Suman Saradhi Tirum Vangipuram V. Union of India and another

WP/13937/2021

AI Insights

The case involves Suman Saradhi Tirum Vangipuram, who was disqualified as a director and had his DIN deactivated by the Registrar of Companies, Telangana, due to non-filing of financial statements and annual returns for three consecutive years. This action was based on Section 164(2)(a) of the Companies Act, 2013, which came into effect on April 1, 2014. The petitioner challenged the disqualification and DIN deactivation, arguing that these actions were applied retrospectively and without proper notice, violating the principles of natural justice and constitutional rights under Articles 14 and 19(1)(g). The court found that the retrospective application of the law was incorrect and that the petitioner was not given an opportunity to be heard, leading to the setting aside of the impugned orders.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 721645 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 10-08-2021
• Assessment Year: misc
• Other Referred Cases: COMMISSIONER OF INCOME TAX (CENTRAL)-I, NEW DELHI v. VATIKA TOWNSHIP PRIVATE LIMITED, YASHODHARA SHROFF vs. UNION OF INDIA, GAURANG BALVANTLAL SHAH S/O ETALVANTLAL SHAH vs. UNION OF INDIA, BHAGAVAN DAS DHANANJAYA DAs vs. UNION OF INDIA
• Laws Referred To: Companies Act, 2013, Companies (Appointment and Qualification of Directors) Rules, 2014, Constitution of India
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: NAMAVARAPU RAO
• Assessee Lawyers: C S MANO RANJANI
• Keywords: Director Identification Number; Disqualification; Natural Justice; Writ of Mandamus
• Section: 248; 252; 164(2)(a)

Judgement Text

"HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD (Special Original Jurisdiction) TUESDAY, THE TENTH DAY OF AUGUST TWO THOUSAND AND TWENTY ONE PRESENT THE HONOURABLE SRI JUSTICE ABHINAND KUMAR SHAVILI WRIT PETITION NO: 13937 OF 2021 Between: Suman Saradhi Tirum Vangipuram, S/o. [/r TV Parthasarathi Aged about 44 years, Occupation. Business Resident of Bungalow No 101, Ambience Fort Attapur, Hyderabad 500064' Telangana ...pETrroNER AND 1, Union of lndia, Represented by its Ministry of Corporate Affairs, Shastri Bhawan, Dr. Rajender Prasad Road, New Delhi - 110001 2. The R6gistrar of Companies, Telangana 2no Floor, Corporate Bhawan, Thattiannaram, G.S.l. Post, Bandlaguda, Nagole, Hyderabad -500068. ..,RESPONDENTS Petition under Article 226 of the Constitution of lndia praying that in the circumstances stated in the affidavit filed therewith, the High Court may be pleased to issue a Writ Order or Direction more particularly one in-the nature of Writ of Mandamus declaring the action of the Respondents in so far as deactivating the Director ldentification Number of Petitioners, (suman saradhi Tirum Vangipuram - 02291996) (deactivation with the effect from 01111120161o 3111012021) and listing the name as Disqualified Director and thereby restricting the Petitioner to continue as Director of the companies and/or get appoint or reappointed as Director of any company and file statutory returns i.e., annual returns and financial statements of the companies in which they are Director as arbitrary, illegal without jurisdictio_n contrary to the provision of the Companres Act, 2013 and Rule 11 of the Companies (Appoiniment and eualification of Directors )Rules 2014 violation of the principles of natural justices besides violating the petitioner rights guaranteed under Article 14 and Article 19 (1) (g) of the Constitution of lndia lA NO: 1 OF 2021 Petition under section 151 CPC praying that in the circumstances stated in the affidavit filed in supporl of the petition, the High court may be pleased to dilect the Respondent to stay the.disabiing and restore the Director ldentification Numbers (Olfii) ot the petitioner (Suman Saiadhi Tirum Vangipuram 02291996) so as to enable ihem to continue as Director of the Companies and/or get appoint or reappointed as Director of any company and file statutory returns i.e., annual returns and financial statements of the active companies in which he is the director without any interference and earn remuneration for their live hood by serving the company as Director Counsel for the Petitioner : SRI C S MANO RANJANI Counsel forthe Respondents :SRl NAMAVARAPU RAJESHWAR RAO Assistant Solicitor General The Court made the following: ORDER THE HON'I}LE SIII JUSTICE ABHINAT-D Kt.,tyIAIt SHAVTLI RIT PETITION No.13937 of202l ORDER: When the matter is taken up for hearing, learnr:d counsel for the petitioner submits that the issue raised in this writ pr:tition is squarely covered by the orderpassed by this Court in W.p.No I 1434 of 2021 & batch, dated 05.08.2021, and contends that the prese,r writ petition be allowed in terms of the said order. 2. Learned Assistant Solicitor General apgrearing lbr the i respondents does not dispute the said submission. 3. In view of the above submissions and for thr: reasons alike in the order dated 05.08.2021 in W.p.No.l1434 of T21 & batch, the impugned order in the writpetition to the exrenr of disqualifying the petitioner under Section rcae) @)of rhe Conrpanies Act,2013 (18 of2013) (for short,the Act,) and deactivarion o.his DIN, are set aside, and the 2\"d respondent is directed to activate the DIN or. the petitioner, enabling him to function as Director other.than i, str.ike off con-rpanies. 4. It is made clear that this order w,ill not preclucle the 2,,,r respondent tiorn taking appropriate action in accordance with law for violations as envisaged under Section l6ae) ofthe Act, giving the said provision prospective eff-ect flom 01.04.2014 a;rd for necessary action against DIN in case of violations of RLrle l1 of the Companies (Appointment and eualification of Directors) Ilules, 2014. 5 . It is also made clear that if the petitioner is i.ggrieved bv the To action of the respondents in striking off his companies under Section 248 ofthe Act, he is at liberty to avail alternative remedy under Section 252 of the Act. 6 The writ petition is accordingly allowed to the extent indicated above. SD/-T.TIRUMALA DEVI ASSISTANT REGISTRAR ,rRUE COPY/I q. SECTION OFFICER 1. The Union of lndia IVinistry of corporate Affairs, Shastri Bhawan, Dr. Ra.iender Prasad Road, New Delhi - 110001 z. ffre negiitrar of Companies' Telangana 2no Floor, Corporate g-lqryql' - fnitiian\"narim, C.S.t 'post, Bandlaguda, Nagole, Hyderabad -500068' 3. One CC to Sri C.S tvlano Ranjani, Advocate IOPUC] +. One CC to Sri Namavarapu Fiiieif,*a1- Rao,'Assistint Solicitor General [OPUC] 5. Two CD Copies 6. One Spare CoPY \" aAl,;\";;ith i ;;'pv of the order dated o5lo8t2o21 in wP No l 1434 o'f 2021 and batch) Kj., { IJ Per.rding miscellaneous petitions, if any, shall stand closed , HIGH COURT DATED:1010812021 ORDER WP.No.13937 of 2021 ALLOWING THE WRIT PETITION i 26 iulfrtt (i. .r._.. -}< Zffi HONIBLE SRI JUSTICE ABHINAND KUMAR SHAVILI W.P.Nos.ll434.11941.12240.13780\" 14963 . 14992.15 r39. 15856 & 16161 of2021 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 companles, registered under the Companies Act' 2013 (18 of 2013) (for short 'the Act'). Some of the such companies are active' and someofthemhavebeenstruckofffromtheregisterofcompanies 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. ) companies, during the 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 Section 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 I 2 deactivated. Aggrieved by the same, the present writ petitions have been filed. 4. This court granted interim orders in the rvrit petitions directing the 2nd respondent to activate DINS of the p3titioners, to enable them to functionother than in strike off companies,. 5. Heard the learned counsel appearing for tlre petitioners in all the writ petitions, Sri Namavarapu Rajeswara Rao, learned Assistant Solicitor General for the respondents - Union of india. 6. Learned counsel for the petitioners, contend that before passing the impugned order, notices have not been ssued, giving them opportunity, and this amounts to violation of principles of natural justice, and on this ground alone, the impugred orders are liable to be set aside. 7. Learned counsel submits that Section 1t;4(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 teriod of three financial years. Learned counsel further submits that this provision came into force with effect from 1.4.2014, and ,prir:r thereto i.e., under Section 27aG)G) of the Companies Act, 1956 (1 of 1956), which is the analogous provision, there was no such -equirement for the directors of the private companies. They corrtend that this provision under Act 1g of 2013, will have prospective operation and hence, if the directors of company fail to cornply with the requirements mentioned in the said provision subsequent to the said date, the authority under the Act, is within its jurisdiction to disqualify them, But in the present cases, the 2nd respondent, t,rking the period J prior to L,4,20t4, i,e., glving :he provision retrospective effect, disqualified the petitioners as directors, whichis illegal and arbitrarY' B. 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 Rulgs), are granted for life lime to the applicants under Rule 10(6) of the said Rules' and cancellation of the DIN can be made only for the grQUnds mentioned in clauses (a) to (f) under Rule 11 of the Rules, 3nd the said grounds iioes not provide for deactivation for having become ir eligible for appointment as Directors of the company under Section 164 of the ACt, Learned counsel further submits that as against the ddactivation, no appealis provided under the Rules' and appeal to the tiiLjr-tnal under Section 252 of the Act is provided only against the dllsolution of the company under Section 248 of the Act' 9. Learned counsel further submits that lst respondent - dovernment of India represented by the Ministry of corporate Affairs, has floated' ascheme dated 29'L2'20!7 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 companieswhichareStruckoffunderSection24s(5)oftheAct.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 ,/ + approach the Tribunal for restoratioir' They submit that since the penat provision is given retrospeclive operation, de ho's the above scheme, they are entitled to invoke the jurisdiction of this court under Article 226 of the Constitution of lndia. 10, With the ab6ve contentions, learned courtsel sought to set aside the impugned orders and to allow the writ petitions. 11. On the other hand learned Assistarit Solicitor General submits thatfailure to file financial statements or annttal returns for any continuous period of three financial years, aLitonlatically entail their d isq ua lification under Section 16a(2)(a) of th€: Act and the statute does not provide for issuance of any notic3. Hence, the petitioners, who have failed to comply with thestatutory requirement under Section 164 of the Act, cannot complain r)f violation of principles of natural justice, as it is a deeming pro'/ision. Learned counsel further submits that the petitioners have alternative remedy ofappeal under Section 252 of the Act, and hence wrt petitions may not be entertained, 12. To consider the contention of the learned Assistant Solicitor General with regard to alternative remedy of appeal under Section 252 of 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 o. the Registrar, notifyinq a company as dissolved under S,jction 248, may file an appeal to the Tribunal within a perod of three years from the date of the order of the Registrar and if the Tribunal is of the opinion that the removal of the name of the company from the register of companiesis not justi'ied 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; Provided that before passing an order undcr this section, the Tribunal shall give a reasonable opportu,jity of making representations and of being heard to the Ree,istrar, 5 the company and a de persons concerned: Provided further that if the Registrar is satisfied, that the name oF the @mpany has been struck off from the register of companies either inadvertentlv or on basis oF incorrect informa(ion 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 pasFing of the order dssolving the company under Section 248, fite an apptication before the Tribunat seeking restoration oF name of such company. (2) A copy of the order passed by the Tribunal shall be filed by the companywith the Registrar within thirty days from the date ol the order and on receipt of the order, the Registrar shall cause the name of the company to be restored in the regi9ter of companies and shall issue a fresh ce rti fi cate o f i n corpo ration. (3) If'a companyt or any member or creditor or worker thereof feels aggrieved by the company having its name struck off from the regis.ter 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 notlce under sub-section (5) of Section 248, if satisfied thqt the company was, at the time of its name being struck off, carryinq on business or in operation or otherwise it is just thA* the name of the company be restored to the register ot coalpanies, order the name of the company to be restored to the t gister of companies, and the Tribunat maY, by the order, gtve 71tch other directions and make such provisiotts as deemed jLlst 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 teuiiing of above provision goes to show that if [he company is dlsddlved under Section 248 of the Act, any person aggrieved by the 3ime, can file an appeal. Thus the said provision proYides the forum fut rbdressal against the dissolution and striking off the company frorn the register of companies. It does not deal with the disq ua lification of the directors, and deactivation of their DINs ln the itltsent case, the petitioners are only aggrieved by their dlsqualification as directors and deactivation of DINs, but not about stfiking 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, ,// I 6 13. Under Section 16a(2)(a) of the Act,/, the )irector of a company fails to file financial statements or annual returns for any continuous period of three financial years, he.bhall not tre eligible to be re-appointed as a director of that company,or appoirrted in other company for a period of five years from the date dn which the said company fails to do so. The said provision und/er the Act 18 of 2013, I came into force with etfect from O7/O4.20.14, and the petitioners are .i / disqualified as directors under the'sEid provision. At this stage, the ,. issue that arises for consideratioh is - whether the disq ua lification envisaged under Section 164(:2)(a) of the Act, which prcvision came into force with effect from 01.04.2014, can be made at)plicable with prospective effect, or has to be given retrospective operEtion?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 regarc, the learned counsel brought to the notice of this Court, the Gerreral Circular No.08/14 dated 4.4.2074 issued by the Ministry 01' Corporation affairs, which clarifies the applicability of the relevant filancial years. The relevant portion of the said circular is as under: \"A number of provisions of the Companies Act, 2)13 includiig those relating to maintenance of books of bccount, preparation, adoption and filing of financial statements ()nd documents required to be attached thereto), Auditors rep )rts and the Board of Directors repoft (Board's report) have been brought into force with effect from lst April, 2014. Provisions of Schedute II (usefut lives to compute depreciation) and Schedule III (format of financial statements) have also been brought into force f-om that date. The relevant Rules pertaining to these provis ons have also been notiFied, placed on the website of the Mintstry and have come into force from the same date, The Ministry has received requests for clarification ryith regard to the relevant financial years with effect from w ich such provisions of the new Act relating to maintenanc? of books of account, preparation, adoption and filing of finatrciat statements (and attachments thereto), auditors report and Board's report wtll be applicable. Although the position in this behalf is quite cleaa to nEke things absolutely clear it is hereby notified that the fina)cial statements (and documents required to be attached thereto), auditors report and Board,s repoft in respe(.t of 7 / ,,/ financial yearsthat commenced earlier than l't April shatt be governed by the relevant provisions/schedules/rutes of the Companies Acq 1956 and that in respect of financial years commencing on or after 1st April, 2014, the provisions of the new Act shall apply. \" A reading of the above circular makes it clear the financial statements and the documents required to be attached thereto, 6Uditors report and Board's report in respect of financial years that tdminenced earlier than Oi- .O4.2OL4, shall be governed by the plovlsions under the Companies Act, 1956 and in respect of financial idarb commencing on or after 01.04.2074, the provisions of the new ALt shall apply. 1.4. At this stage it is required to be noticed that the analogous provision to Section 16a(2)(a) of the Act 18 of 2013, is bectlon 2lqG)G) of Act 1 of 1956. The said provision under Act 1 of 1956 is extracted as under for ready reference: section 274(71 A person shall not be capable of being appointed director of acompany, if - (g) such person is already a director of a public company which, (A) has not filed the annual accounts and annual returns for any continuous three financial years 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 f6r 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 flnancia I years commencing on Y I I S and after the first day of April 1999, shall not be eligible to be appointed as a director of any other public company for a period of five years from the date on which such public company, in which he is a director, failed to file annual accounts and annual ret.urns. So the statutory requirement of filing annual accounts and annual returns, is placed or/the directors of a'public company'. There is no provision under the Act 1of 1956, which places similar obligaiions on the directors of a 'private company'. Therefore, non- filirig of annual accounts and annual returns by the directors of the private company, will not disqualify them as directors under the provisiorrs oF Act 1of 1956. 15. Under Section fiaQ) of the new legislatic,n i.e., Act 18 of 2013, no such distinction between a 'private cornpany' or a 'public company' is made and as per the said provision goes to show that no person who is orhas been a director of a 'company', fails to flle financial statements or annual returns for any continuous period of three financial years, will not be eligible for a[)pointment as a director of a company. As already noted above, the s;aid provision, came into force with effect from 07.04.2014. 16. Coming to the facts on hand, the 2nd respondent has disqualified the petitioners under Section 164(2)(a) of the Act 18 oF 2013, for not filing financial statements or annual retur.ns, for period prior to OL.04.201,4. 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 18 of2013, retrospective effect, which is impermissible. 9 17. The Apex Court in COMMISSIONER OF INCOME TAX (CENTRAL)-I, NEW DELHI v. VATIKA TOWNSHIP PRIVATE LIMITEDI has dealt with the general principles concerning retrospectivity. The relevantportion of the judgment is thus: 27. A legislation, be it a statutory Act or a statutory Rule or a statutory Notification, may physically consists of words printed on papers. 2g.However, conceptually it is a great deal more than an ordinary prose. There is a special peculiarity in the mode of verbal communication by a legislation. A legislation is not just a series of statements, such as 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 ' 'I nterpretation of Statutes'. Vis-e-vis ordinary prose, a legislation diFfers in its provenance, lay-out and features as also in the implication as to its meaning 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 appeao a legislation is presumednot to be intended to have a retrospective operation. The 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 entitled 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 Phillips vs. EYre [(1570) 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 no.t 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 reported in L'Office Cherifien des Phosphates v. Yamashita-Shinnihon Steamship Co. Ltd. [{ 1994) 1 Ac 486]. Thus, tegislations which modified accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the leqistation is for purpose of supplying an obvious omissian in a former legislation or to explain a former legislation. we need not note that cornucopia of case law available on the subject because aforesaid legal position clearly emerges from the various decisions and this legat position was conceded bY the counsel for the '(20t5)tsccI 10 pafties. 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 generally, and whereto confer such benefit appears to have been the legislators object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. This exactly is the justification ta treat procedural provisions as retrospective. In Government of India & Ors. v. lndian Tobacco Association, [(2005) 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 td be given a retrospective operation. The.same doctrine of fairness, to hold that a statute was retrospective in nature, was applied in the case of Vijay v. state af Maharashtra & Ors., [(2006) 6 SCC 289]. 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. 32. In such cases, retrospectivity is attached to benefit the persons tn 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 retrospe.ctive 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 Actt or arises by necessary and distinct implication. Dogmatically framed, the rule is no more than a presumption, and thus could be displaced by out weighing factors. 43. There is yet another very interesting piece of evidence that clarifies that provision beyond any pale of doubt viz., the understanding of CBDT itself regarding this provision. It is contained in CBDT Circular No.8 of 2002 dated 27.8.2002, with the subject \"Finance Act, 2002 - Explanatory Notes on provision relating to Direct Taxes\". This circular has been issued after the passing of the Finance Act, 2002, by which amendment to section 113 was made. In this circular, various amendments to the Income tax Act are discussed amply demonstrating as to which amendments are clarificatory/retrospective in operation and which amendments are prospective, For example, Explanation to section 158-BB is stated tc be clarificatory in nature. Likewise, it is mentioned that amendments in Section 145 whereby prowsiois oi that section are made applicable to block assessments is made clarificatory and would take effect retrospectivel, from 1st day of July, 1995. When it comes tc amendment to Section 113 of the Act, this very circular provides that the said amendment along with tha' amendments in Section 158-BE, would be prospective 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 tp past transactions. Further, the Apex Court in the above judgment at paragraph No.43, found that '.,,|' the circular issued by the authority after passing of the legislation, clarifying the position with regard to applicability of the provisions' has to be construed as an important piece of evidence' as it would clarify the provision beyond any pple of doubt' In the present case, asalready noted above, the Ministry of Corporation affairs has lssued thecircular No.08/2014 dated 4.4.?074 clarifying that financial statements commencing after 01'04'2014, shall be governed by Act lii of zof : i.e., new Act and in respect of financial years commencing Edriier to ot.o4,2074, shall be governed by Act 1 of 1956. At the cost di repetition, since in the present cases' as the 2nd respondent / competent authority, has disqualified the petitioners as directors dnder Section 16a(2)(a) of the Act 18 of 2013' by considering the period prior to 01.04.2014, the same is contrary to the circular' and dllo 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 circulardat ed 4.4'20L4 and the law laid down by the Apex Court' as stated in the writ affidavits' the first financial year would be from O1-04-2014 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 t) of the company, and as per the first proviso to Section 96(1) of the Act, annual general meeting for the.yeat,ending 31.03..1017, can be held within six months from the closing of flnancial year i.e., by 30.09.2077. Further, the time limif for filing annual returns under Section 92@) of the Act, is 60 days from annual general meeting, or the last date on which annuai general meeting ought I.o have been held with normal fee, and within 270 days with additiorral fee as per theproviso to section 403 0f the Act. Learned counser r;ubmit that if the said dates are calculated, the last date for filin,l the annual returns would be 30.11.2017, and the balance sheer: was to be filed on 30.L0.2017 withnormal fee and with additionel fee, the last date for filing annual returns is 27.O7.2}tg. In othrrr words, the disqualification could get triggered only on or after 27 07.2OlB, But the period considered by the 2nd respondent in the present writ petitions for clothing the petitioners with disqual.ification, pertains prior to 0L.04,2014. Therefore, when the omission, which is now pointed out, was not envisaged as a ground for d isq ua lification prior to 7.4.2014, the petitioners cannot be disqualified on th3 said ground. This analogy is traceabre to Articre 2o( 1) of the constitution of India, which statesthat,,No person shalt be convicted of any offence except for violation of a tawin 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 l w i.1 force at the time of the commission of the offence,,. In view of the same, the ground on which the petitioners were disqualified,. cannot stand to legal scrutiny, and the same is liable to be set aside. 20. Karnataka in A learned Single Judge of the High Court of YASHODHARA SHROFF ys, UNION OF t3 INDIA2 considering Section 164(2)(a) of the Act and other provisions of the Act, and various judgments, ipassed an elaborate order and held that the sald. provision has no retrospective operation. he observations of the learned ludge, 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 ng concl usions : (a) It is held that Section 16 (2)(a) of tqe Act is not ultra virus Article 14 ot the Constitution. Tha said provision is not manifestly arbitrary and also does nqt fall within the scope oF the doctrine of propottionality. Nglother does the said provisionviolate Afticle 19(1)(g) of the Aqnstitution: as it is made in the interest of general puqlic and a reasonable restriction on the exercise of the Said right. The object and purpose of the saidtprovision 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 (sic) Section 164(2) of the Act applies bv 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 viotation of the principles of natural iustice, 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 ,\"ikonirg continuous period of three financial years under the said provision. The said conclusion is based on the principal drawn bY way of analogY from Article 20(1) of the 'consiitution, as at no point of time prior to the enforcemeni of the Act, a disqualification based on the circumstances under Section 164(2) of the Act was ever envisagdd under the 1956 Act vis-i-vis directors of private io^piri\"t. Such a disquatification could visit a director of only a public company under Section 274(1)(g) of 1956 Aci and never a director of a private company Such- disqualiication of the petitioners who are directors ot private companies is hence quashed' (f) (o) Conseauently, where the disqualification under. Sec.tion 164(2) of the Act is based on a con nuous pertod oI tnree iiiu'nZ\"i y\"urt commencing from o1'04 2014', *h\"::'-1 ftnancial statements or annual returns have not been ltleo by a public or private companyt the directors of such a 2 W.P.Nc,,529l I of 2017 and batch dated 12 06'2019 I4 company stand disqualified and the consequences (tf the said disqualification would apply to them under the A(t. 27. A learned Single of the High Co.urt of Gujarat at Ahmedabad in GAURANG BALVANTLAL SHAH S/O ETALVANTLAL SHAH vs. UNION OFINDIA3 expressed similar view as that of the leaned single Judge of High Court of Karnataka (1 supra), and held that Section 164(2) of the Act of 20t3, which had core into force with effect from t.4.2014 would have prospecti /e, and not retrospective effect and that the defaults contemplated .rnder Section 164(2)(a) with regard to non-filing of financial statements or annual returns for any continuous period of three f nancial years would bethe default to be counted from the financial year 2014-t5 only and not 2073-14. 22. A learned single Judge of the High Cour: of Madras in BHAGAVAN DAS DHANANJAYA DAs vs. IJNIoN oI: INDIAa 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 hr:rein has w.longll _ given retrospective effect and erroneously disqualified the petitioner - directors from 1.1.2016 itseif before the deadline commenced wrongty fixing 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'continrors period of three financial year,, and in the light of section 2(41) defining \"financial year,,as well ai their own General circular No,0B/14 dated 4.4,.2014, the first financial year would be from l.q.zbli' ti 31.3,2015, the second financial year would be troi 1.4.2015 to 31.3.2016 and the third fina.tcial yiar would be from 1.4.2016 to 31.3.2017, *herear'iie se-cond respondent clearty admitted in paras tS and 2i of the counter affidavit that the defautt of fitino statutory returns for the finalyears com-ences floi 3Special Civil Applicarion No.22435 of20t7 and batclr dared 18.12.2018 a w.p.No.25455 of 201? and batch date d27.oi.2ot8 a 15 2013-14, 2014-15 and 2015-16 i.e, one year before the Act 2013 came into force. This is the basic incurable legal infirmity that vitiates the entire impugned 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 164(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 16a(2)(a) is required to be noticed, and the same is extracted as underfor 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 finarlcial statements or annual returns for anY continuous period of three financial Years; or (b) . . . ' Shall be eligibte to be re-appointed as a director of that company or appointed in other companies for a period of five years from the date on which the said company fails to do so. A reading of the above provision makes it clear that it provides disq ua 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 16 date on which the said company fails to do so. The provision does not provide for issuance of any prior notice or hearing' A learned single Judge of the High Court of Karnataka in Yashodara Shroff v' Union of India (1 supra), as well as the learned single :iudge of the High Court of Gujarat at Ahmedabad in Gaurang Balvantlal Shah s/o Balvantlal Shah vs. Union of India (2 supra), after anall'zing various provisions of the Act and Rules framed thereunder, and by relying on various judgments of the Apex Court, held that Section 164(2)(a) of the Act applies by operation of law on the basis of the circumstances stated therein, the said provision does not envisage any hearing, neither pre-d isqua lification norpost- d isq ua lificatio n 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 saic reasoning ' 25. Thus, from the above, it is clear that Section 16a(2)(a) of the Act is a deeming provision and the disqualificat on envisaged under the said provision comes into force automatically by operation of law on default and Legislature did not provide for is:;uance 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. 26. The next grievance of the petitioners. is wlth regard to deactivationof their DiNs. The contention of the learred counsel for the petitioners is that except for the grounds mentiored under Rule 11 (a) to (f) of the Rules, the DINs cannot be cancelled or deactivated, and the violation mentioned under Secticn 164(2)(a) of the Act, is not one of the grounds mentioned under cl;tuses (a) to (f) of Rule 11, and hence for the alleged violation under Section 164(2)(a) of the Act, DIN cannot be cancelled. t7 27. Rule 10 of the Rules provide for allotment of DIN and under sub rule (6) of Rule 10, it is allotted for life time, Rule 11 provides for canceilation or deactivation. Rule 11, which is relevant for the present purpose/ is extracted as under for ready reference: 77. Cancellation or surrender or deactivation of DIN: The Central Government or Regional Director (Nofthern Region), Noida or any officer authorized by the Regional Director maY, upan being satisfied an verification of particulars or documentary proof attached with the application received from any person, cancel ordeactivate the DIN in case - (a) 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 retai nednum ber; (b) the DlN was obtained in a wrongful manner or bY fraudulent means; (c) of the death of the concerned individual; (d) the concerned individual has been declared as a person of unsound mind by a comqetent Court; (e) if the concerned individual has been adiudicated an insolvent; Provided that before cancellation or deactivation of DIN pursuant to ctause (b),an opportunitY of being heard shall be given to the concerned individual; O on an application made in Form DIR-5 by the DIN holder to surrender his or her DIN along with declaration that he has never been appointed as director inanY company and the said DIN has never been used for filing of anY document with any authority, the Central Government maY deactivate such DIN; Provided that before deactivation of anY DIN in such case, the Ce ntra I Gove rn m en t sha I I verify e - records. Explanation: for the purposes of clause (b) - (c) 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 certification or bY making misleading or false information or by misrePresentation; (ii) the term \"fraudulent means\" means if the DIN is obtained with an intent to deceive any other person or any authoritY including 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 IE Section 16a(2)(a) of the Act. Therefore, for the a llerled violation be ca ncelled or under Section L64 of the Act, DINS cannot deactivated, except in accordance with Rule 11 of the Ru es 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 tvhether the respondents could have deactivated the DINS of the pc,titioner as a consequence of the impugnedlist? In this regard, it would be appropriate to refer to the relevant provisions containe(t in the Act and the said Rules. Section 153(3) provides that na person shall be appointed as a Director of a company, unless he has been allotted the Director ldentification 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 fcrm and manneras 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 prohibis any individual, who has already been allotted a DIN under Section 154 from applying for or obtaining or possessing anott.er DIN. Rules 9 and 10 of the said Rules of 2014 prescribe the Uocedure for making application for allotment and for the allotment ofDIN, and further provide that the DIN allotted by the Central Government under the said Rules would be valid for thetife time of the applicant and shall not be allotted toany other person. 30, Rule 11 provides for cancellation or surretlder or deactivation of DIN. Accordingly, the Central Governtnent or Regional Director or any authorized officerof Regional Director may/ on being satisfied on verification of partiaiars of documentary proof attached with an application from any person, cancel or deactivate the DIN on any of the grounds m2ntioned in Clause (a) to (D thereoF. The said Rule 11 ooes not contemplate any suo motu powers either with the Central Government or with the authorized officer or Regional Di-ector to cancel or deactivate the DIN allofied to the Director, ncr any of the clauses mentioned in the said Rules contemplates car.cellation 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 individuat, who is intending to be the Director of a particular corlpany is allotted DIN by the Central Government, such DIN yrould be valid for the liFe time of the applicant and on the basis of such DIN he could become Director in other companies also. 1ence, if oneof the companies in which he was Director, is',struck off,,, his DIN could not be cancelled or deactivated as that w)uld run counter to the provisions contained in the Rule 1-, which specifically provides for the circumstances under v,/hich the DIN could be cancelled or deactivated. 31. ln that view of the matter, the Court is of the apilion that the action of the respondents in deactivating the DIAi of the petitioners - Directors along with the pubtication of the i,npugned list of Directors of \"struck off\" companies under Sec.ion 249, also was not legally tenable. Of courset as per Rule ,2 of the said Rules, the individual who has been allotted the DlN, in the event of any change inhis particulars stated in Form D,R -3 has to intimate such change to the Central Government within the prescribed time in Form DIR-6, however, if that is not done, the DIN could not be cancelled or deactivated. The cancellation or deactivation of the DIN could be resorted to by the ccncerned l9 30. Learned Assistant Solicitor General appearing for respondents had contended that Section 4O3 (2) of the Act provides that \"where a company fails or commits any default to submit, file' register, or record any document, fact or information under sub- section (1) before'the expiry of the perlod specified in the relevant section, the company and the officers of the company who are in default, shall without prejudice to the liability for the payment of fee andadditionalfee,beliableforthepenaltyorpUnishmentprovided under this Act for such failure or default\" and he has further contended that as amendment has come into Sectidn 403 with effect from07-05-20ls,theamendedSectionhasremovedtheprescribed 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.1OO/- per each day of default and which permits the regularizing the delay of the petitioners' Therefore' this Court is not incllned 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 ' 'r:;E:.:!*o only as per the provisions contained /n the sa/d 20 33. For the foregoing reasons, the impugned orders in the writpetitions to the extent of disqualifying tht: 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 ofthepetitioners,enablingthemtofunctionaSDirector!;otherthanin strike off comPanies. 34. It is made clear that this order will no': preclude the 2nd respondent from taking appropriate action in accorcance with law for violations as envisaged under Section L6aQ) of the , ct, giving the said provision prospective effect from OL.04.2014 and for necessary action against DIN in case of violations of Rule 11 of the Rules. a1 Miscellaneous petitions pending if any shall stand closed. JUSTICE ABHINAND KUl4AR SHAVILI Dt.05-08-2021 kvr 35. It is also made clear that if the petitioners are aggrieved by the action of the respondents in stri