Sri Vamshi Krishna Botsa V. Union of India

WP/18683/2021

AI Insights

The case involved two petitioners, Sri Vamshi Krishna Botsa and Sri Muralikrishna Botsa, who were directors of certain companies. These companies were either active or had been struck off for not carrying out business operations. The Registrar of Companies disqualified the petitioners as directors and deactivated their DINs for failing to file financial statements or annual returns for three consecutive years, as per Section 164(2)(a) of the Companies Act, 2013. The petitioners challenged this decision, arguing that the law was applied retrospectively, which was not permissible. The court examined the applicability of Section 164(2)(a) and found that it should be applied prospectively from April 1, 2014, and not retrospectively as done by the Registrar.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 744544 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 11-08-2021
• Assessment Year: misc
• Other Referred Cases: COMMISSIONER OF INCOME TAX (CENTRAL)-L, NEW DELHI V. VATIKA TOWNSHIP PRIVATE LIMITED, YASHODHARA SHROFF vs. UNION OF INDIA, GAURANG BALVANTLAL SHAH S/O BALVANTLAL SHAH vs. UNION OF INDIA, BHAGAVANDAS DHANANIYA 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: G SUMATHI
• Keywords: Director Identification Number (DIN); Disqualification of Directors; Natural Justice; Retrospective effect; Writ of Mandamus
• Section: 151; 226; 248; 403; 252; 164(2)(a)

Judgement Text

"HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD (Special Original Jurisdiction) WEDNESDAY ,THE ELEVENTH DAY OF AUGUST TWO THOUSAND AND TWENTY ONE THE HON'BLE SRI JUSTICE ABHINAND KUMAR SHAVILI Between: AND I 2 Sri Vamshi Krishna Botsa, S/o B. AshokAged about.41 years Fl/o Flat No. 101, Raguram Valley. Plot No.356/A, M.L. A Colony, Road No. 12, Banjara Hills' Hvderabad. Telanoana State-500034 Sii Muralikisnna Eotsa, S/o B. Ashok Aged about.45 years R/o Flat No. 101, Raguram Valley. Plot No. 356/4, M L A Colony, Road No. 12, Banjara Hills, Hyderabad, Telangana State-500034. ...'ET'T'ONERS Union of lndia, Rep.by its the tr/inistry of Corporate Affairs, 'A'Wing, Shastri Bhawan,Rajendra Prasad Road, New Delhi - 110 001 , Represented by its Secretary. The Registrar of Companies (For State of Telangana), 2nd Floor,.Corp-o-rate- Bhawan-, GSI Post, Tattiannaram Nagole, Bandlaguda, Hyderabad - 500 068. ...RESPONDENTS I 2 Petition under Article 226 ol lhe Constitution of lndia praying that in the circumstances stated in the affidavit filed therewith, the High Court may be pleased to pass an order or direction or any other proceedings one in the nature of Writ of Mandamus declaring the action of respondents in disqualifying the petitioner aS a directors and deactivating the l st petitioner Director ldentification Number (DlN) 02820965 2nd petitioner Director ldentification Number (DlN) 01660455, and restricting the petitioners from filing statutory returns, i.e., the annual returns and financial statements of the Companies in which they are Directors as arbitrary, illegal, without jurisdiction, contrary of the provisions of the Companies Act, 2013 and Rule 1'l of the Companies (Appointment of Directors) 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 lA NO: 1 OF 2021 Petition under Section 151 CPC praying that in the circumstances stated in the affidavit filed in support of the petition, the High Court may be pleased to direct the 1st Respondent to restore the 1st petitioner Director ldentification Number (DlN) 02820965 2nd petitioner Director ldentification Number (DlN) 01660455, and so as to enable petitioners to submit pending annual returns and financial statements for the Companies in which they are appointed as directors. Counsel for the Petitioners : M/s. G. SUMATHI Counsel forthe Respondents: SRI NAMAVARAPU RAJESHWAR RAO, ASST. SOLICITOR GENERAL The Court made the following: ORDER PRESENT WRIT PETITION NO: 18683 OF 2021 To, A{x THE HON'BLE SRI JUSTICE ABHINAND KUMAR SHAVILI WRIT P ON No.18683 ol 2021 ORDER: When the motter is token up for heoring, both the leorned counsel hod conlended thot the issue roised in the present writ petition is squorely covered by lhe order possed by this Court in W.P.No.l1434 of 2021 qnd boich, doted 05.08.202'l ond therefore, the preseni writ petition moy olso be ollowed of in terms of lhe soid order. ln view of the obove submission, following lhe order doted 05.08.2021 possed by this Court in W.P.No.ll434 of 2021 ctnd botch ond in lerms thereof, this Wril Petition is ollowed. No costs. Pending rniscelloneous petitions, if ony, sholl stond closed Sd/-N,CHANDRASEKHAR RAO ASSISTANT REOISTRAR //TRUE COPY/I , _--' SECTION OFFICER 1. The Secretary, Union of lndia, Ministry of Corporate Affairs, 'A'Wing, Shastri Bhawan,Rajendra Prasad Road, New Delhi - 110 001 . 2. The Registrar of Companies (For State of Telangana), 2nd Floor,.Corporate Bhawan, GSI Post, Tattiannaram Nagole, Bandlaguda, Hyderabad - 500 068. 3. One CC to M/s. G. Sumathi, Advocate [OPUC] 4. One CC to Sri Namavarapu Rajeshwar Rao, Asst. Solicitor General, Advocate loPUCl 5. Two CD Copies 6. One Spare Copy (A long with a copy of order dt:0510812021 in W.P.No.11434 of 20211 SITI I i I I HIGH COURT DATED:1110812021 ORDER WP.No.18683 ot 2021 1, ;l { / v .L K ALLOWING THE WP WITHOUT COSTS F //.o ((q oZ ,, ? HP- 5 'Afr. - o* 202r ED c , HON'BLE SRI JUSTICE ARHINAND KUMAR SHAVILI W.P.Nos. ll 434, ll94l, 12240, 13780. 14963. 14992. 1s139. 1s856 COMMON ORDER Since, the issue involved in all the writ petitions is one and the same,they are heard together and are being disposed of by this common order. 2. The petitioners are the directors of the private companies, registered under the Companies Act, 2013 (18 of 2013) (for short'the Act'). Some of the such companies are active, and some of them have been struck off from the register of companies under Section 248(1)( c ) of the Act, for not carrying on any business operation for the specified period mentioned in the said provision, and for not making any application within the specified period, for obtainlng the status of a dormant company under Section 455 of the Act. 3. The petitloners, 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 rca(2) of the Act, disqualifying them asdirectors, and further making them ineligible to be re-appointed as directors of that company, or any other company, for a period of five years from the date on which the respective companies failed to do so. The Director Identification Numbers (DINs) of the petitioners were also & 1616l ot 2021 1 deactivated. Aggrieved by the same, the present writ petitions have been filed. 4. This court granted interim orders in the writ petltions directing the 2nd respondent to activate DINs of the petitioners, to enable them to functionother than in strike off companies. 5. Heard the learned counsel appearing for the petitioners in all the writ petitions, Sri K.Lakshman, learned Assistant Solicitor General appearlng for the respondents - Union of India' 6. Learned counsel for the petitioners, contend that before passing the in'pugned order, notices have not been issued, giving them opportunity, and this amounts to violation of principles of natural justice, and on this ground alone, the impugned orders are liable to be set aside. 7. Learned counsel submits that Section 164(2)(a) of the Act empowers the authority to disqualify a person to be a director, provided he has not filed financial statements or annual returns of the company to which he is director, for any continuous period of three financial years. Learned counsel further submits that this provision came into force with effect from 7.4.2014, and prior thereto 1.e., under Section 2l+(t)(g) of the Companies Act, 1956 (1 of 1956), which is the analogous provision, there was no such requirement for the directors of the private companies. They contend that this provision under Act 18 of 2013, will have prospective operation and hence, if the directors of company fail to comply with the requirements mentioned in the said provision subsequent to the said date, the authority under the Act, is within its jurisdiction to disqualify them. But in the present cases, the 2nd respondent, taking the period ) ,/t prior to 7.4.20L4, i.e., giving the provision retrospective effect, disqualified the petitioners as directors, whichis illegal and arbitrary. L 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 time to the applicants under Rule 10(6) of the said Rules, and cancellation of the DIN can be made only for the grounds mentioned in clauses (a) to (f) under Rule 11 of the Rules, and the said grounds does not provide for deactivation for having become ineligible for appointment as Directors of the company under Section 164 of the Act. Learned counsel further submits that as against the deactivation, no 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 Section 248 of the Act. 9. Learned counsel further submits that 1't respondent - Government of India represented by the Ministry of Corporate Affairs, has floated ascheme dated 29.12'2017 viz., Condonation of Delay Scheme - 2018, wherein the directors, whose DINs have been deactivated by the 2nd respondent, allows the DINs of the Directors to be activated. However, such scheme is not applicable to the companies which are struck off under Section 248(5) of the Act' In case of active companies, they can make application to National Company Law Tribunal under Section 252 of the Act, seeking for restoration, and the Tribunal can order for reactivation of DIN of such directors, whose DIN are deactivated' However, under Section 252 onlythe companies, which are carrying on the business, can approach the Tribunal and the companies, which have no business, cannot I .l approach the Tribunal for restoration. They submit that since the penal provision is given retrospective operation, de hors the above scheme, they are entitled to invoke the jurisdiction of this court under Article 226 of the Constitution of India. 10. With the above contentions, learned counsel sought to set aside the impugned orders and to allow the writ petitions. 11. On the other hand learned Assistant Solicitor General submits thatfailure to file financial statements or annual returns For any continuous period of three financial years, automatically entail their d isq ua lification under Section f6+(2)(a) of the Act and the statute does not provide for issuance of any notice. Hence, the petitioners, who have failed to comply wlth thestatutory requirement under Section 164 of the Act, cannot complain of violation of principles of natural justice, as it is a deeming provision, Learned counsel further submits that the petitioners have alternative remedy ofappeal under Section 252 of the Act, and hence writ petitions may not be enterta in ed. 72. To consider the contention of the learned Assistant Solicitor General with regard to alternative remedy of appeal under Section 252 of theAct, the said provision is required to be considered, and the same is extracted as under for better appreciation: 252. Appeal to Tribunal: (-') Any person aggrieved by an order of the Registrar, notifyinq a company as dissolved under Section 248, mat' 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 companiesis not justified in view af the absence of any of the grounds on which the order 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 this section, the Tribunal shall give a reasonable opportunity of making representations and of being heard to the Registrar, for redressal against the dissolution and striking off the company It does not deal with the from the register of comPantes' disqua lification of the directors, and deactlvation of their DINs' In the present case, the Petitio n ers only aggrieved bY their the company and all the persons concerned: Provided further that if the Registrar is satisfied' that the name of the companY has been struck off fr.om.tbe ,\")itte, of companies eiti''er nadvertently or on bass of iiZiiirt- niirmation rurnished bY the company or its iiicirt, which requires restoration in the register of loiiirlLt, he maY within a period of three vears from the iat[ ir pisting oi the order dissolving the company under Section'248, file an application before the Tribunal seekinq restoration of name of such company' (2) A copy of the order passed by the.Tribunal shall be tiled by the companywith the Registrar within thirty days Tioi-tn\"'date of the order and on receipt of the order' the Reqistrar shall cause the name of the companY to be restored in the register of companies and shall issue a fresh ce rtifica te of i ncor1oratio n' (3) If a companyt or.any member or creditor or worker'tiereof feels aggiieved bY the companY having its 'iiii. tt*r* off froi- the register of companies' the lriiinrt oi,, an application made by the compa.ny' member' ,iJiitii., workman before the expiry of twentY y.ears from rhe oublication in the Official GazeXe of the notice under tio-iiZiiii- isS of section 248, if satisfied that the companv iit,- i tn\"'tiru of its name being strucl ?fL. carrying on 'iiiinitt o, in operation or otherwise it is iust that the name -oi- tini ,o*prri be restored to the register.of companies' oiii tii ,5.i \"f the companv to be restored t? the-,a:gister -oiiii,p-\"riiiit, and tne iribunit mav' bv the order' sive such i,tii, 'rlinrtiit* and make such provisions as deemed iust iir ptacing the company and all other persons-i:-t!e -same 'iititiiZi it nearlv as mav be as ir the name of the iim'p-urv has not been siruck off from the register of comPanies. A reading of above provision goes to show that if the company is dissolved under Section 248 of the Act' any person aggrieved by the same, can file an appeal' Thus the said provision provides the forum 5 are disqua lification as directors and deactivation of DINS' but not about striking off companies as such' Hence' Section 252 of the Act' cannot be an alternative remedy for seeking that relief, and the contention of the learned Assistant Solicitor General' in this regard' merits for rejection. 6 13. Under Section 164(2)(a) of the Act/ if the Director of a company fails to file financial statements or annual returns for any continuous periodof three financial years, he shall not be eligible to be re-appointed as a director of that company or appointed in other company for a period of five years from the date on which the said company fails tc do so. The said provision under the Act 18 of 2013. came into force with effect from Ot.O4.2Ol4, and the petitioners are disqualified as directors under the said provision. At this stage, the issue that arises for consideration is - whether the disq ua lification envisaged under Section 16a(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?ln other words, the issue would be, from which financial year, the default envisaged under Section f6a(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 Ministry of Corporation affairs, which clarifies the applicability of the relevant financial years. The relevant portion of the said circular is as under: \"A number of provisions of the Companies Act, 2013 including those relating to maintenance of books of account, preparati)q adoption and filing of financial statements (and documents required to be attached thereto), Auditors reports and the Board of Directors repoft (Board's report) have been brought into force with effect from lst 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 peftaining to these provisions have alsa been notified, placed on the website of the Ministry and have come into force from the same date. The Ministry has received requests for clarification with regard to the relevant financial years with effect from which such provisions of the new Act relating to maintenance of books of.lccount, preparation, adoption and filing of financiat statements (and attachments thereto), auditors report and Board's report will be applicable. Althouilh the position in this behalf is quite clear, to make things absolutely clear it is hereby notified that the financial statemen is (and documents required to be attached thereto), auditors report and Eoard's report in respect of 7 financial yearsthat commenced earlier than 1st 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.O4.2074, shall be governed by the provisions under the Companies Act, 1956 and in respect of financial years commencing on or after OL.04.2014, the provisions of the new Act shall apply. t4. 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 27+(t)(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' (g) 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 commencinq on and after thefirst daY oF April, 1999; or (B) Provided that such person shall nat 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 financial years commencing on , 8 and after the frst day of April 1999, shall not be eligible to be appointed as a director of any other public company for a period of five years from thedate on which such public company, in which he is a director, failed to file annual accounts and annual returns. So the statutory requirement of fillng 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- fillng of annual accounts and annual returns by the directors of the private company, will not disqualify them as directors under the provisions of Act 1of 1956. 15. Under Section 164(2) ot 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 orhas been a director of a 'company', fails to file financial statements or annual returns for any continuous period of three financial years, will not be eligible for appointment as a director of a company. As already noted above, the said provision, came into force with effect from 01.04.2014. 16. Coming to the facts on hand, the 2nd respondent has disqualified the petitioners under Section 164(2)(a) of the Act 18 of 2013, for not filing financial statements or annual returns, for period prior to 01.04.2014. The action of the 2nd respondent runs contrary to the circular issued by the Ministry of the Corporate Affairs, and he has given the provisions of Act 18 of2013, retrospective effect, which is impermissible. 9 77. The Apex Court in COMMISSIONER OF INCOME TAX (CENTRAL)-L, NEW DELHI V. VATIKA TOWNSHIP PRIVATE LIMITEDT 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 i statutory Notification, may phYsicallY consists of words printed on papers. r lzot s1t scct 28. However, conceptually it is a great deal more than an ordinary prose. There is a special peculiarity in the mode of verbal communication by a legislation' A legislation is not just a series of statements, such as oie finds in a work of fiction/non fiction or even in a judgment of a court of law fhere is a technique 'req-uired to draft a legislation as well as to understand a legistation. Former technique is known as legislative diatting and latter one is to be found in the various princifies of 'Interpretation of Statutes'' Vis-e-vis ordinary prose, a legislation differs in its provenance, lay-out'and features as also in the implication as to its- iieaninq tnat 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 iontrary initention appeao a legislation is presumednot li ie iitenaea b have a retrospective operation' The iiea benind the rule is that a current law should govern iiirent activities. Law passed today cannot apply to.the Lients or the past. If we do something today, we do it Leiping in the taw of todaY and in force ..and not iiiorio*'t backward adjustment of it' our belief in the nature of the law is founded on the bed rock that every himan beinq is entitted to arrange his affairs bY.relying oi ini\" e*isiinq law and shoutd not find that his plans ii,rri ou\"n reiospectively upset This principle of- law is. kiown as lex prospicit non respicit : law looks forward niot backward As was observed in Phillips vs' Eyre i, iiol tn 6 QB tl, a retrospective legislation is tiittufi to the'geniral principle that legislation.by iniii in\" conduci of mankind is to be regulated when iiliaucea for the first time to deal with future acts oiuant not to change the character of past transactions ,iinra on upon th; faith of the then existing law 30.fhe obvious basis of the principle against retrispectivity is the principte of'fairness\" which must ii iil- L\"tii of every legal rule as was observed in ii\"- J\"iiiio, reported in L'office cherifien des 'ii.tiiit\"i v' Yamashita-shtnnihon steamsnip co Ltd ifi {siqj 1 Ac 4861 rhus, tegistations whrch modirie-d- 'a'ccriea rignts or which impose obligations or impose. niw dutiei or attach a new disability have to be.treate.d ui piotp\"rt*\" unless the legislative intent B clea-rly -to give the enactment a retrospective effect; untes,s t-le- ieoislation is for purpose of supplying an abvtous .i'tittii, in a former legislation or to explain a former t.oitiatior. we need not note that cornucopia of case 'ii' ,iiiluat\" on the subiect because aforesaid legal. 'irt,iii i\"urti i^erges from the various decisions and 'this legat position was conceded bY the counsel for the l0 parties. ln any caset we shalt refer to Few judgments containing this dicta, a little later. 31. We would also like to point out, for the sake ol completeness, that where a benefit is conferred by a legislation, the rule against a retrospective construction is different. If a legislation confers a benefit on sorrte persons but without inflicting a corresponding detrim