Subratray Chowdhury V. The Union of India and another

WP/7659/2021

AI Insights

The case involves Subratray Chowdhury, a director and businessman, who challenged the deactivation of his DIN and disqualification from being a director under the Companies Act, 2013. The deactivation and disqualification were based on his failure to file annual returns and financial statements for three consecutive years. The petitioner argued that the actions taken by the respondents were arbitrary, illegal, and violated principles of natural justice, particularly as they were applied retrospectively. The court examined whether the provisions of the Companies Act, 2013, particularly Section 164(2)(a), were applicable retrospectively or prospectively and whether the deactivation of DINs was justified under the rules governing DINs.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 740643 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 30-03-2021
• Assessment Year: misc
• Other Referred Cases: COMMISSIONER OF INCOME TAX (CENTRAL)-L NEW DELHI v. VATIKA TOWNSHIP PRIVATE LIMITED, YASHODHARA SHROFF vs. UNION OF INDIA, GAURANG BALVANTLAL SHAH S/O BALVANTLAL SHAH VS. UNION OF INDIA, BHAGAVAN DAS DHANANJAYA DAS vs. UNION OF INDIA
• Laws Referred To: Companies Act, 2013, Companies (Appointment and Qualification of Director) Rules 2014, Constitution of India
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: NAMAVARAPU RAO
• Assessee Lawyers: SURYAVANSHI RATNA
• Keywords: Deactivation; Director Identification Number; Disqualification; Natural Justice; Writ of Mandamus
• Section: 151; 226; 248(1)(c); 164(2)(a)

Judgement Text

"HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD (Special Original Jurisdiction) TUESDAY, THE THIRTIETH DAY OF IMARCH TWO THOUSAND AND TWENTY ONE PRESENT THE HON'BLE SRI JUSTICE ABHINAND KUMAR SHAVILI WRIT PETITION NO. 7659 OF 2021 Between: Subratray Chowdhury, S/o Daulatray Chowdhury, Age. 40 Years, Occ. Business/Director, R/o Flat No. 004, Madhu l ,4ansion Apartments, Shyamlal Building Lane, Opposite Paradise, Begumpet, Secunderabad, Hyderabad, Telarigana S00 016, lndia. ...PETITIONER AND 1. The Union of lndia, Rep by it's Secretary Ministry of Corporate Affairs, Government of lndia, 'A' Wing, Shastri Bhawan, Rajendra Prasbd Road, New Delhi, Delhi 110001 2. Registrar of Companies (Hyderabad), (For the State of Telangana) #2nd Floor, Corporate Bhawan, GSI Post, Tattiannaram Nagole, Bandlaguda Hyderabad - 500 068. ...RESPONDENTS Petition under Article 226 of lhe Constitution of lndia praying that in the circumstances stated in the affidavit filed therewith, the High Court may be pleased to pass an order or direction or any other proceedings one in the nature of Writ of It4andamus declaring the action of the respondents in so far as deactivating the Director ldentification Numbers 01669809, of the Petitioner 1, and restricting the Petitioner from filing statutory returns i,e. the annual returns and financial statements of the company in which they are Director, as arbrtrary, illegal, without jurisdiction, contrary to the provisions of the Companies Act, 2013 and Rule 1 '1 of the Companies (Appointment and Qualification of Director) Rules 2014, violative of the principles of natural justice besides violating the Petitioner rights guaranteed under Article 14 and Article 19 (1)(g) of the Constitution of India and to allow the Petitioner to continue as director in the company by unlocking the DIN Number 01669809, of the Petitioner and permit the Petitioner to be continued as Director/ get reappointed or appoint as a director in new company or any company without any hassle. lA NO: 'l OF 2021 Petition under Section 151 CPC praying that in the circumstances stated in the affidavit filed in support of the petition, the High Court may be pleased to Stay operation of the disqualification of the Director ldentification of Subratray Chowdhury (DlN: 01669809 of Petitioner No.1) in so far as the Petitioner are concerned and be pleased to direct the 1st Respondent to stay the disabling and restore the Director ldentification Numbers 01669809, of the Petitioner '1 , respectively and enable them to join as a director in New Company or enable them to submit the annual returns and financial statements of the company in which they are Director, pending disposal of the Writ Petition. Counsel for the Petitioner: SRI SURYAVANSHI RAJEEV RATNA Counsel for the Respondents: SRI NAMAVARAPU RAJESHWAR RAO, ASSISTANT SOLICITOR GENERAL The Court made the following: ORDER HONOURABLE SRI JUSIICE ABHINAND KUMAR SHAVILT WRIT P ON No.76 of 02 ORDER: 9 2 1 When the mafter is taken up for hearing, learned counsel appearing for both the parties fairry conceded that the subject matter oF this Writ petition IS squarely covered by the common 18.7.2019 passed by this Court in Writ petition No.5422 order dated of 2018 and batch. Following the above said common order, this Writ petition is disposed of with the direction that the reasons and directions contained therein shall form part of this order. No order as to costs. Pending Miscellaneous petitions, if any, shall stand closed . To, IVP '1 . The Secretary Ir/inistry of Corporate Affairs, Union of India, Governm 'A'Wing, Shastri Bhawan, Rajendra Prasad Road, New Delhi, Delhi 1 2. The Registrar of Companies (Hyderabad), (For the State of Telan Floor, Corporate Bhawan, GSI Post, Tattiannaram Nagole, Hyderabad - 500 068. SD/.K.SAILE ASSISTANT EGIS R ,TRUE COPY// SECTION OFFICER ent of lnd ia, 10001 s B ana and #2nd aguda Along with a Copy of the Common Order dated 18.O7.2019 in W.P.No.5422 of 201 8 and batch. 3. One CC to Sri Suryavanshi Rajeev Ratna, Advocate IOPUC] 4. One CC to Sri Namavarapu Rajeshwar Rao, Assistant SoliCitor General (OPUC) 5. Two CD Copies. 1- I HIGH COURT DATED:3010312021 ORDER WP.No.7659 of 2021 DISPOSING OF THE WRIT PETITION WITHOUT COSTS 19 APB 2021 ( * T4 tt -t {rt.-r L1 I I THE HON'BLE SRI l USTI CE A.RAJASHEKER REDDY W,P,N Os.5422 1 2144, .l 352(), 13 7A ? 1 ?I q5 1 41 66. 24 qt ?oqq3_ AND 40953 0F 2018, 5547. s582. s569. 5687. 578s. 6047. 6087. L4 695 7 o1 70 4 7 7L 4 72 7 2 7 6 797 6 .J 9340 3 9 9726, 9737. IOOs8. 10099. 11208. 11 223. tt239. 11263. 1 889. 1 1 1 6 4 4 22 2243 4 8 2L oo o L2 t243 472 continuous Period of three Years impugned order under Section Therefore, the 2nd respondent passed the 16a(2) of the Act, disqualifying them as of the Petitio n ers do so. The Director were also deactivated ' o 8 1 1 1 26 1 1 70 40 1 137 7 8 74 50 4 6 4 L4409. 14 82 AN 14597 0F2o19 co MMON ORD ER 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 offfromtheregisterofcompaniesundersection248(1)(c)oftheAct'for not carrying on any business operation for the specifled 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. 1 1 4 4 1 3. The petitioners, who were directors of the struck off companies' andwhoarepresentlydirectorsofactiveCompanies,duringtherelevant period in question, failed to file financial statements or annual returns for a 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 Identification Numbers (DINs) companies failed to Aggrleved by the same, the present writ petitions have been filed 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 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 rc e)@) of the Act empowers the authority to disqualify a person to be a director, provided he has not fired financiar statements or annuar returns of the company to which he is director, for any continuous period of three financial years. Learned counser further submits that this provision came into force with effect from 1.4.2014, and prior thereto i.e., under Section 27al,)G) of the Companies Act, 1956 (1 of 1956). which is the anarogous provisron, there was no such requirement for the directors of the private companies. They contend that this provision under Act 18 0f 2013, wi, have prospective operation and hence, if the directors of company fail to comply with the requirements mentioned in the said provision subsequent to the said date, the authority under the Act, is within its jurisdiction to disquarify them. But in the present cases, the 2nd respondent. taking the period prior to 1.4.2OL4, i.e., giving the provision retrospective effect, disquarified the petitioners as directors, which is illegal and arbitrary. 8, With regard to deactivation of DINs, petitioners submit that the DINs, as contemplated learned counsel for the under Rule 2(d) of the Companies (Appointment and eualification of Directors), Rules, 2014 (for -1 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 appeal is provided under the Rules, and appeal to the Tribunal under section 252 of the Act is provided only agalnst 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 Ministry of Corporate Affairs' has floated a schemedaled2g'l2.2o:l7v z.,CondonationofDelayScheme-2018, wherein the directors, whose DINs have been deactivated by the 2nd respondent, allows the DINs of the Directors to be activated' However' such the companies which are struck off under 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 scheme is not aPPlicable to Section 248(5) of the Act' the comPanies, which are Tribunal and the comPanies Tribunal for restoration' Th retrosPective oPeration' de In case of active companies' they can make carrying on the business' can approach the , which have no business' cannot approach the ey submit that since the penal provision is given 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 .1 of three financial years, automatically entail their disqualification under Section 16a(2)(a) of the Act and the statute does not provide for issuance of any notice. Hence, the petitioners, who have failed to comply with the statutory requirement under Section 164 of the Act, cannot complain oF violation of principles of natural justice, as it is a deeming provision. Learned counsel further submits that the petitioners have alternative remedy of appeal under section 252 of the Act, and hence writ petitions may not be entertained. 252. Appeat to Tribunal: (1) Any person aoorieved by an order of the Regrstrar, notilyrng a company as dissotved under Sect,ori i48, may rrte ;\"-;op;\";' ;';;: i;ibunat wirhin a pe.od of three years from the date of-th-e-order-\"i;h;i;;i;-;r,J,ir tne trrounat is of the opinjon that the removal of the, name of tne compiny iioil.in\" ,\"gtrt\", of companies is not lustiFied in view of the absence \"r \"\"r-\"i i,,,\" ii\"Jnoi on *n,.n the order was :\"\";,',:3.t\"I :|}::fl;'\"tJ.\"'' t mav order ,\"'toirtlon oi iil ,\"?\" \"r the company in the provided that before passrng,an order under thts sectron, the Trjbunal shall grve a reasonable opportunity of mikrng r.\"pr\".\"r1ut,on, uii ot 0\",n9 heard to the Regrstrar, the company ano ait tne p\"raonr ao\"a\"rnJ.r'.-\". \",,\" provided further that company has been struck off ,,ljj\"\"^j::::j::: l: -'^1:!\"g, that rhe name of the on basis of jncorrect rnforma ,sy,>LEr ur companres erther rnadverten y or req u res resto ral \"; l ; l #,,:;,\",l\"iii '.!i!!i, ili ; l:l m; i:, .;::ii:;:; lfl:i );e.,\"*\":,'ff ',::,,::';:;J?:#H.,.,\"J*i;,i'i\"tl.i*f ;l;Jfl :.i,.:',l (2) A copy of the orde wrth the Registrar *ithin thirtu'.p-::sed by. the Tribunal shall be filed by the company order, the i\"dl.t.i,. 'rrr\" li' i\"'v. oays rrom the date oftheorderand on receipt ofthe register of comffii;=;;;'.;'\";,t9- t'e n-ame of the companv to o\" .\"=to.\"i' ii' inl rssue a fresh certificate oi incorporation. (3) lf a companv. o aggrieved'ov ,t'\"-.\"fir\"I'\" \"f-llv t\"'o\"t or creditor or worker thereof feets companies, ti,\" i.iorr.iil'j\" ']1']19 .ltt name struck off from the registeili or workman o\"r\"r\" i,r\"'\"\"r#, applrcation made by the company, member, credrtor Gazette of tn\" \"\"i *' ,ro5if ,, _\"j l*:ltv years from the pubtication jn the ofricrat company *u., ut iil-t,\"-J J, \"*'r'.,t#1\"1\",(\"t] :l .::.lig, iaa, ,r .uti'ri\"J ii,Ii\"ti'; operation or Otherwise it ts ius '- -!'iiY J(ruL^ urr' carrv,ng on busjness Or rn regrster of companjes, orderihet jlat-the.name of tne compJny be restored to the or companies, ;;J i;;;;;r;:i 1u-'u,or Il\" companv to be resrored to ti,\" ,\"siriui make such pro\" ,.\"r' ur' i\"\"\";\"J.t\"I' .by the order, grve such oti'u. oi.ectioni'uri rn the same p\"r;,;;;;;;;;:-iTt tof pracrns the company uno urr otnui puislnl been srruck \"Firi\".ir*;;11!.?l^lr';,:;.'t ,n\" nu.\" oi rn\" company has not L2. To consider the contention of the rearned Assistant soricitor Generar with regard to arternative remedy of appear under section 252 0f the Act, the said provision is required to be considered, and the same is extracted as under for better appreciation: 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 d isq ua lification of the directors, and deactivation of their DINs. In the present case, the petitioners are only aggrieved by their disqualification as directors and deactivation of DINs, but not about striking off companles as such' Hence, Sectlon 252 of the Act' cannot be an alternative remedy for seeking that relief, and the contention of the learned AssistantSolicltorGeneral,inthisregard,meritsforrejection' 13. Under Section 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 2OL3' came into force with effect from 0L.O4.2074, and the petitioners are disqualified as directors under the said provision. At this stage, the issue that arises for consideration is - whether 164(2)(a) of the Act, which the d isq ualification envisaged under Section provision came into force with effect from 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 164(2)(a) of the Act' has to be calculated' to hold the director of the company liable? In this regard, the learned counsel brought to the notice of this Court' the General Circular No'08/14 dated 4.4.2014 issued by the Ministry of Corporation affairs' which clarifies the applicability of the relevant financial years' The relevant portion of the said circu la r is as under: 01.04.2014, can be made ..AnUmberofprovisionSofthecompaniesAct,20l3lncludinqthoserelatingto maintenance of books o' utto'\"\"i\"0\"\"pu'-u-tion\" uOoption-and filing of financial statements (and documents *oJitlio i\" 'ol \"itached th ereto') ' -Aud itors reports and the Board of Directors ..\"oor, ,lou'Iof ,\"\"-ooni nr,\" been brought into force with 6 effect from 1st April, 2014. Provisions of Schedule Il (useful lives to compute depreciatjon) and Schedule III (format of financial statements) have also been brought into force from that date. The relevant Rules pertaining to these provisions have also been notified, placed on the website of the lvlinistry and have come into force from the same date. A reading of the above circular makes it clear the financial statements and the documents required to be attached thereto, auditors report and Board,s report in respect of financial years that commenced earlier than ol.o4.2ot4, shall be governed by the provisions under the Companies Act, 1956 and in respect of financial years commencing on or after Ot.O4.2Ol4, the provisions of the new Act shall apply. L4. At this stage it is reguired to be noticed that the analogous provision to Section rcae)@) of the Act 18 of 2013, is Section 27aG)G) ot Act 1 of 1956. The said provision under Act 1 of 1956 is extracted as under for ready reference: The Ministry has received requests for clarification with regard to the relevant financial years with effect from which such provisions of the new Act relating to maintenance of books of account, preparation, adoption and filing of financial statements (and attachments thereto), auditors report and Board,s report will be applicable. Although the position in this behatf is quite clear, to make things absolutely clear it is hereby notified that the financjal statements (and documents required to be attached thereto), auditors report and Board,s report rn respect of financial years that commenced earlier than 1st April shall be governed by the relevant provisions,/schedules/rules of the Companies Act, 19i6 and thal in respect of financial years commencing on or after l.t April, 2014, the provisions of the new Act shall apply. \" +ectio{+Z- 4(U A person sha not be capable of being appointed director of a company, 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 y\"\"l-, .o_a\"n.ing on and after the first day of Aprit, 1999; or (B) Provided that such person-shal not -be elrgible to be appornted as a director of anv other pubtic company for a,perrod of five iears r.\". t[I ori\"1\" *i[i-irli, \"rrt,]l company, in which he is a director, farted io frle unnrul'J..ount, and annual returns under sub-clause (n) or ha: ratrea to .ep-uy iisl;;;,;r\" or interest or redeem its debentures on due date or pay drvrdend r-erei.uJ to ,iliaise 1a;. A reading of the above provision under Act 1 0f 1956, makes it crear 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 and after the first day of Aprir 1999, shari not be erigibre to be appointed as a director of any other public company for a period of five years From the date on which such pubric company, in which he is a director, faired to fire annual accounts and annual returns. So the statutory requirement of filing annual accounts and annuar returns, is praced on the directors of a 'pubric 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 annuar accounts and annuar returns by the directors of the private company/ will not disquarify them as directors under the provisions of Act 1 of 1956. 15. Under Section J.6ae) of the new legislation i.e., Act 1B 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 dlrector 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 Ot.O4.2014. 16. Coming to the facts on hand, the 2nd respondent has disqualified the petitioners under Section 16a(2)(a) of the Act 18 of 2013, for not filing financial statements or annual returns, for period prior to 01.04.2014. The action of the 2\"d respondent runs contrary to the circular issued by the Ministry of the Corporate Affairs, and he has given the provisions of Act 1B of 2013, retrospective effect, which is impermissible. 77. The Apex Court in COMMISSIONER OF INCOME TAX (CENTRAL)-L NEW DELHI v. VATIKA TOWNSHIP PRMTE LIMITEDI has dealt with the generai principles concerning retrospectivity. The relevant portion of the judgment is thus: 27. A legislation, be it a statutory Act or a statutory Rule or a statutory Notification, may physically consists of words printed on papers. However, ' (2015)l sccl 3 conceptuarrv it s a sreat.deal,T:,1\"-ti;,:\"i:\"\";i:','Jr:i:;:; Il{ijtj:jj,}:i :Hit;;6 in the mode of verbal - ^^^ .ih..{c in a woTk ot tlfiron/non fiction or.even i:;\";:;;1\"; or statements, such a-s one tl\"-\",11\": :;\".;;,,iieo io arart a lesislation l, \"-':l': t' :i .t;11,fi e ! :*1 il+\"r \" tt iil;:*ll1* :*L+S:\":ffi liattins ana latter one i: t\" b:.:\".:. : 'i;qlsiaiiln oifflrs in lts. ii-\"trt\"-r'. Vis-i-vis ordinary pr!s', n'uiio ii, ,n\"uning that arises by presumptions and features as also in the lmpll l.i\"ii\" i.t\"\"t of the maker thereof' 28. of the various rules guiding how a legislation- tras- to be interpreted' one established rule is that untess \";;;i;\";y intenti5n appears' a leoistation is presumed not to be intended to nuu\" u '\"\"t\"tli\"lti\"i'\"p\"i't'Li' T1:-ld^tt behind the rule is that a current law should gou\"rn'';;\"ni activities. Law passed today cannot apply to the events of the past. rt *\" a\" r\"n,,\",r.\"g ioday, we do. it keeping in the law ot today and in force and not torn'otil*l ouirt*ZJ ualutt*\"nt of it our belief in the nature of the law is foundeo \"\"\"tn\" O\"i t\"lk that every human being is entitled to arranqe his affairs by rerying onine existing taw and should not find that his plans have been retrospectively r-'tpt\"i 'inii principle of law ts known as lex prospicit non respicit I law looks forward not oaltw'ara As was observed in Phillips vs Eyre [(1870) lR 6 QB 1], u t\",l-o'putiiu\"reqislatron rs contrary to the general prrncipe that leqtslatron by wllich the aono\"i oii\"unt'nd s to be requ'ated when lnt'oduced for the first time to deal witn iuiure acts ought not to change the character of past iiuniuitiont .urri\"d on upon the faith of the then existing law 29. The obvioUs baSiS of the principle against retrospeCtivity iS the prinCiple,of 'fairnessj, which must be the basis oi every tegat rule as was observed in the iulirLn 'r\"po.t\"O in L'office Cherifien des Phosphates v Yamashita-Shinnihon ii\"u.tnip Lo, rtd. t{r99a) 1Ac 486l Thus, legislations whlch modified accrued ightt ;t \"*l-ti.n impose obligations o, impose new duties or attach a new disability h;ve to be treated as prospective unless the legislative intent is clearly to give the \"nuitr\"nt a retrospeciive effect; unless the legislation is for purpose of supplying in obvious omission in a former legislation or to explain a former legislation We need not note that cornucopia of caie law available on the subject because aforesaid legal position clearly emerges from the various decisions and this leqal position was .o-n.\"i\"A by the counsei for the parties. In any case, we shall refer to few judgments containing this dicta, a little later. 30. We would also like to point out, for the sake of completeness, that where a benefit is conferred by a legislation, the rule against a 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 where to confer suth benefit appears to have been the legislators object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. This exactly is the justification to treat procedural provisions as retrospective. In Government of India & Ors. v. Indian Tobacco Association, t(2005) 7 SCC 3961, the doctrine of fairness was held to be relevant factor to construe a statute conferring a benefit, in the context of it to be given a retrospective operation. The same doctrine of fairness, to hold that a itatute was retrospective in nature, was applied in the case of Vijay v. State of Maharashtra & Ors., t(2006) 6 SCC 2891. lt 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. 31. In such cases, retrospectivity is attached to benefit the persons in contradistinction to the provision rmposing some burden or liability where the presumption attached towards prospectivlty. 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 d stinct implication. Dogmatically framed, the rule rs no more than a presumption, and thus could be d splaced by out welghing factors 43. There is yet another very interesting piece of evidence that ciarlfies that provision beyond any pale of doubt viz., the understanding of CBDT itself regarding this provision. It is contained in CBDT Circular No.B 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,2OO2, by which amendment to section 113 was made. ln this circular, various amendments to the Income tax Act are discussed amply demonstrating as to which amendments are clarificatory/retrospective in operation and which amendments are prospective. 9 5*$[*gffi**rur**r,ru 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 legisration has any intention, to make the said provision appricabre to past transactions. Further, the Apex Court in the above judgment at paragraph No.43, found that the circurar issued by the authority after passing of the legislation, crarifying the position with regard to appricabirity of the provisions, has to be construed as an important piece of evidence, as it would clarify the provision beyond any pare of doubt. In the present case, as already noted above, the lvlinistry of Corporation affairs has issued the circular No.08/2014 dated.4.4.2014 clarifying that financial statements commencing after 01.04.2014, shall be governed by Act 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 casesr as the 2nd respondent / competent authority, has disqualified the petitioners as directors under Section 16a(2)(a) of the Act 18 of 2013, by considering the period prior to OL.O4.2O|4, the same is contrary to the circular, and also contrary to the law laid down by Apex Court in the above referred judgment. 19. if the said provision is given prospective effect, as per the clrcular dated 4.4.2014 and the law laid down by the Apex Court, as stated in the writ affidavits, the first financial year would be from 01-04-2014 to 31.03.2015 and the second and third years financial years would be for the years ending 31.03.2016 and 31.03.2017. The annual returns and financial statements are to be filed with Registrar of Companies only after the conclusion of the annual general meeting of the company, and as per the first t0 proviso to section 96(1) of the Act, annual general meeting for the year ending 31.03.2O!7 , 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$) ot 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 said dates are calculated, the last date for filing the annual returns would be 30.77.2017, 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.O7.2O7A. In other words, the disqualification could get triggered only on or after 27.O7,2O7g. But the period considered by the 2nd respondent in the present writ petitions for clothing the petitioners with disqualification, pertains prior to 01.O4.2074. Therefore, when,the omission, which is now pointed out, was not envisaged as a ground for disq ua lification prior to 7.4.2OL4, the petitioners cannot be disqualified on the said ground' This analogy is traceable to Afticle 20(1) of the Constitution of India, which states that \"/Vo person shatt 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 subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the commission of the offence\". In vlew of the same, the ground on which the petitioners were disqualified, cannot stand to legal scrutiny, and the same is liable to be set aside. 20. A learned Single Judge of the High Court of Karnataka in YASHODHARA SHROFF vs. UNION OF INDIA2 considerlng 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. The observations of the learned Judge, pertaining to 2 w.p.No.5291 1 of 2017 and batch d ated 12.06.2019 II private companies, which are relevant for the present purpose, are extracted as u nder: 208. In view of the aforesaid discussion, I have arrived at the following conclusionsl (a) lt is held that Section 16a(2)(a) of the Act is not ultra vlrus Article 14 of the Constitution. The said provision is not manifestly arbitrary and also does not fall withinthescopeofthedoctrineofproportionality,Neitherdoesthesaidprovision vioiate nrticle'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 ina prrpot\" of the said provision is to stipulate. the consequence of a disqualification on account of the circumstances stated therein and the same is in order to achieve probity, accountability, and transparency in corporate governance. (b) That Article (slc) Section 164(2) of the Act appltes by.operation of law on the basis of the circumsiances stated therein, the said provision does not envisage any neaiing, neitner pre-disqualification nor post-disqualification and this is not in uiO.ti6n of the principlei of natural justice, is not u/tra 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 vlew of the interpretation placed on the same. (d) . . , (e) lnsofar as the prrvate companies are conceTned' disqualification on account of the circumstances stateo unoer-section 16+(2)(a) of the Act has been brouqht into force for the first tlme under the Act and the consequences of disqualification could not have been impoiJ on oi.e.tors of private companies by taking into consideration any period l*i to of o< 2014 for the purpose of reckoning continuous period of tntee'r'nanilr years under the said provision The said conclusion is based on tnu prinaipur oru*n by way of analogy from Article 20(1) of the Constitution, as at no -poini or t'rnu prior to the enforcement of the Act' a ;i;;;;i.\"il;\" based on th! crrcumstances under Section 164(2) of the Act was ever envisaged under the tiSO- Ati \"it-\"-\"\" directors.of private companies Such a disqualification couto vrsii'a\" oi*ttoior only a public company under Section 274(l)(g) of 1956 Act \"n4\"\"\"'\"t u director oi a private company Such aloirlrillti\"\" \"r the petitioiers who are directors of private companies is hence q ua shed (0 ... (g) Consequently, where the disqualrfication under Section-1^6-4(2) of the Act is based on a continuous peflod of ti-rree financial years commencing from 01 04 2014' wherein financial statements'or-inn'ir iut'int have not been flled by a public or orivate company, tne OrrJJis of such a company stand disqualified and the :;;;;;r;;;; \"i tne saio aiiquarirication would applv to them under the Act' 1 rispecial Civil Application No.21.135 of 1017 ancl batch dated l8 l2'2018 21. A learned Single of the High Court of Guiarat at Ahmedabad in GAURANG BALVANTLALSHAH S/O BALVANTLALSHAH VS. UNION OF INDIA3 expressed similar view as that of the leaned single 'ludge of High Court of Karnataka (1 supra), and held that Section 16a(2) of the Act of 2013, which had come into force with effect from !'4'2074 would have prospective, and not retrospective effect and that the defaults contemplated under Section 164(2)(a) with regard to non-filing of financial statements or t2 annual returns for any continuous period of three financial years would be the default to be counted from the financial year 2014-15 only and not 2013-14. 22. A learned single ludge of the High Court of Madras in BHAGAVAN DAS DHANANJAYA DAS vs. UNION 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 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 fixing the first financial year from 1.4.2073 to 31.3.2014. (b) By virtue of the new Section 164(2)(a) of the 2013 Act using the expression 'for any continuous perjod of three financial year,; and in the iight of section 2(41) defining \"financial year,,as well as their own General circular No.08/14 dated 4.4.2074, the first financjal year would be from 7.4,20t4 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 7.4,2016 to 31.3.2017, whereas the second respondent clearly admitted in paras lS and 22 of the counter affidavit that the default of filing statutory returns for the final years commences from 20t3-74, 2Ot4-lS and 2015_16 i.e, one year before the Act 2013 came into force. This is the basic incurable legal infirmity that vitiates the entire impugned proceedings. 23. In view of the above facts and circumstances and the judgments referred to supra, as the impugned orders in present writ petitions disqualifying the petitioners as directors under section L6aQ)@) of the Act, have been passed considering the period prior to 01.04.2014, the same cannot be sustained, and are riabre to be set aside to that extent. reference: 164. Disqua lification for appointment of director: 'w.P.No.25455 0f201? and batch dared 27.07.20t8 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 i3 (2) No person who is or 0\",,\"0 .[i,nlT,,ll.n:;ru:il]ffiff \",:- \",il:::. Jlcln, nuous Shall be etrgibte to be appornted i, \"irru..i.puri\"\"su. re-appointed as a djrector of that company or saro company fails to do so. r a period of frve years from the date on which the A reading of the above provision makes it clear that it provides disq ua lificatio n on happening of an event i.e., if a person who is or has been a director of a company has not fired financiar statements or annuar returns for any continuous period of three financiar years, shal be inerigibre 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 fairs 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 16a(2)(a) of the Act applies by operation of law on the basis of the circumstances stated therein, the said provision does not envisage any hearing, neither pre-disqualification nor post-disqualification and this is not in violation of the principles of natural justice and hence, is not ultra vlres Article 14 of the Constitution. I concur with the said reasoning. 25. Thus, from the above, it is clear that Section f64(2)(a) of the Act is a deeming provision and the d isq ualification 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 164(2)(a) of the Act. (b)... 14 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 violatlon mentloned under Section $aQ)@) 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 rcaQ)G) of the Act, DIN cannot be cancelled' 27. Rule 10 of the Rules provide for allotment of DIN and under sub for life time. Rule 11 Provides for 11, which is relevant for the present purpose, is extracted as under for ready reference: rule (6) of cancellation Rule 10, it is allotted or deactivation. Rule 11. Cancellation or surrender or deactivation of DIN: The Central Government or Regional Director (Northern Region), Noida or any officer authorized by the Regional Director may, upon being satisfied on verification of particulars or documentiry proof attached with the application received from any person, cancel or deactivate the DIN in case - (i) the DIN is found to be duplicated in respect of the same person provided the data related to both the DIN shall be merged with the validly retained number; the DIN was obtained in a wrongful manner or by fraudulent means; of the death of the concerned individual; the concerned individual has been deciared as a person of unsound mind by a competent Court; if the concerned individual has been adjudicated an insolvent; Provided that before deactivation of any DIN in such case, the Central Government shall verify e-records. Explanation: for the purposes of clause (b) - The terms \"wrongful manner\" means if the DIN is obtained on the strength of documents which are not legally valid or incomplete documents are furnished or on suppression of material information or on the basis of wrong certlfication or by making misleading or false information or by m isreprese ntation; (ii) the term \"fraudulent means\" means if the DIN is obtained with an intent to deceive any other person or any authority including the Central Govern ment. 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 Provided that before cancellation or deactivation oF DIN pursuant to clause (b), an opportunity of being heard shall be given to the concerned individual; on an application made in Form DIR-5 by the DlN hoider to surrender his or her DIN along with declaration that he has never been appointed as director in any company and the said DiN has never been used for filing of any document with any authority, the Central Government may deactivate such DIN; (a) (b) (c) (d) (e) (f) l5 Section 164(2)(a) of th, secrion 164 or the^., ;::,,], r];J\"]u u,,ur\", vioration under accordance with Rurell ofthe Rures. or deactivated ' except in 29. Learned Single Judge of the Gujarat High Court in the decision cited 2 supra, held as under: \"29. This takes the Court to the next question as to whether the respondents could have deactivated the DINS of the petitioner as a consequence of the impugned llst? In this regard, it would be appropriate to refer to the relevant proviiions contained in the Act and the said Rules. Section 153(3) provides that no person shall be appointed as a Director of a company, unless .he has been allotted the Director Identification Number under Section 154. Section 153 requires every individual intending to be appointed as Director of a Company to make an application for allotment of DIN to the Central Government in such form and manner as may be prescribed. Section 154 states that the Central Government shall within one month from the receipt of the application under Section 153 allot a DIN to an applicant in such manner as may be prescribed. Section 155 prohibits any individual, who has already been allotted a DIN under Section 154 from applying for or obtalning or possessing another DIN. Rules 9 and 10 of the said Rules of 2014 prescribe the procedure for making application for allotment and for the allotment of DIN, and further provide that the DIN allotted by the Central Government under the said Rules would be valid for the life time of the applicant and shall not be allotted to any other person. 30, Rule 11 provides for cancellation or surrender or deactivation of DIN. Accordingly, the Central Government or Regional Director or any authorized officer of Regional Director may, on being satisfied on verification of particulars of documentary proof attached with an application from any person, cancel or deactivate the DIN on any of the grounds mentioned in Clause (a) to (f) thereof. The said Rule 11 does not contemplate any suo motu powers either 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 Director of the \"struck off company\" or of the Director having become neligible under Section 164 of the said Act. The reason appeaTs to be that once an individual, who is lntending 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 Drrector in other companles also Hence, if one of the companies in which he was Director, s \"struck off\", his DIN could not be cancelled or deactivated as that would TUn counter to the provisions contained in the Rule 11, which specifically provides for the circumstances under which the DIN could be ca ncelled or deactivated. 31. In that view of the matter, the Couft is of the opinion that the action of the respondents in deactivatlng the DINs of the petltioners - Directors along with the publication of the impugned list of Directors of \"struck off\" companies under bection 248, also was not Iegally tenable, Of couTse, as per Rule 12 of the said Rules, the individual who has be€n allotted the DlN, 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' theDlNCouldnotbecancelledordeactiVated'ThecancellationordeaCtivationof the DIN could be resorted to by the concerned respondents only as per the provisions contained in the said Rules \" 30.Inviewoftheabovefactsandcircumstancesandthejudgment referred to supra, the deactivation of the DINs of the petitioners for alleged violations under Section 164 of the Act, cannot be sustained' 31. For the foregoing reasons' the impugned orders in the writ petitions to the extent of disqualifying the petitioners under Section 164(2)(a) of the Act and deactivation of their DiNs' are set aside' and the 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 2nd respondent from taking aPPro violations as envisaged under I provision prosPective effect frr t6 priate action in accordance with law for Section 164(2) of the Act, giving the said [m 01.0+.2014 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 stril{ing off their companies under Section 248 of the Act, they are at liberty to avail alternative remedy under Section 252 of the Act. 34. All the writ petitions are accordingly allowed to the extent indicated a bove. 35. Interlocutory applications pending, if any, shall stand closed. No order as to costs. A.RA]ASHEKER REDDY,J DATE: 18-07-2019 AVS "