in Clause (a) to (f) thereof. The said Rule 11 does not contemplate any suo motu powers either wrth the Central GoverAfnent or with the authorized officer or Regional Director to cancel or deactivate the DIN allotted to the Director, nor any of the clauses mentioned in the said Rules contemplates cancellatron or deactivation of DIN of the Director of the \"struck off company\" or of the Director having become ineligible under Section 164 of the said Act. The reason appears to be that once an rndividual, who is intending to be the Director of a particular company is allotted DIN by the Central Government, such DIN would be valid for the life 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, is \"struck off\", his DIN could not be cancelled or deactivated as that would run counter to the provisions contained in the Rule 11, which specrfically provides for the crrcumstances under whlch the DIN could be cancelled or deactivated. 31. In that view of the matter, the Court is of the opinion that the acton of the respondents in deactivating the DINS of the petitioners - D rectors along with the publication of the impuqned list of Directors of \"struck off\" companies under Section 248, also was not legally tenable. Of course, as per Rule 12 of the said Rules, the individual who has been allotted the DIN, in the event of any change in his particulars stated in Form OIR -3 has to intimate such change to the Central Government within the prescribed time in Form DIR-6, however, if that is not done, the DIN could not be cancelled or deactivated. The cancellation or deactivation of the DIN could be resorted to by the concerned respondents only 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 violations under Section 164 of the Act, cannot be sustained. 16 31. For the foregoing reasons, 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 2\"d 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 thls order will not preclude the 2nd respondent from taking appropriate action in accordance with law for violations as envisaged under Section 164(2) ot the Act, giving the said provision prospective effect from 01.O4.2Ot4 and for necessary action 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 Section 252 of the Act. 34. All the writ petitions are accordingly allowed to the extent indicated 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 "