Subrahmanieswara Vara Prasad Vasireddi V. Union of India

WP/21211/2021

AI Insights

The case involved a writ petition filed by Subrahmanieswara Vara Prasad Vasireddi against the Union of India, represented by its Ministry of Corporate Affairs, challenging the action of deactivating his DIN and disqualifying him as a director under the Companies Act, 2013. The petitioner argued that the actions were arbitrary, illegal, and violated principles of natural justice, as well as rights guaranteed under the Constitution of India. The court examined whether the provisions of the Companies Act, 2013, particularly Section 164(2)(a), were applied retrospectively, which would be contrary to the established legal principles and the specific circular issued by the Ministry of Corporate Affairs. The court concluded that the retrospective application of the law was incorrect and set aside the disqualification and DIN deactivation.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 677372 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 06-09-2021
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax (Central) - New Delhi v. Vatika Township Private Limited, Yashodhara Shroff vs. Union of India, Gaurang Balvantlal Shah s/o Talvantlal Shah vs. Union of India, Bhagavandas Dhananjaya Das vs. Union of India
• Laws Referred To: Companies Act, 2013, Companies (Appointment of Director) Rules, 2014, Constitution of India
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: NAMAVARAPU RAO
• Assessee Lawyers: R MOUNIKA
• Keywords: Deactivation of DIN; Disqualification of Directors; Natural Justice; Retrospective effect; Writ of Mandamus
• Section: 92(4); 403; 455; 248(1)(c); 164(2)(a)

Judgement Text

"N,'IONDAY ,THE SIXTH DAY OF SEPTEMBER TWO THOUSAND AND TWENTY ONE PRESENT THE HON'BLE SRIJUSTICE ABHINAND KUMAR SHAVILI WRIT PETITION NO: 21211 0F 2021 Between: AND 1 2 Subrahmaniesw ara Yara Prasad Vasireddi, s/o Sri_V Nooka Rao , Aged about 5d \";;;;, o;; aulinesi, nyo. rtat No. 401, sai sudarshan Enclave, Friends Coiony, Puppalaguda, K.V Reddy-500089. ...'ETIT'ONER Unionoflndia,RepresentedbyitsMinistry^ofCorporateAffairs,ShastriBhawan, Dr. Raiender Prasbd Road, New Delhi -110001 fn\" ii6iii.\"tiii,iicorpin,eis, ietangana state. 2nd Floor' c-orpo-rate Bhawan' csr i;\"Ii. iritlrnnara-m r.ragbte, Ba'ndlaguda, Hyderabad - 500 068' ,..RESPONDENTS PetitionunderArticle226oflheConstitutionoflndiaprayingthatinthe circumstancesstatedintheaffidavitfiledtherewith,theHighCourtmaybepleased i;;;;;;; ord\", o|. direction or any other proceedings more particularly.one in the nature of Writ of Mandamus declaring the action of Respondents in deactivating the Of f.iOf ASaOZA (Sri Subrahman,\".*ui, Vara Prasad Vasireddi), as arbitrary illegal, without .lurisdiction, .ontrury ot the provislons of.the Companies Act' 2013 and.Rule i i ;i th; companies (nppointment of Director) .Rules, 2014. violative of the orinciples of natural lustice'6esides violating the Petitioner' rights guaranteed under irti.tu t + and Article 19 (1) (g) of the Constitution of lndia IA NO:'l OF 2021 PetitionunderSectionl5lCPCprayingthatinthecircumstancesstatedin the affidavit filed in support of the petition, the High Court may be pleased to stay the disabling and restore in. OieSaOZe (Sri Subrahmanieswara Vara Prasad v\".ir\"Ja,l s5 as to petitioner enable to appoint as a director for the purpose of incorporaiion of further new companies Under Companies Act' 2013' Counsel for the Petitioner: Ms. R. MOUNIKA C.u\"i\"f for the Respondents: SRI NAMAVARAPU RAJESHWAR RAO' ASST. SOLICITOR GENERAL The Court made the following: ORDER HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD (Special Original Jurisdiction) THE HON'BLE SRI JUSTICE ABHINAND KUMAR SHtrVtLt ORDERi When the molter is token up for heoring, both the leorned counsel hod contended thot the issue roised in the present writ petition is squorely covered by the order possed by this Court in W.P.No.11434 ot 2021 ond botch, doted 05.08.202t ond therefore, the present writ petirion moy olso be oilowed of in lernrs of the soid ord er ln view of the obove submission, following the order doted 05.08.2021 possed by this Court in W.p.No.t1434 ot 202 I ond botch ond in terms thereof, ihis Writ peliiion is ollowed. No cosls. Pending miscelloneous pelitions, if ony, sholl stonC closed. ISD/.I,NAGALAKSHMI ASSISTANT R ISTRA //TRUE COPY// SECTION ICER 1. Ministry of Corporate Affairs, Union of lndia, Shastri Bhaw.an, Dr. Rajender Prasad Road, New Delhi -1 10001 2. The Registrar of Companies, Telangana State, 2nd Floor, (lorporate Bhawan, GSI Post, Tattiannaram Nagole, Bandlaguda, Hyderabad - 500 068. 3. One CC to Ms. R. Mounika, Advocate IOPUC] 4. One CC to Sri Namavarapu Rajeshwar Rao, Asst. Solicitor General, Advocate [oPUC] 5. Two CD Copies 6. One Spare Copy (A long with a copy of order dt:05/08/2021 in W.P.N0.11434 of 2ll2l and batch) To, sm LJ. I I WRIT PETITION No.2l2l'l of 2021 HIGH COURT DATED:06/09/2021 ORDER WP.No.21211 oI 2021 11 lrlE S14 tr- o ( :) /o l() '.'t 14 sEPzo?t ,'/*, j ALLOWING THE WP WITHOUT COSTS I I --k r HON'BLE SRI JUSTICE ABHINAND KUMAR SHAVII,I w.P.Nos. I1434 I 1941 t2240 780 4963 14992 15139 r5856 &16 16l of202l 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 obtaining the status of a dormant company under Section 455 of the Act. I 3. companies, during the Sectio n The petitioners, who were directors of the struck off and. who are presently directors of active companies' 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 164(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 2 deactivated. Aggrieved by the same, the present writ p(rtitions have been filed. 4. This court granted interim orders in the lvrit petitions directing the 2nd respondent to activate DINS of the p,stitioners, to enable them to functionother than in strike off companies. 5, Heard the Iearned counsel appearing for ttte petitioners in all the writ petitions, Sri Namavarapu Rajeswara Rao, learned Assistant Solicitor General for the respondents - Union o'India. 6. Learned counsel for the petitioners, contend that before passing the impugned order, notices have not been issued, giving them opportunity, and this amounts to violation of principles of natural justice, and on this ground alone, the impugned 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 1.4.2014, and pric,r thereto i.e., under Section 27aQ)@) 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 conrply wlth the requirements mentioned in the said provision subseqr- ent to the said date, the authority under the Act, is within lts jurisdiction to disqualify them. But in the present cases, the 2nd respondent, teking the period J i'/ V prior to 7.4.2014, i.e., giving the provision retrospective effect, disqualified the petitloners as directors, whichis lllegal and arbitrarv' 8. With regard to deactivation of DINs, learned counsel for the petitioners submit that the DINs, as contemplated under Rule 2(d) of the Companies (Appointment and Qualification of Directors), Rules, 2014 (for short 'the Rules), are granted for life 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 1st respondent - GovernmentoflndiarepresentedbytheMinistryofCorporate Affairs, has floated ascheme dated 29 'L2'2Ot7 viz'' Condonation of Delay Scheme - 2018, wherein the directors' whose DINs have been deactivated by the 2\"d respondent, allows the DINS of the Directors to be activated' However, such scheme is not applicable to the companies which are struck off under Section 248(5) of the Act' In caseofactivecompanies,theycanmakeapplicationtoNational Company Law Tribunal under Section 252 of the Act' seeking for restoration, and the Tribunal can order for reactivation of DIN of such directors, whose DIN are deactivated' However' under Section 252 onlythe companies, which are carrying on the business' can approach the Tribunal and the companies' which have no business' cannot / 4 approach the Tribunal for restoration. They submit that since the penal provision is given retrospective operation, de hors the above scheme, they are entitled to invoke the jurisdiction of this coLrrt 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 16a(2)(a) of the Act and the stakrte does not provide for issuance of any notice. Hence, the petitioners, who have failed to comply with thestatutory reouirement 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 alternativ: remedy of appeal under Section 252 of the Act, and hence writ petit ions 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 theAct, the said provision is required to be considered, and the same is extracted as under for better appreciation: 252. Appeal to Tribunal _ (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 Regisiar and if the Tribunal is of the opinion that the removal oithe name of the company from the register of companiesis 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 the name of the company in the register of companies; Provtded that before passing an order under this section, the Tribuoal shall give a reasonabte opportunity of making representations and of being heard to iie Aegistrar, 5 the company and all the persons concerned: Provided further that if the Registrar is sa(isfied, that the name of the company has beeh struck off n- ti) register oF companies either inadvertendy 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 from the date of passing of the order dissotving the company under Section 248, file an application before the Tribunat seeking restoration of name of such company. (2) A copy of the order passed by the Tribunat shall be filed by the companywith the Registrar within thirty days from the date of the order and on receipt of the order, the Registrar shall cause the name of the company to be restored in the register of companies and shall issue a fresh ce rti fi ca te o f i nco rpora tio n. (3) If a company, or any member or creditor or worker thereof feels aggrieved by the company having its name struck off from the register of companies, the Tribunal or an application made by the company, member, creditoror workman before the expiry of twenty years from the publication in the Official Gazette of the notice under sub-section (5) of Section 248, if satisfied that the company was, at the time of its name being struck off, carrying on business or in operation or otherwise it is just that the name of the company be restored to the register of companies, order the name of the company to be restored to the register of companies, and the Tribunal may, by the order, give such other directions and make such provisions as deemed just for placing the company and all other persons in the same position as nearly as may be as if the name of the company has not been struck 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 for redressal against the dissolution and striking off the company from the register of companies. It does not deal with the d isq ua lification of the directors, and deactivation of their DINs. In the present case, the petitioners are only agg rieved by their d isq ua 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 retr:rns for any continuous period of three financial years, he shall not t)e 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 2013, came into force with effect from 07.O4.2OL4, and the p{:titioners are disqualified as directors under the said provision. At this stage, the issue that arises for consideration is - whether the disqualification 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 operartion?In other words, the issue would be, from which financial year, the default envisaged under Section t6a(2)(a) of the Act, has to be calculated, to hold the director of the company liable? In this regarc / the learned counsel brought to the notice of this Court, the Geleral Circular No.08/14 dated 4.4.2014 issued by the Ministry o. 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, 2113 including those relating to maintenance of books of acco !nt, preparation, adoption and filing of financial statements (and documents required to be attached thereto), Auditors rep)rts and the Board of Directors report (Board's report) have been brought into force with effect from lst April, 2014. Provisions of Schedute II (useful lives to compute depreciation) and Schedule III (format of financial statements) have also been brought into force lrom that date. The relevant Rules pertaining to these provisions have also been notified, placed on the website of the Min stry 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 maintenancg of books of account, preparation, adoption and filing of fina,)cial statements (and attachments thereto), auditors report and Board's report will be applicable. Although the position in this behalf is quite clear, to nlake things absolutely clear it is hereby notified that the finarial statements (and documents required to be atta:hed thereto), auditors report and Board's repoft in resped of 7 / financial yearsthat commenced earlier than lst April shall be governed by the relevant provisions/schedules/rules of the companies Act, 1956 and that in respect of financial years commencin7 on or after lst April, 2014, the provisions of the new Act shall appty.\" 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 0t.04.2014, shall be governed by the provisions under the Companies Act, 1956 and in respect of financial years commencing on or after 07.04.2OL4, the provisions of the new Act shall apply. 74. 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(7) 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 commencing on and after thefirst daY of April, 1999; or (B) Provided that such person shall not be eligible to be appointed as a director of any other public company for a period of five years from the date on which such public company, in which he is a director, failed to file annual accounts and annual returns under sub-clause (A) or has failed to repaY its deposits or interest or redeem its debentures on due date or pay dividend referred to in clause (B). A reading of the above provision under Act 1 of 1956, makes it clear that if a person capable of being appointed director of a company and such person is already a director of a public company, which has not filed annual accounts and annual returns for any continuous three financial years commencing on S and after the first day of April 1999, shall not be eligible to be appointed as a director of any other public company frlr a period of five years from thedate on which such public compan /, in which he is a director, failed to file annual accounts and annual r,:turns. 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 pri,/ate company. will not disqualify them as directors under the provisi lns of Act 1of 1956. 15. Under Section 164(2) of the new legislation i.e., Act 1g of 2013, no such distinction between a 'private clmpany, or a 'public company' is made and as per the said pro./ision goes to show that no person who is orhas been a director c,f a .company,, fails to file financial statements or annual returns for lny continuous period of three financial years, will not be eligible for ilppointment 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 -espondent has disqualified the petitioners under Section 16a(2)(a) cf the Act 18 of 2073, for not filing financial statements or annual retJrns, for period prior to 0L.O4.2O14. The action of the 2nd respondent r.uns contrary to the circular issued by the Ministry of the Corporate Aff,:irs, and he has given the provisions of Act 18 of2013, retrospective effect, which is impermissible. 9 17. The Apex Courr in CoMMISSIONER OF INCOME rAx (CENTRAL)- NEW DELHI v, VATIKA TOWNSHIP PRMTE LIMITEDI has dealt with the generat principles concerning retrospectlvity. The relevantportion of the judgment is thus: 27. A legislation, be it a statutory Act or a statutory Rule or a statutory Notification, maY phYsically consists of words printed on papers. 28. However, conceptually it is a great deal more than an ordinary prose. There is a special peculiaritY in the mode of verbal communication bY a legislation. A legistation is not just a series of statements, such as one finds in a work of fiction/non fiction or even in a judgment of a court of law. There is a technique required to draft a legislation as well as to understand a legislation. Former technique is known as legislative drafting and latter one is to be found in the various principles of 'Interpretation of Statutes'. Vis-e-vis ordinary prose, a legislation differs in its provenance, tay-out and features as also in the implication as to its mieaning that arises bY presumptions as to the intent of the maker thereof. 29. Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumednot to be intended to have a retrospective operation. fhe idea behind the rule is that a current law should govern current activities, Law passed today cannot applY to the events of the past. If we do something todaY, we do it keeping in the law of todaY and in force and not tomorrow's backward adjustment of it Our belief in the nature of the law is founded on the bed rock that every human being is entitted to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset, This principle of law is known as lex prospicit non respicit : law looks forward not backward. As was observed in Phi ips vs. Eyre [(1870) LR 6 QB 1], a retrospective legislation is contrary to the general principle that legislation by which the conduct of mankind is to be regulated when introduced for the first time to deal with future acts ought not.to change the character of past transactions carried on upon the faith of the then existing law. 30.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 repofted in L'Office Cherifien des Phosphates v, Yamashita-shinnihon Steamship Co' Ltd' t{1dg4) 1 Ac 4851. Thus, legislations which modified bccrued rights or which impose obligations or impose new dutiei or attach a new disability have to be treated as prospective untess the tegislative intent is clearly to give the enactment a retrospective effect; unless the iegistation is for purpose of supplying an obvious ohission in a former leqislation or to explain a former teoislation. We need not note that cornucopia of case i'w availabte on the subject because aforesaid legal itosition ctearty emeroes from the various dessions and iiis teqat position *is conceded by the counsel for the ' (2015)t scc I t0 parties. In any case, we shall refer to few judgments containing this dicta, a little later, 31. We would also like to point out, for the sake of 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 some persons but without inflicting a corresponding detriment on some other person or on the public qenerally, and where to confer such benefit appears to have been the legislators object, then the presumptian would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. This exactly is the justification to treat procedural provisions as retrospective. In Government of India & Ors. v. Indian Tobacco Association, [(2O05) 7 SCC 396], the doctrine of fairness was held to be relevant factor to construe a statute conferring a benefit, in the context of it to be given a retrospective operation, The same doctrine af fairness, to hold that a statute was retrospective in nature, was applied in the case of Vijay v. State af Maharashtra & Ors., [(2006) 6 SCC 289]. It was held that where a law is enacted for the benefit of community as a whole, even in the absence of a provision the statute may be held to be retrospective in nature. However, we are (sic not) confronted with any such situation here. i2. In such cases, retrospectivity is 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 provision which is onerous to the assessee. Therefore, in a case like this, we have to proceed with the normal rule of presumption against retrospective operation. Thus, the rule against retrospective operation is a fundamental rule of law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act, or arises by necessary and distinct implication. Dogmatically framed, the rule is no more than a presumption, and thus could be displaced by out weighing factors. 43. There is yet another very interesting piece ol evidence that clarifies that provision beyond any pale ot doubt viz., the understanding of CBDT itsetF regarding this provlsion. It is contained in CBDT Circular No.B ot 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 passins of the Finance Act, 2002, by which amendment tc section 113 was made. In this circular, variou: amendments to the Income tax Act are discussed ampl, demonstrating as to which amendments art clarificatory/retrospective in operation and whicl amendments are prospective. For example, Explanation to section 158-BB is stated to be clarificatory in nature. Likewise, it is mentioned tha- amendments in Section 145 whereby provisions o, that section are made appticabte to block assessments i:; made cla-rificatory and would take effect retrospectiveb, from 1't day of July, 1995. When it comes to amendment to Section 113 of the Act, this very circula- provides that the said amendment along with the amendments in Section 158-BE, would be prospectivt! i.e., will take effect from 1.6.2002.\" ll 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 topast transactions. Further, the Apex Court in the above judgment at paragraph No.43, found that the circular issued by the authority after passing of the legislation, clarifying the position with regard to applicability of the provisions, has to be construed as an important piece of evidence, as it would clarify the provision beyond any pale of doubt. In the present case, asalready noted above, the Ministry of Corporation affairs has issued thecircular No.08/2014 dated 4.4.201,4 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 Ol.O4.2Ot4, 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 164(2)(a) of the Act 18 of 2013, by considerinq the period prior to 01.04.2014, the same is contrary to the circular, and also contrary to the law iaid down by Apex Court in the above referred judgment. 19. If the said provision is given prospectlve effect, as per the circulardated 4.4.20L4 and the law laid down by the Apex Court. as stated ln the writ affidavits, the first financial year would be from O1-04-2OL4 to 31.03.2015 and the second and third years financial years would be for the years ending 31.03.2016 and 31'03'2017 The annual returns and financial statements are to be filed with Registrar of Companies only after the conclusion of the annual general meeting 12 of the company, and as per the first proviso to Section 96(1) of the Act, annual general meeting for the year ending 31,0:r.2017, can be held within six months from the closing of financia year i.e., by 30.09.2017. Further, the time limit for filing annual returns under Section 92(4) of the Act, is 60 days from annual gene'al meeting, or the last date on which annual general meeting ought to have been held with normal fee, and within 27O days with additi,)nal fee as per theproviso to Section 403 of the Act. Learned counsei submit that if the said dates are calculated, the last date for filing the annual returns would be 30.11.2017, and the balance sheet was to be filed on 30.10.2017 withnormal fee and with additional fee, the last date for filing annual returns is 27.O7.2O1A. In otler words, the d isq ua lification could get triggered only on or after 27.O7.2OL8. But the period considered by the 2nd respondent in tl-e present writ petitions for clothing the petitioners with disqualifi{:ation, pertalns prior to 07.04.2074. Therefore, when the omission which is now pointed out, was not envisaged as a ground for d isq ua lification prior to 1.4.2074, the petitioners cannot be disqualified on t he said ground. This analogy is traceable to Article 20(1) of the Conslitution of India, which statesthat \"No person shall be convicted of any offence except for violation oi a lawin force at the time of the commission of the act charged as an offence, nor be subjected to a pena'ty greater than that which might have been inflicted under the law in force at the time of the commission of the offence\". In view c,f 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 YASHODHARA SHROFF vs. UNION OF I3 INDIA2 considering Section 16a(2)(a) of the Act and other provisions of the Act, and various judgments, passed an elaborate order and held that the said provision has no retrospective operation, he observations of the learned Judge, pertaining to private companies, which are relevant for the present purpose, are extractedas under: 208. In view of the aforesaid discussion, I have arrived at the fol low i n g co ncl u si o ns : (a) It is held that Section 164(2)(a) of the Act is not ultra 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 propoftionality. Neither does the said provisionviolate Afticle 19(1)(g) of the Constitution as it is made in the interest of general public and a reasonable restriction on the exercise of the said 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 carporate governance. (b) That Article (sic) Section 164(2) of the Act applies by operation of law on the basisof the circumstances stated therein, the said provision does not envisage anY hearing, neither pre-disqualification nor post-disqualification and this is not in violation of the principles of natural justice, is not ultra vires Article 14 of the Constitution. (c) That Section 164(2) of the Act does 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 trom Afticle 20(1) of the Constitution, as at no point of time prior to the enforcement of the Act, a disqualification based on the circumstances under Section 164(2) of the Act was ever envisaged under the 1956 Act vis-d'vis directors of private companies. Such a disqualification could visit a director of only a public company under Section 274(1)(q) ot 1956 Act and never a director of a private company. Such disqualification of the petitioners who are directors of private companies is hence quashed. 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 filed by a public or private company, the directors of such a 2 w.P.No.529l I of 2017 and batch dated 12 06.2019 l4 company stand disqualified and the consequences ('f the said disqualification would apply to them under the A(t. 2t. A learned Single of the High Court of Gujarat at Ahmedabad in GAURANG BALVANTLAL SHAH S/O TTALVANTLAL SHAH vs. UNION OF INDIA3 expressed similar view as that of the leaned single Judge of High Court of Karnataka (1 supra), and held that Section t64(2) of the Act of 2013, which had come into force with effect from 1.4.2074 would have prospectir'e, and not retrospective effect and that the defaults contemplated under Section 16a(2)(a) with regard to non-filing oF financial statemonts or annual returns for any continuous period of three financial years would bethe default to be counted from the financial year 2014-15 only and not 2013- 14. 22. A learned single Judge of the High Court of Madras in BHAGAVANDAS DHANANJAYA DAS vs, I'NION OF INDIA4 also expressed similar view. The relevant portion is as undr:r: 29. In fine, (a) When the New Act 2013 came ,nto effect from 1,4,2014, the second respondent herein has wrongly given retrospective effect and erroneously disqualified the petitioner - directors from 1.1.2016 itself before the deadline commenced wrongly fixinl the first financial year from 1.4.2013 to 31,3.2014. (b) By virtue of the new Section 164(2,(a) of the 2013 Act using the expression 'for any continuous period of three financial year\" and in the light of section 2(41) defining \"financial year\" as well as their own General circular No.08/14 dated 4,4 2014/ the first financial year would be from 1.4,2014 to 31.3,2015, the second financial year wou.d be from 1.4.2015 to 31.3.2016 and the third fin,tncial year would be from 1.4.2016 to 31.3.2017, whereas the second respondent clearly admitted in paras 15 and 22 of the counter affidavit that the defaul!: of filing statutory returns for the finalyears commences from 3special Civil Application No.22435 of 2017 and batchdated 18.12.2018 o w.P.No.25455 of 2017 and batch date d 27.Oi.2OlE l5 2013-14, 2014-15 and 2O1S_16 i.et one year before the Act 2013 came into force. il,;\" ;.';--;:-:. incurabte tegal infirmity that vitiate, n\" iitiri tmpugned proceed inqs. 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 16a(2)(a) oF the Act, have been passed considering the period prior to 01.04.2014, the same cannot be sustained, and are liable to be set aside to that extent. 24. As far as the contention regarding issuance of prior notice before disqualifying the petitioners as directors is concerned, Section 164(2)(a) is required to be noticed, and the same is extracted as under for ready reference: 164, Disqualification for appointment of director: (2) No person who is or has been a director of a company which- (a) has not filed 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 af 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 disqua lification on happening of an event i'e., if a person who is or has beena director of a company has not filed financial statements or annual returns for any continuous period of three financial years, shall be ineligible to be re- appointed as a director of that company or appointed in any other company for a period of five years from the l6 date on which the said company fails to do so' The provision does not provide for issuance of any prior notice or hearirrg' A learned single Judge of the High Court of Karnataka in Yashodara Shroff v' Union of India (1 supra)' as well as the learned singltr Judge of the High Court of Gujarat at Ahmedabad in Gaurang Balv€ntlal Shah s/o Balvantlal Shah vs' Union of lndia (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 Secti{)n 164(2Xa) of the Act applies by operation of law on the basis of th': circumstances stated therein, the saidprovision does not envisagl any hearing'' neither pre-disqualification norpost-disqualification :rnd this is not in violation of the principles of natural justice and herce' is not u/tra vlres Article 14 of the Constitution' I concur with the ;aid reasoning' 25' Thus' from the above' it is clear that !;ection 164(2)(a) of the Act is a deeming provision and the disqua rif ication envisaged under the said provision comes into force automatir:ally by operation of law on default and Legislature did not provide fcr issuance of any prior notice, but the respondents notified disqualific:ation even before it incurred. and deactivated DINs' which is illeg al arbitrary and against provisions contained in Section 164(2)(a) of the Act' 26. The next grievance of the petitioners is with regard to deactivationof their DINS' The contention of the earned counsel for the petitioners is that except for the grounds meltioned under Rule 11 (a) to (f) of the Rules' the DINS cannoE be cancelled or deactlvated, and the violation mentioned under Section 16a(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 vlola:ion under Section 16a(2)(a) of the Act, DIN cannot be cancelled t/ \"/ 27. Rule l0 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: 77. Cancetlation or surrender or deactivation of DIN: The Central Government or Regionat Director (Northern Region), Noida or aiy otticer authorized bY the Regional Director may, upon being lr[irriea on verification of particulirs or documentary proof attached iili iZ apptication received from anY person, cancel ordeactivate the DIN in case ' (al the DIN is found to be dupticated in respect of the same person ';;;;;\"; t;\"-dati retated to ioth the DIN shatl be merged with the va I i dt y retai ned n u m ber ; (b) the DIN was obtained in a vtrongful manner or by fraudulent means; /.t of the death of the concerned individual; i7: ii ioiri-\"d indiwdual has been declared as a person of unsound mind bY a comPetent Court; f\"l \"\"'\"\"\"i iii ioiLiiia inaiviouat has been adjudicated an insotvent; Provided that before cancellation or deactivation of DIN pursuant to a*t\"-iiiin o,iiinunitY of being heard shall be given to the concerned individual; /r on an aoDlicatnn made in Form DIR-S by the DIN holder to ''' ,rrrenJ\"r-his-ii her DIN along with declaration that he has never 6\"\", ,ppoi*ea as director ii anv.compan.v a.ld tle:::!-DIN has -rlrl\"ri[\", used for tiling of anY document with any authority' the Cintral Government maY deactivate such DIN; Provided that before deactivation of anY DIN in such case' the Cen tra I Govern men t sh a I I v eri fY e- records' Explanation: for the purposes of clause (b) - (c) The terms \"wrongful manner\" means if the DIN is obtained on t;e strength oi documents which are not legally valid or incomplete documents are furnished or on sup-pression of material information or on the basis of wrong certification or by ;;;lr; misleading or false information or bv misrePresentation; /ii tha tern \"fraudulent means\" means if the DIN is obtained with It) '\"'i ,ri\",r, ;;;;;;r; \"ry other person or any authoritv inctudins the Central Government' 28. Clauses (a) to (f) of Rule 11' extracted above' provides for the circumstances under which the DIN can be cancelled or deactivated. The said grounds' are different from the ground envisaged under Section 164(2)(a) of the under Section !64 of 1E Act, Therefore, for the all:ged violation the Act, DINs cannot be cancelled or deactivated, except in accordance with Rule 11 of the Rules' 29. Learned Single ludge of the Gujarat Hillh Court in the decision cited 2 supra, held as under: 31. In that view of the matter, the Court is of the o)inion that the action of the respondents in deactivating the D.'Ns 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 course, as per Rule 12 af the said Rules, the individual who has been allotted the DIN, in the event of any change inhis particulars stated in Form ,)IR -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 resofted to by the concerned \"29. This takes the Court to the next question as tc whether the respondents could have deactivated the DINs of the cetitioner it u ,ont\"qu\"rr\" of the impugnedtist? In this regard, it would be appropriate to refer to the relevant provisions con.tain=d in the Act and the said Rules. Section 153(3) provides that t1o person sialt oe appointed as a Director of a company, unle:s he has been allotted the Director ldentification Number und€r Section 154. Section 753 requires every individual intendittg to be appointed as Director of a CompanY to make an applrcation for ;tt'otment of DIN to the Central Government in such form and manneras maY be prescribed. Section 754 states that tl.e Central Government shall within one month from the receipt of the application under Section 153 allot a DIN to an applica)t in such manner as maY be prescribed. Section 155 proh bits any individual, who has already been altotted a DIN unde:r Section 154 fram applYing for or obtaining or possessing ancther D.IN' Rules 9 and lfj oitne said Rules of 2014 prescribe the Drocedure for making apptication for allotment and for the allotment ofDIN' and furtier' provide that the DIN allotted by th? Central Government under the said Rutes wauld be valid for th? life time of the applicant and shatl not be allotted toany other pe-son' 3a, Rute 11 provides for cancellation or surrender or deaciivation of DIN. Accordingly, the Central Government or Regional Director or any authorized officer of Regianal Director ^iy, on being satisfied on verification of part culars of documentary proof attached with an application from any person, cancel or deactivate the DIN on any of the grounds nentioned in Clause (a) to (f) thereof. The said Rule 11 does not contemplate anY suo motu powers either with tle Central Government or with the authorized officer or Regional )irector to cancel or deactivate the DIN allotted to the Director, 1or any of the clauses mentioned in the said Rules contemplates cancellation or deactivation of DIN of the Director of the \"struck off companY\" or of the Director having become ineligible under Section 164of the said Act. The reason appears to be that once an individual, who is intending to be the Director of a particular c)mpanY is allotted DIN by the Central Government, such DIN would be valid for the life time of the applicant and on the ba:is of such DIN he could become Director in other companies alsa. Hence, if oneof the companies in which he was Director, is \"stru:k 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 whi.h the DIN couldbe cancelled or deactivated. 19 L\":E:r,!\"r\" onty as per cne provisions contained in th€ said 30. Learned Assistant Solicitor General appearing for respondents had contended that Section 4O3 (2) of the Act provides that \"where a company fairs or commits any defaurt to submit, fire, register, or record any document, fact or information under sub_ section (1) before the expiry of the period specified in the rerevant section, the company and the officers of the company who are in default, shall without prejudice to the liability for the payment of fee and additional fee, be liable for the penalty or punishment provided under this Act for such failure or default,, and he has further contended that as amendment has come into Section 403 with effect from 07-05-2018, the amended section has removed the prescribed 27O days' limitation within which the annual filings can be done excluding the time limit already provided under Sections 92,96 and 137 of the Act and as per Section 403 of the Act levies rupees one hundred on each day from the date of default till the date of compliance of the mandatory provisions of law. 31. This Court having considered the said submissions is of the considered view that the new amending law also contemplates levying of Rs.100/- per each day of default and which permits the regularizing the delay of the petitioners. Therefore, this Court is not inclined to accept the said contention of the learned Assistant Solicitor General for the respondents. 32. In view of the above facts and circumstances and the judgment referred to supra, the deactivation of the DiNs of the petitioners for alleged violations under Section 164 of the Act, cannot be sustained. ,/ 20 For the foregoing reasons' the imPugned orde -s in the writpetitions to the under Section 164(2Xa) are set aside, and the 2nd of the Petitioners' enablin strike off comPanies' extent of disqualifYing the p€,titioners of the Act and deactivation of thr:ir DINs' respondent is directed to activate the DINs g them to function as Directors other than in said provision prospective effect from O1'04 2014 and for necessary action against DIN in case of violations of Rule 11 of the Rtlles' All the writ petitions are accordingly all)wed to the 36. extent indicated above' 37. Miscellaneous petitions pending if any shall stand closed. ]USTICE ABHIN AND KUIVIAR SHAVILI Dt. O 5-08-2021 kvr 34. It is made clear that this order will not preclude the 2nd respondent from taking appropriate action in accordanc'e with law for violations as envisaged under Section 16a(2) of the Act giving the 35. It is also made clear that if the peti;ioners are aggrieved by the action of the respondents in strikirrg off their companies under Secron 24g ofthe Act, they are at lib(trty to avail alternative remedy under Section 252 of the Act' "