Sri Yedida Kanaka rao V. Union Of India and another

WP/21799/2020

AI Insights

The case involves Sri Yedida Kanaka Rao, the petitioner, who challenged the action of the respondents in deactivating his DIN and disqualifying him from directorship under Section 164(2)(a) of the Companies Act, 2013. The disqualification was based on alleged defaults in filing financial statements and annual returns for three consecutive years. The petitioner argued that the action was arbitrary, illegal, and violated principles of natural justice, as it was applied retrospectively. The respondents, including the Union of India and the Registrar of Companies, defended the action citing statutory provisions. The court examined the applicability of Section 164(2)(a) and the relevant rules, ultimately finding that the retrospective application of the law was incorrect and set aside the disqualification and DIN deactivation.

• Counselvise Citation: [2020] 140 COUNSELVISE.COM (IT) 736776 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 02-12-2020
• Assessment Year: misc
• Other Referred Cases: Yashodhara Shroff vs. Union of India, Gaurang Balvantlal Shah s/o Balvantlal Shah vs. Union of India, Bhailavan 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: ANJANAYULU YADANABOYINA
• Keywords: Deactivation; Director Identification Number (DIN); Disqualification; Natural Justice; Writ of Mandamus
• Section: 226; 248; 252; 164(2)(a); 16a(2)(a)

Judgement Text

"HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD (SPecial Original Jurisdiction) WEDNESDAY THE SECOND DAY OF DECEI/BER TWO THOUSAND AND TWENTY PRESENT THE HONOURABLE SRI JUSTICE CHALLA KODANDA RAM WRIT PETITION NO: 21799 oF 2020 Betwee n: Sri Yedida Kanaka rao, sio sri Venkataratnam Ycdida. aged about. 32 years. R/o Flat no.10-4-74-4, Fathenagar, Alywln society, Balanagar, Hyderabad - 500018. Telangana ...PETITIONER AND i. Union Of lndia Rep. By The l 4inistry of Corporate Affairs, A Wing, ShastriBhawan, Ralendra Prasad Road, New Delhi - 1 10 001 , Represented by its Secretary. 2. The Registrar of Companies, (For State the of Telangana), 2nd Floor. Corporate Bhawan, GSI Post, Tattiannaram Nagole, Bandlaguda Hyderabad - 500 068. ...RESPONDENTS Petition under Anicle 226 of the Constitution of lndia praying that in the circumstances stated in the affidavit filed therewith, the High Court may be pleased to pass an order or direction or any other proceedings one in the nature of Writ of li,4andamus declaring the action of respondents in deactivating the DIN 07974994 and restricting the petitioner from filing statutory returns, i.e., the annual returns and financial statements of the Companies in which he is Director as arbitrary, illegal, without jurisdiction, contrary of the, provisions of the Companies Act, 2013 and Rule 1 '1 of the Companies (Appointment of Dlrectors) Rules, 2014, violative of the principles of natural justice besides violating the petitjoner rights guaranteed under Article '14 and Article t S (t ) (g) of the Constitution of lndia lA NO: 1 OF 2020 Petitlon under Section 151 CPC praying that in the circumstances stated in the aff davit filed in support of the petition, the High Court may be pleased to direct the 1st Respondent to restore the DIN 0797 4994 so as to enable petitioner to submtt pending annual returns and financjal statements for the Company in which rs petltioner apDointed as d rrecto r Counsel for the Petitione(s):SRl. ANJANAYULU YADANABOYINA Counsel for the Respondents: NAMAVARAPU RAJESHWAR RAO(ASSGI) The Court made the following: ORDER THE HON'BLE SRI JUSTICE CHALLA KODANDA RAM WRIT PETITION No. 2 L799 of 2O2O ORDER: The petitioner challenges his disqualification from Directorship under Section l6ae) of the Companies Act, 2013, for the aileged default in filing financial statement/ Annual Rerurns. ancl consequentl)-, seeks restoration ol the Director Identificarro. Nurnber (DIN) r'iz. 0797 4994. Learned counsel lor the petitioner :;ubmits that the isstrt raisr:d in the prescnt Writ petition is squarel1.. covered bl. thc corrmon order darecl 18.07.2019 in W.p.No.5422 oi 20i8 and ba tc h. Learned Standing Counsel for the 2ncl respondent _ Registrar of Companies does not dispute the 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 f6a(21(a) of the Act and deactlvation 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 companles. It is made clear that this order will not preclude the 2'd respondent from taking appropriate action in accordance with law for violations as envisaged under Section 16412l ot the Act, giving the said provision prospective effect from O1,O4,2O14 and for necessary action agrrinst DIN in case of violations of Rule 11 of the Rules. 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 undel Section 252 of t}:e Act. All the writ petitions are accordingly allowed to the extent indicated above,\" I I To, Avs In viet. ol' the said Order dated lg.O7.2olg and lbr tirr: reasons recorded therein, this writ petition is also ailou.ed in terms thereof. No costs. Nliscellaneous petitions, if anv stand closed. SD/.I.NAGALAKSHIMI ASSISTANT REGIS R ,TRUE COPY' SECTION OFFICER 1. The lVinistry of Corporate Affairs, Union Of lndia A Wing, ShastriBhawan, Rajendra Prasad Road, New Delhi - 110 001, Represented by its Secretary. 2. The Registrar of Companies, (For State the of Telangana), 2'd Floor, Corporate Bhawan, GSI Post, TattiannaramNagole, Bandlaguda Hyderabad - 500 068. 3. One CC to SRl. ANJANAYULU YADANABOYINA Advocate [OPUC] 4. One CC to SRl, NAI/AVARAPU RAJESHWAR RAO(ASSGI)Advocate tOpUC] 5. Two CD Copies (along with a copy of the common order dated 18.07.2019 in Wp No S422:2O1B and batch ) ju-- HIGH COURT DATED:02112t2020 ORDER WP,No.217'J9 of 2020 AI-LOWING THE WP WITHOUT COSTS d I i I I (0 I (q 14 DECrys > z * ,i:C LztA4 52 1 t41 24051 30993 AND 40953 OF ota. ss47.5582, 5669, 5687, s7 a5. 6047. 6087. 6t40. 64A4.6753. 6858. 6958. 6981. 7001. 7r)0A. 70t4. 7 046. 7069. altt.8223.8586. 8590. 9333. 9340, 9381, 9468, 9563, 9544.9623. 9726. 9737, t00sa. tOO99. Lt20A, 1L223, 11239. 11263. ttAag. L199L, t20t8. L2036, 12040, 12069. L21OA. 12L44. t2LA6. t2194. l rrnn t rrno l rr'! E I ))'11 1't, /14. 1r)Rn 1 2262 12 ?e.e 1 ,aa, lr?En t)a11 1'taa, lraa) 1) qR 1 ) 506 t2 c74 l rEOa l 16rr L2702. 12735. L2740. 12a45. L2a50. L2A6s. 12A66. 13013. L36ta. 13730. 13749. 13779, t37AA, 13a39, 13855, 1387a. L39L2- 13917, t3945, 14101. 14L74. L4207.14350, 14361, 14390. 14392. L4397. 14409. 14582 AND 14597 0F 2019 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 applicatjon 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 rcaQ) of the Act, disqualifying them as directors, and further making them ineligible to be re-appointed as directors of that company, or any other company, for a period of five years from the date on which the respective companies failed to do so. The Director Identification Numbers (DINs) of the petitioners were also deactivated. Aggrieved by the same, the present writ petitions have been filed. THE HON'BLE SRI ]USTICE A,RAJASHEKER REDDY 7 073, 7 LO'. 7 432. 7 4s4, 7 57 2, 7 s95. 7 732. 7 7 6s. 7 7 6A. 7 A24, 7 97 a. l 4. This 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. 5. Heard the learned counsel appearing for the petitioners in all the writ petitions, Sri K. Lakshman, learned Assistant Solicitor General appearing for the respondents - Union of India. 6. Learned counsel for the petitioners, contend that before passing the inrpugned 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 16a(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 t.4.2014, and prior thereto i.e., under Section 27a(L)(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 authorlty under the Act, is within its jurisdiction to disqualify them. But in the present cases, the 2nd respondent, taking the period prior to 1.4.20L4, i'e', giving the provisir:n retrospective effect, disquallfied the petltioners as directors, which is illega I and arbitrary. 13. 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 I l 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' LearnedcounselfurthersUbmitsthatasagainstthedeactivation,noappeal 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. g. Learned counsel further submits that 1't respondent - Government of India represented by the N4inistry 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\"d respondent, aliows the DINs of the Directors to be activated. However, such scheme is not applicable to the companies which are struck off under Section 2 B(5) of the Act. In case of active companies, they can make application to National Company Law Tribunal under Section 252 of the Act, seeking for restoration, and the Tribunal can order for reactivation of DIN of such directors, whose DIN are deactivated. However, under Section 252 only the companies, which are carrying on the business, can approach the Tribunal and the companies, which have no business, cannot approach the Tribunal for restoration. They submit that since the penal provision is given retrospective operation, de hors the above scheme, they are entitled to invoke the jurisdiction of this court under Article 226 of the Constitution of India. 10. With the above contentions, learned counsel sought to set aside the impugned orders and to allow the writ petitions. 11. On the other hand learned Assistant Solicitor General submits that failure to file financial statements or annual returns for any continuous period I of three financial years, a utomatica lly entail their disqualification under sectior-r r64(2)(a) of the Acr and the statute does not provide for issuance of any nctice. Hence, the petitioners, who have failed to comply with the statutory requirement under Section 164 of the Act, cannot complain of violation oF principres of naturarjustice, as it is ir deeming provision. Learned counsel further submits that the petitioners have alternative appeal under Section 252 of the Act, and hence writ petitions entertained. 72. To consider the contention of the rearned Assistant Soricitor General with regard to arternative remedy of appear 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 Tribu na I (1) Any person aggrieved by an order of the Registrar, notifying a company as ,Jissolved under Section 248, may file an appeal tc the Tribunal within a period of thftle years from the date of the order of the Registrar and if the Tribunal is of the opir.lion that the removal of the name of the company from the register of compantes is not justified in view of the absence of any of the grounds on which the order was passed by the Registrar, it may order restoration of tl'le name of the company in the regjster of com pa nies; Provided that before passing an order under this section, the Tribunal shall give a reasonable opportunity of making representatior.rs and of being heard to the Reglistrar, the company and all the persons concerned: Provided further that if the Registrar is satisfied, that the name of the con]pany has been struck off from the register of cornpanies either inadvertently or on basis of incorrect information furnished by the cr)mpany or its directors, which requires restoration in the register of companies, he may within a period of three years from the date of passing of the order dissolving the company under Section 248, file an application before the Tribunal seeking restoration of name of such compa ny, (2) A copy of the order passed by the Tribunal shall be filed by the company with the Registrar within thirty days from the date of the order and on 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 certificate of incorporation. remedy of may not be l I (3) If a company, or any member or creditor or worker thereof feels aggrieved by the company having its name struck off from the register of cornpanies, the Tribunal or an application made by the company, member, creditor or /orkman 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 corrlpany was, at the time of its name being struck off, carrying on business or in operation or otherwise it is lust that the name of the company be restored to the register of companies, order the name of the compan'/ to be restored to the register of companies, and the Tribunal may, by the order, qive such other directions and malie such provisions as deemed lust for placing the ,:ompany and all other persons rn tre same position as nearly as may be as if the name of the company has not been struck off from the regrster of companies. 5 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 disqu 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 deactivatlon of DINs' but not about striking off companies as such' Hence' Section 252 of the Act' cannot be an alternatlve remedy for seeking that relief' and the contention of the learned AssistantSolicitorGeneral,inthisregard,meritsforrejection. 13. Under Sectlon 16a(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 five years from the date on which the said company fails to do so' The said provision Under the Act 18 of 2073, came into force with effect from 07.O4.2Ot4, 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 rcaQ)@) of the Act, which provision came into force with effect from 0 .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 default envisaged under Section 16a(2)(a) of the Act, has to be calculated, to hold the drrector of the company liable? In this regard, the learned counsel brought to the notice of this Court, the General Cjrcular No.08/14 dated 4.4.2O74 issued by the Ministry of Corporation affairs, which clarifies the applicability of the relevant financial 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 filing 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 effect from 1st April, 2014 depreciarron) and\"i.n\"'JJ[ Irl':.::::.t or.schedule II (userur rives to comoute brought rnto force r.\". r#i o'jj^(tYlat .of financial statements) t,\"r.i,i\"' i#i ha,e atso oeen notiriei,''pia[!t\"^ - 1i9 relevant Rules pertarnrng to ti,\"t\" p.* r]oi, for:e from tne same a-#.\" \"!!u on the website of tl'e 14inistry and have ;\";\" ;;;; - The Mtntstry has received n f,nancrat years *;; \";r;;;.\":ouesls for cta.fication wrth regard [o re relevanr maintenance \"t o\"\"lr'\"i ';::: *.\"'tn such provtstons of the new Act relaring to ilil*.i;;B i.;; :\",,\"fi;:\"i,\"fi'J:;,\"!:\"5;;\"_:?1,,\"\"J::i,:,:1, tmll\",.*;;:f;:l Although the posrtron rn thrs bel]alf,js quite clear, to make thrngs absolutely clear :1,1;.i:;'i,I\";?:l',\":,Tij,:r:\"jit,,,ciar statem;nts 'r.,0 ioi,.\",t= requireo'to be ti,at co\",mencei' ;;;;'\";',i#\",,?'Xff\"':;'\",i\"rr\"Jt I\"J:.'f\"T, ilt;*.:.:i:ii p r0 visio ns/sched u tes/ru tes of the Companiei a.t,'isii';ri'that in respect of rrnancial years commencrno on or after i\" eprr, ztji+, irrJ p\"roii.,on. of the new Act sha ll apply. \" A reading of the above circurar makes it crear the financiar statements and the documents required to be attached thereto, auditors report and Board,s report in respect of financial years that commenced earlier than ot.o4.2ot4, shall be governed by the provisions under the companies Act, 1956 and in respect of financial years commencing on or after or.o4.zo74, the provisions of the rrew Act shall apply. 14. At thls stage it is to be noticed that the analogous any the req u ired 01' the Act prov is irr n to section 16a(2)(a) 18 of 2013, is Section 27aQ)@) of Act 1 of 1956. The said provision under Act 1 of 1956 is extracted as under for ready reference : !;ection 274(1) A person shall not be capable ol'being appornted director of a con] pa ny, rf - (q) such person is already a director of a public cornpany which, - 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 peTSon rs acco u nts already a director of a public company, which has not filed and annual returns for any continuous three financial years (A) has not filed the annual account:; and annual returns for continuous three financial years commencing on and after first day of April, 1999; or (B) annual commenctno on 1 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 requlrement 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, wlll not disqualify them as directors under the provisions of Act 1 of 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 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 01.04.2074. 16. Coming to the facts on hand, the 2nd respondent has disqualified the petitioners under Section 164(2)(a) of the Act 18 of 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 Ivlinistry of the Corporate Affairs, and he has given the provisions of Act 1g of 2013, retrospective effect, which is impermissible. in COMMISSIONER OF INCOME TAX VATIKA TOWNSHIP PRIVATE LIMITEDl has dealt with the general principles concerning retrospectiv ity. The reieva nt portion of the judgment is thus: 27' A regisration, be it a statutory- Act or a statutory Rure or a statutory Notification, may physically consjsts of *orOs prinieJ -ol pup\"rr. However, 77. The Apex Court (CENTRAL)-4 NEW DELHI v, '1zors;t scct 8 conceptually it is a great O\"ul,Tol. than an ordinary prose. There is a special peculiarity in the mode of verbal communicatjon Oy a leglstJon. A legislation is not just a s€ries of statements, such as one n\"Ji i, \" '*\"rt ?,i'r]iiionrnon fiction or even in a judgment of a court of law. There ir-u i\".tniq* iJqriluo to a.uft a tegislation as well as to understand a legislation. for,n\",- ti.t,n,qi,-e i, tno*n as legislative drafting and latter one is to be found i\" tn\" \"rri\"r, pii\".,plJs of ,Interpretation of lj:,,:l::': vis-;-vrs ordrnary prose, a legistation Oirie.s ,n-iii provenance, tay_out an(i teatures as also in the rmnlication as io its meanjnglnut ui,a\", by presumptions as :o the rntert of the .naker ihe.eot. ,29;. ,Of. the varjous rutes guiding how a legislation has to be interprreted, one eslablished rute rs that unless a contrary intent]6n aptears, a teqista!on rs presumed not to be intended to have a retrospectve operatioir. rie rdea benrnd the rule is that a current law should govern current activities. _u* pura\"O today cannot apply to l.he events of the past, If we do something toaav, ;e i;iikeeping in the taw of today and in force and not tomorrow,s backw-ard uOjrrt,n\"r,t of it. Our belief in the nature of the law is founded on the bed rock thut \"r,\"ry frum-an Oeinq is entiUed to arrange his affairs by relying on the existing law ancJ shouid;ot find that his plans have been retrospectively upset. This principle of lu,\" L f.no*n as Iex prospicit non respicit : law looks forward not backward. ns was observeJ in phillips vs. Eyre [(1370) LR 6 QB 1], a retrosDective legislation t, ..rtr-v i\" the general principle that legislation by which the conduct of -mankino L i\" o\" ,-!grr\"ted when introduced for the first time to deal with future acts ought not to chan'g; tne character of past transactions carried on upon the faith of the t-hen existing iar,i. .29. The obvious basis of the principle against retrospectivity rs the principle of 'fairness', which must be the basis oi \"u\"-ry f\"qui ,uE ; *u. observed in the decision reported in L,Office Cherifien Ous 'pf,oipnat\", v. ya mashlta-Shin nihon steamship .co. Ltd, [{1994) 1 Ac 486]. tnus, tegrstations ;hich modified accrued rights or which impose obligations or tmpose ne duties or attach a new disability have to be treated as prospective unless the legislative inieni-is ctearty to give the enactment a retrospective effect;.unless the legislation is for purpose of sripplying an obvious omission in a former legislation or [o explain a foimer legislation. 'Wi need not note that cornucopia of case raw avairabre on the subject because aforesaid legal position crearry emerges from the various decisions and ihis regar position was conceded by the counsel for the parties. In any case, we shall refer to few judEments containing this dicta, a litue later. . 30-. We would also like to point out, for the sake of completeness, that where a benefit is conferred by a regislation, the rule against a retrospective 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 whire to 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 exacUy is the justification to treat procedural provisions as retrospective. In Government of India & Ors. v. Indian Tobacco Association, [(2005) 7 SCC 396], the Coctrine 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 retrospectrve in nature. However, we are (sic not) confronted with any such situation l'rere. 31. 1n such cases, retrospect vrty rs attached to benefit the persons in contradistinction to the provision imposing some burden or liability 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 pror'jsion 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 retrospectlve 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 presumption, and thus could be displaced by out weighing factors. 43. There is yet another very interesting piece of evidence that clarifies that provision beyond any pale of doubt viz., the 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. ln this circular, various amendments to the lncome tax Act are discussed amply demonstrating as to which amendments are clarificatory/retrospective in operation and which amendments are prospective. 9 Forexample,Explanationtosection15S-BBisstatedtobeclarificatoryinnature. Likewise, it is mentioned that amendments in Section 145 whereby provisions of that seciion are made applicable to block assessments is made clarificatory and would take effect retrospectively from 1't day of July, 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 L.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 applicable to past transactions. Further, the Apex Court in the above judgment at paragraph No.43, found that the clrcular issued by the authority after passing of the legislation, clarifying the position with regard to applicability of the provisions, has to be construed as an important piece of evidence, as it would clarify the provision beyond any pale of doubt. In the present case, as already noted above, the Ministry of Corporation affairs has issued the circular No.0B/2014 dated 4.4.2074 clarifying that financial statements commencing after 01.04.2014, shall be governed by Act 18 of 2013 i.e., new Act and in respect of financial years commencing earlier to 01.04.2014, shall be governed by Act 1 of 1956. At the cost of repetition, since in the present cases, as the 2\"d respondent / competent authority, has disqualified the petitioners as directors under Section 16a(2)(a) of the Act 1B of 2013, by considering the period prior to 01.04.2014, the same is contrary to the circular, and also contrary to the law laid down by Apex Court in the above referred judg ment. 19. If the said provision is given prospective effect, as per the circular dated 4.4.2074 and the law laid down by the Apex Court, as stated in the writ affidavits, the first Financial year would be from 07-04-2014 to 31.03.2015 and the second and third years financiar 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 of the company, and as per the first l0 proviso to Section 96(1) of the Act, annual general meeting for the year endinq 31.03.2017, can be held within six months from the closing of financial year i.e., by 30.09.2017, Further, the time limit for filing annual returns under Section 92$) of the Act, is 60 days from annual general meeting, or the last date on which annual general meeting ought to have been held with normal fee, and within 270 days with additional fee as per the proviso to Section 403 of the Act. Learned counsel submit that if the sald dates are calculated, the last date for filing trhe annual returns would be 30.11.2017, and the balance sheet was to be filed on 30.10.2017 with normal fee and with additional fee, the last date for filing annual returns is 27.07.'2018. In other words, the disqualification could get triggered only on or after 27.O7.2018. But the period considered by the 2\"d respondent in the present writ petitions for clothing the petitioners with disqualification, pertains prior to OL.04.2074. Therefore, when the omission, which is now pointed out, was not envisaged as a ground for d isq ua lification prior to L.4.2OL4, the petitioners cannot be disqualified on the said ground. This analogy is traceable to Article 20(1) of the Constitution of India, which states that \"/Vo person shall be convicted of any offence except for violation of a law in force at the time of the commission of the act charged as an offence, nor be sub.iected to a penatty greater than that which might have been inflicted under the law in force at the time of the commission of the offence\"' In view of the same, the ground on which the petitioners were disqualified' cannot stand to legal scrutiny, and the same ls liable to be set aside' :20. A learned Single Judge of the Iligh YASHODHARA SHROFF vs, UNION OF Court of Karnataka in 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 provlsion has no retrospective operation. The observations of the learned Judge, pertaining to r w.P.No.529 I I ol20l7 and batch dated 12.06 2019 I I I I 1l companies, which are relevant for the present purpose' are extracted p rlvate as under: 2oB,InvleWoftheaforesaiddlsCUssion,lhavearrivedatthefollowinqconclUS]onS: (a) It's neld that Secto' 164(2)(a) of tne Act ts.tot .ut.tra vltus Artrcle 14 of the constrtut.on. rne sa,o prouiii'o'ri is not man,festly a\"brtrary and arso ooes not fall within the scope of the ooal.ine of proportionality Neither does the said provision violate Article 19(1)(9) of tn\" iont[lJtt\" as it rs made in the interest of general Dublic and a reasonable l.\"ttiittlon'on the exercise of the said right The oblect :# 'd,,Jo;\" ;i\"t'r',\" -t\"o-' p-,-*it'on 's to strpula[e lhe consequence of a iirqr5ririiution on account of ihe crrcumstances stated therein and the same is in ordertoachieveprobity,accountability,andtransparencyinCorporate governa nce (b) That Article fsic) Section $aQ) ot the Act applies by operation of law on the basis of the circumstances stated therein, the Sald provlsion does not envisage any hearing, neither pre-disqualification nor post-d isq u a lification and this is not in violati6n of the principles of natural justice, is nol ultra vlres 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) (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 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) of the Constitution, as at no point of time prjor to the enforcement of the Act, a disqualification based on the circumstances under Section l,6a(2) ot the Act was ever envrsaged under the 1956 Act vrs-ir-vis directors of private companies. Such a disqualification could visit a director of only a public company under Section 27a( )G) of 1956 Act and never a director of a private company. Such disqualification of the petitioners who are directors of private compantes is hence quashed. (9) Consequently, where the drsqualification under Section 164(2) of the Act is based on a continuous period of three financial years commencing from Ol.O4,2A14, wherein financial statements or annual returns have not been filed by a public or private company, the directors of such a company stand disqualified and the consequences of the said disqualtfication would apply to them under the Act. 21. A learned Single of the High Court of Gujarat at Ahmedabad jn GAURANG BALVANTLAL SHAH S/O BALVANTLAL SHAH vs. UNION OF rNDrA3 expressed simirar view as that of the reaned singre Judge of High Court of Karnataka (1 supra), and held that Section 164(2) of the Act of 2013, which had come into force with effect from 1.4.2014 would have prospective, and not retrospective effect and that the defaults contemplated under section 164(2)(a) with regard to non-firing of financial statements or (f) r r'special (livil Applicarion No.2f435 of 20 | 7 and batch dared I 8. I 2.20 I 8 tl annual returns for any continuous period of three financial years the default to be counted 2013-74. fronr the financial year 2014-15 only would be and not 22. A learned single Judge of the High Court of Madras in BHAilAVAN DAS DHANANJAYA DAS vs, IINION OF INDIA4 also expressed similar view. The relevant portion is as under: 29. In Fine, (a) When the New Act 2013 came into efFect from 7.4.2074, the second respondent,herein-has w.ongty givln retrospective effect and erroneously disqualifred tf,,, -p\"tiion\"|. _ directors from 1.1.2016 itself before the deadlin(: commenced wrongty fixing the first Financial year from L.4.20t3 to :f .:.ZOf.+. (b) By virtue oF the new Section 164(2)(a) of the 2013 Act ustng the expression 'for any continuous pe-iod of three financial year,, and in the_light of section 2(41) defining ,'financial year,,ai we as their own General circular No.08/14 dated 4.4.20!4, the first financial year would be from 1.4,20L4 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 to 37.3.2077, whereas the second respondent clearly admitted in paras 75 and 22 of the counter aFfidavit that the default of filjng statutory returns for the final years commences from 20!3-14, 2014-15 and ZO15_16 i.e, one year before the Act 2013 came into force. This is the basic incurable legal lnfirmity that vitiates the entire impuqned proceed ings. 23. In view of the above facts and circumstances and the judgments referred to supra, as the impugned orders in present writ petitions disqualifying the petitioners as directors under Section f6+(2)(a) of the Act, have treen passed considering the period prior to 01.04.2014, the same cannot be sustained, and are liable to be set asirle to that extent. 24. As far as the contention regarding issuance of prior notice before disqualifying the petitioners as directors is concerned, Section 164(2)(a) is required to be noticed, and the same is extracted as under for ready reference: 164. Disqualification for appointment of director: t w.P.No.25455 0f 2017 and batch dated 27.07.2018 1 l l li (2) No person who ls or has been a director of a company which- (a) has not filed financral statements or annual returns for any continuous period oi ihree trnancial Years; or (b) .' Shalt be eligible to be re-appornted as a drrector.of that companY or appointed in other companret f;r. ; ;;;;; of fiu\" v\"utt 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 provision does not envisage any hearing, neither pre-disqualification nor post-d isq ua lificatio n and this is not in violation of the principles of natural justice and hence. is not ultra vftes Article 14 of the constitution. I concur with the said reasoning. 25. Thus, from the above, it is clear that Section r64(2)(a) of the Act is a deeming provision and the disq ua rificatio n envisaged under the said provision comes into force automatically by operation of law on default and Legislature did not provide for issuance of any prior notice, but the respondents notified disqualification even before it incurred, and deactivated DINs, which is illegal arbitrary and against provisions contained in Section 16 Q)@) of the Act. 11 27. Rule 10 of the Rules provide for allotment of DIN and under sub rule (6) of Rule 10, it is allotted for life time' Rule 11 provides for cancellation or deactivation' Rule 11, which is relevant for the present purpose, is extracted as under for ready reference: (b) (c) (d) (a) (e) (0 t1, Cancellation or surrender or deactivation of DIN: The Central Go /ernment or Regional Oirecto,. i1l=ortnetn Regron), Norda or any officer authorized bv the Regional Dreclor mav, .]pJn O\"ing sati;fied on Y:llf:u:'on of partrcu'ars o- nl.rr\"\"i\"'r, ,i\"\"r atiacneo *''n?\" \"porlut'on received from any person' cancel or deactivate the DIN in case the DIN is found to be duplrcated in respect of the same person provided the data related ,, o\"in t'i\" iirr'rinalt oe nrergea s/ith the validlv retained number; tr,\"orrl,*u'obtainedinaWrongfulmannerorbyfraudulentmeans; of tne Oeatn of the concerned individual; the concerned inaiviauif nas oeen declared as a person of unsound mind bY a competent Courl ' if the concerned indrviiual has been adjudi[ated an insolvent; Provided that before cancellation or deactivation of DlN.pursuant to clause (b)' \"\" #*u4,, \"ioong htu'o tt'lii u\" g''\"n to the concerned individual; on an application made in Form DIR-5 bv tle ?]N-!:lder to surrender his or her DIN along with dectarati\"o\"n ii't\"i r''\" n\"t never-been appointed as director in anv comoanv and the said or r'r 'il\"t'\"\"i'\"t u\"\"\" used for tiling'of any document with ;ii; ;;i;:;iil,ii; ient'at covernment mav deactivate such DIN; Provlded that before deactivation of any DIN in such case' the Central GoVernment shall verify e-Tecords Explanation: for the purposes of clause (b) - The terms \"wronqful manner\" means, il ln9-?^l) is obtained on the strength of documents *nicni'e iot-tegally valid or rncomplete documents are furnished or on suppressro\" oi -rnuGriul\"information or 'on the basis of wrong ce\"tification or by making 'i'r\"i'ui'nq o;iurte inrormation or by misrepresentation; liir the term fraudulent means\" means if the DIN is obtained with \"\"l\"i\"\".todecelveunvoin\",.personoranyaUthorityinclUding the Central Govern.nent. (i) :28. Clauses (a) to (f) of Rule 11' circunlstances under which the DIN can extracted above, Provides for the be carrcelled or deactivated The the ground envisaged under sa id grounds, are d ifferent from I I I I 26. The next grievance of the petitioners is with regard to deactivation of their DINs. The contention of the learned counsel for the petitioners is that except for the grounds mentioned under Rule 11 (a) to (f) of the Rules, the DINs cannot be cancelled or deactivated, and the violation mentioned under Section 16+(2)(a) of the Act, is not one of the grounds mentioned under clauses (a) to (f) of Rule 11, and hence for the alleged violation under Section r64(2)(a) of the Act, DiN cannot be cancelled' i i i l5 Section 164(2)(a) Section 164 of the accordance with Rule 11 of the Rules' 29. Learned Single ludge cited 2 suPra, held as under: of the Act' Therefore' for the alleged violation under Act, DlNs cannot be cancelled or deactivated' except in of the Gujarat High Court in the decision ..29.ThistakesthecourttothenextqUestionastowhethertherespondents could have deactivated tne Ofns oi tne petitioner as a-consequence of the impugned list? In this regard, it wouta u-e lpplopr.]ut\" to refer ^to the relevant provisions contained in the Act ano tne sarJ Ruies Section 153(3) provides that no person shall be appointed as a oirector\" oi-; t;rnp*y' unless he has been allotted the Director Identification Number under Section l54 Section 153 requires every individual intending to Oe appointeO as Director of a Company to make an .ioi'.\"ii\"\"'roiarroti,\"nt or orll [o tne Central Government in such fo'rn and manner as mav be orescribed, s\".t'on r!+ itates tnat the Central Government shall within :;\" ;t;; ?;;; in\"-r\".\",pi or the application under sectio.n 1s3 arlot a DIN to an applrcant in such manner u' '\"y\"b\" prescribed' -section 155 prohibits any ,niu,Orur, who has already been allotted a DIN under Section 154 from applying for ol. oliuinir,g or possessing another DIN' Rules 9 and 10 of the said Rules of 2014 or\"..i,o\" tie-pricedrr\" fJr mat< ng application for allotment and for the allotment of 5r-1.,,'\"\"J iurtiier prorioe that the \"DIN allotted by the central Government under the .uij nrf\"r would Le valid for the life time of the applicant and shall not be allotted to any other Person. 30, Ru e 11 provides for cancellation or surrender or deactivaton of DIN Accordrngly, the Central Government or Regional Director or any authorized officer of Regional Dtrector may, on being satsfied on '/erfication of particulars of docr.-\"ntary proof attached with an application from any person' cancel or deactivate ti-re DiN on any of the grounds mentioned in Clause (a) to (f) thereof. The said Rule 11 does not contemplate ary 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, nor any of the clauses mentioned in the said Rules contemplates cancellation or deactivation of DIN of the Difector 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 individual, 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 whlch 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 specifically provides for the circumstances under which the DIN could be cancelled or deactivated. 31. In that view of the matter, the Court is of the opinion that the action ofthe respondents in deactivating the DINS of the petitioners - Directors along with the publication of the impugned list of Directors of \"struck off\" companies under Section 248, also was not legally tenable. Of couTse, 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 DIR -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 provisrons contained in the said Rules.\" 30. In vjew of the above facts and circumstances and the judgment referred to supra, the deactivation of the DINs of the petitioners for alleged violations under Section 164 of the Act, cannot be sustained. I 16 31. For the foregoing reasons, the rrnpugned orders in the writ petitions to the extent of disquarifying the petitioners under section 16a(2)(a) of the Act and deactivation of their DINs, are set aside, and the 2nd respondent is directed to activate the DINs of the petitioners, enabling them to function as Directors other than in strike off companies. 32. It is made clear that this order will not preclude the 2\"d respondent from taking appropriate action in accordance with law for violations as envisaged under Section L64(2) of the Act, giving the said provision prospective effect from 0t.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 AcL, they are at liberty to avail alternative remedy under sectlon 252 of the Act. :34. All the writ petitions are accordingly allowed to the extent indica:,:d above. .35. Interlocutory applications pending, if any, shall stand closed' No order as to costs A.RAJASHEKER REDDY,] DATE: 18-07-2019 AVS L "