Mr.Swaraj Vikas Rao Koppula V. Union of India

WP/10117/2020

AI Insights

The case revolves around the petitioner, Swaraj Vikas Rao Koppula, who challenged the deactivation of his DIN and his disqualification as a director for the period from November 1, 2016, to October 31, 2021. The deactivation and disqualification were imposed due to the non-filing of financial statements and annual returns for three consecutive financial years, as per Section 164(2)(a) of the Companies Act, 2013. The petitioner argued that the action taken was arbitrary, illegal, and violated principles of natural justice, as it was based on a retrospective application of the law. The respondents, including the Union of India and the Ministry of Corporate Affairs, defended the action, citing statutory provisions that allowed for such disqualifications. However, the court found that the provisions were not applicable retrospectively and that the petitioner was not given an opportunity to be heard before the imposition of the penalties.

• Counselvise Citation: [2020] 140 COUNSELVISE.COM (IT) 721830 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 13-07-2020
• Assessment Year: misc
• Other Referred Cases: WP No.5422 of 2018 & batch, Yashodhara Shroff vs. Union of India, Gaurang Balvantlal Shah vs. Union of India, Bhagavan Das Dhananaya Das vs. Union of India
• Laws Referred To: Companies Act, 2013, Companies (Appointment of Directors) Rules, 2014, Constitution of India
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: NAMAVARAPU RAO
• Assessee Lawyers: AJAY BABU MANDADAPU
• Keywords: DIN Deactivation; Disqualification of Directors; Natural Justice; Retrospective effect; Writ of Mandamus
• Section: 151; 226; 248; 252; 164(2)(a)

Judgement Text

"HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD (Special Original Jurisdiction) [/ONDAY, THE THIRTEENTH DAY OF JULY TWO THOUSAND AND TWENTY PRESENT THE HON'BLE SRI JUSTICE A. RAJASHEKER REDDY WRIT PETITION NO: 10117 OF 2020 Between: AND 1 2 ft/r.Swaraj Vikas Rao Koppula, S/o. Sriraja Rao Aged About 37 Years, Occ. Business, Rl/o. H.No-53-2-2215 K.R Puram Polytechnic PO, Vijayawada, Andhra Pradesh lndia - 520001 ...pETrroNER Union of lndia, The Ministry of Corporate Affairs Represented by its Secretary A Wing, ShastriBhawan, Rajendra Prasad Road, New Delhi - 1'10 01 1, The Registrar of Companies, Telangana State, 2 Floor, Corporate Bhawan, GSI Post, Tattianaram, Nagole, Bandlaguda, Hyderabad - 500 068 .RESPONDENTS Petition under Article 226 ol lte 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 proceeding one in the nature of Writ of Mandamus declaring the action of respondents in deactivating the DIN Number 02329346 for the disqualif ication period from 1.11.2016 to 31.10.2021 of the Petrtioner and restricting the petitioners from filing statutory returns, i.e., the annual returns of the companies in which the petitioner is director as arbitrary, illegal, without jurisdiction, contrary of the provisions of the Companies Act, 20 13 and Rule 1 1 of the Companies (Appointment of Directors) Rules, 2014, violation of the principle of natural justice besides violating the petitioner rights guaranteed under Article 1 4 and Article 1 9 (t ) (g) of the Constitution of lndia lA NO: 1 OF 2020 Petition under Section 151 CPC praying that in the circumstances stated in the affidavit filed in support of the petition, the High Court may be pleased to direct the 1st respondent to restore the DIN number 02329346 for the disqualif ication period from 1.11.2016 to 31 .10.2021 of the Petitioner. So as to enable him to submit the annual returns and Financial Statements of the companies in which the petitioner is acting as director Counsel for the Petitioner: SRI AJAY BABU MANDADAPU The Court made the following: ORDER Counsel for Respondents: SRI NAMAVARAPU RAJESHWAR RAO ASSISTANT SOLICITOR GENERAL HON'BLIT SRI JUSTICE A.RAJASHEKER REDDY IV:r:it Petition No.10117 OF 2O2O ORDER: Learned counsel for the petitioner as well as Siri Namavarapu Rajeshr.r'ar Rao, learned Assistant Solicitor General of lndia, appearing for the respondents submits that the lis in this Writ Petition is squarely covered by the Corrmon Orders of this Court in WP No,5422 of 2018 & batch, dated 18.Ct7.2019. In view of the same and for the reasons alike in the Common Order in WP No.5422 of 2018 & batch, dated 18.07.2019, this Writ Petition is also allowed. There shall be no order as to costs. As a sequel thereto, miscellaneous applications, if any, pending in this Wr t Perition, shall stand disposed o l. SD/. M.MANJULA ASSIST, T REGIS R //TRUE COPY// SE:CTION OFFICER To, IVBC 1. The Serretary, L! gn of lndia, The Ministry of Corporate Af ,airs, A Wing, ShastriBhawan, Rajendra Prasad Road, N-ew Delhi - 110 011, 2. The Registrar (,f Companies, Telangana State, 2 Floor, Corporate Bhawan, GSI - Post,_l attianar;rrn, Nagole, Bandlaguda, Hyderabad - 500 (,6g I 9n\" CC to Sri , jay Babu Mandadapu Adv5cate tOpUCl 4. One CC to Sri 'rl Rajeshwar Rao, Assistant Soliiitor Geheral IC)pUCl (Along With a copy of Order dated 18.07.2019 in W.p.No.5422 of 2018 & Batc h) 5. Two CD Copie:; . I{IC;H COURT DATEI): 1310712020 *, ORDER WP.No.'l0tl17 of 2020 ALLOWING THE WRIT PETITION AT THE STAGE OF ADMISSION, WITTIOUT COSTS L$ -rC rC I6 \"s) s\" + + it 1 @ THE HON'BLE SRI JUSTI E A.RA]ASHEKER REDDY W.P.NOs.5422. 12184, 1352O. 13783, 13855. 14166, 24051, 3O993, AND 40953 ()F 2018, 5547, 5582, 5669, 5687. 5785. 6047. 6087, 6t40, 64a4. 6753, 6a54, 6958. 69a1, 700L. 700a, 7014, 7046, 7069, 7073. 7LOs, 7432. 7454. 7572. 7595. 7732, 7765, 7764, 7424. 7974. 8111, 8223. 8s86. 8s90, 9333. 9340, 9381, 9468, 9s63. 9584. 9623. 9726,9737. tOO58. LOO99, t1208. Lt223, L1239. LL263. LL889. t1991. L2()rA, L2036. 12040, L2069, tzroB. 12L44. !2LA6. L2L94. 22 122 1 15 t2 7 2 122 12262 1 2 L2350, 124L7. L2432. 12472. t2494. 12506, 12574. t2594. L262r. L2702. 1273s, 12740. 12445. L2450. 12465. 12466. L3013, L36ta. L3730, t3749.13779. t3788. L3839, 13455, L3878. L39L2. 139t7. L3945. L4LOL, 14L74. L4207.14350. t4361. A4390. 14392. 14397, 14409, 14582 AN 14s97 0F 20!9 COMMON ORDER Since, the issue involved in all the writ petitions is one and the same, they are heard together and are being disposed of by this common order. 2, The petitioners are the directors of the private companies, registered under the Companies Act, 2013 (18 of 2013) (for short'the Act'). Some of the such companies are active, and some of them have been struck off from the register of companies under Section 248(1)( c ) of the Act, for not carrying on any business operation for the specified period mentioned in the said provision, and for not making any application within the specified period, for obtaining the status of a dormant company under Section 455 of the Act. 3. The petitioners, who were directors of the struck off companies, and who are presently directors of active companies, during the relevant period in question, failed to file financial statements or annual returns for a continuous period of three years. Therefore, the 2nd respondent passed the impugned order under Section fiaQ) ot the Act, disqualifying them as directors, and further making them ineligible to be re-appointed as directors of that company, or any other company, for a period of five years from the date on which the respective companies failed to do so. The Director Identiflcation Numbers (DINs) of the petitioners were also deactivated. Aggrieved by the same, the present writ petitions have been filed. ) 4. This court granted interim orders in the writ pelitions directing the 2nd respondent to activate DINs of the petitioners, to enal)le them to function other than in strike off companies. 5. Hearcl the learned counsel appearing for the Fetitloners in all the writ petitions, Sr K.Lakshman, learned Assistant Solicito' General appearing for the respondents - Union of Indla. 6. Learrred 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 _ ustice, and on this ground alone, tre mpugned orders are liable to be set as de. 7. Lea-ned counsel submits that Section 16.1(2)(a) of the Act empowers the lutnority to disqualify a person to be a c irector, provided he has not filed firrancial statements or annual returns of the cc,mpany to which he is director, for any continuous period of three finan:ial years. Learned counsel further submits that this provision came into force with effect from 1.4.2014, and prior thereto i.e., under Section 27a(7)(q) o' the Companies Act, 1956 (1 o1' 1956), which is the analogous provision, there was no such requirement for the directors of the private companies. They contend that this provision u lder Act 18 of 2013, will have prosp( ctive operation and hence, if the directors of company fail to comply wit h the requirements mentioned in the said provision subsequent to the saic da:e, the authority under the Act, is i ithin its jurisdiction to disqualify them. But in the present cases, the 2'd respondent, taking the period prior to 7.4.201,1, i.e., giving the provision retro;pective efFect, disqualified the petitioneri as directors, which is illegal and arbitrary. B. Witl regard to deactivation of DINs, learned counsel for the petitioners sut,nrit that the DINs, as contemplated unrler lule 2(d) of the Companies (Appolntment and Qualification of Director;), 1ules, 2014 (for J 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 against the dissolution of the company under Section 248 of the Act. 9. Learned counsel further submits that 1st respondent - Government of India represented by the lvlinistry of Corporate Affairs, has floated a scheme dated 29.12.2077 viz., Condonation of Delay Scheme - 2018, wherein the directors, whose DINs have been deactivated by the 2\"d respondent, allows the DINs of the Directors to be activated. However, such scheme is not applicable to the companies which are struck off under Section 248(5) of the Act. In case of active companies, they can make application to National Company Law Tribunal under Section 252 of the Act, seeking for restoration, and the Tribunal can order for reactivation of DIN of such directors, whose DIN are deactivated. However, under Section 252 only the companies, which are carrying on the business, can approach the Tribunal and the companies, which have no business, cannot approach the Tribunal for restoration. They submit that since the penal provision is given retrospective operation, de hors the above scheme, they are entitled to invoke the jurisdiction of this court under Article 226 of the Constitution of India. 10. With the above contentions, learned counsel sought to set aside the impugned orders and to allow the writ petitions. 11. On the other hand learned Assistant Solicitor General submits that failure to file financial statements or annual returns for any continuous period .1 of three financial years, automatically entail their disqualification under Section 16a(2)(a), of the Act and the statute does not prcvid€r for issuance of any notice. He rce, the petitioners, who have failed t r comply with the statutory requirement under Section 164 of the Act, canrrot complain of violation of prin(:illes of natural justice, as it is a deeming provision. Learned counsel further submits that the petitioners have alt(:rnaLive remedy of appeal under S3ction 252 of the Act, and hence writ p(rt tions may not be entertained, 12. To consider the contention of the learned Assistant Solicitor General with re(Jard to alternative remedy of appeal unde'Section 252 of the Act, the said provision is required to be considered, and the same is extracted as unler for better appreciation: 252. / f'p :al to Tribunal; (1) Ar) person aggrieved by an order of the Registrar, rotifying a company as dissolved under Section 248, may file an appeal to the Tribunirl within a period of three years frlm ihe 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 companies is not justifiec in ./iew of the absence of any of the grounds on v,hich the order was passed by the Registrar, it may order restoration of the name of the (ompany in the register of corlpanies; Provided that before passing an order under this sectior, the Tribunal shall give a reasonrble opportunity of making representations and of being heard to the Registrar, the con pany and all the persons concerned: Provided further that if the Registrar is satisfied, thar the name of the company has bL.er struck off from the register of companies eitlrer inadvertently or on basis of ircorrect information furnished by the company or its directors, which requires restcration in the register of companies, he may withi r a l)eriod of three years from the date of passing of the order dissolving the com)any under Section 248, file an appl cation before the Tribunal seeking restoratio'r of name of such company. (2) A ccpy of the order passed by the Tribunal shall be filed by the company with the Registrar within thirty days from the date of the order ard orr receipt of the order, the Reg strar shall cause the name oF the company to be restored in the register of cornpanies and shall issue a fresh certificate of incorpcration. (3) If a company, or any member or creditor or !!orke- thereof feels aggrieved by the company having its name struck off from tre register of companies, tf e Tribunal or an application made by the compan,,, m(:mber, creditor or workman l)efo'e the expiry of twenty years from the publication in the Official Gazette of tl'e nrtice under sub-section (5) of Section 248, if satisfied that the company was, at the tlme of its name being struck off, carryinl on business or in operation or ()therwise it is just that the name of the company be festored to the register of cornpanies, order the name of the company to be reslored to the register of companies anC the Tribunal may, by the order, give such (ther directions and make such pr3vis ons as deemed just for placing the company a 1d all other persons in the same llositjon as nearly as may be as if the name of the company has not been struck o'f from the register of companies. 5 A reading of above provision goes to show that if the company is dissolved under Section 248 of the Act, any person aggrieved by the same, can file an appeal. Thus the said provision provides the forum for redressal against the dissolution and striking off the company from the register of companies. It does not deal with the disqualiflcation of the directors, and deactivation of their DINS. In the present case, the petitioners are only aggrieved by their disq ua lification as directors and deactivation of DINs, but not about striking off companies as such. Hence, Section 252 of the Act, cannot be an alternative remedy for seeking that relief, and the contention of the learned Assistant Solicitor General, in this regard, merits for rejection. 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 2013, came into force with effect from 07,O4.2014, and the petitioners are disqualified as directors under the said provision. At this stage, the issue that arises for consideration is - whether the dlsq ua lification envisaged under Section t64(2)(a) of the Act, which provision came into force with effect from 07.O4.2014, can be made applicable with prospective effect, or has to be given retrospective operation? In other words, the issue would be, from which financial year, the default envisaged under Section 16a(2)(a) of the Act, has to be calculated, to hold the 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 u nder: \"A number of provisions of the Companies Act, 2013 including those relating to maintenance of books of account, preparation, adoption and filing of financial statements (and documents required to be attached thereto), Auditors reports and the Board of Directors report (Board's report) have been brought into force with 6 effect from 1't April, 2014. Provisions of Schedule II (usefu iv€rs to compute depreciation) and Schedule UI (format of f,nancial statement;) have also been brought into f()rce from that date. The relevant Rules pertaining to these provisions have also been notified, placed on the website of the Ministry .nd have come into force from the sane date. The Ministry has received requests for clariflcation with regitrd to the relevant financial years with effect from which such provisions of the I)ew Act relating to maintenance oi' books oF account, preparation, adoption and filing of financial statements (en,l attachments thereto), auditors report and Bo,rrd's report will be applicable. A reading of the above circular makes it clear the finarcial statements and the documents required to be attached thereto, auditors. report and Board's report in respect of financial years that commenced earlier than 07.O4.2074, shall be governed by the provisions under the Companies Act, 1956 and in respect of finarcial years commencing on or after 0t.O4.2074, the provisions of the new Act shall apply. L4. At tnis stage it is required to be noticed that the analogous provision to Section 164(2)(a) of the Act 18 of 2013, is lection 27a$)@) ot Act 1 of 1956. The said provision underAct 1of 1956 i; extracted as under for ready refe r<:n ce: Section 274(1) A person shall not be capable of being apfoint(]d director of a company, if - (g) such p,:rson is already a director of a public company which, - (A) has not filed the annual accounts and ann-ral returns for any continuous three flnancial years commencinJ on and after the first day of April, 1999; or (B) A reading of the above provision under Act 1 of 1956, m ake!; it clear that if a person capabl€ of being appointed director of a compan'l and such person is already a director of a public company, which has not ftled annual accounts and annual returns for any continuous three financial y{lars commencing on Although the position in this behalf is quite clear, to make thi )9s Ebsolutely clear it is hereby roiifred that the financial statements (and documonts required to be attached ther3to), auditors report and Board's report in respect of financial years that commenced earlier than 1st April shall be governed by the relevant provisions/scl- e,l u les/ru les of the Companies Act, 1956 and that in respect of financial year:j cornmencing on or after 1st April, 2014, the provi! ions of the new Act shall apply, \" Provided that such person shall not be eligible to be appointed as a director of any other public (:ompany for a period of five years from the date cn which such public company, ln /vhich 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 o1 due date or pay dividend referred to in clause (B) 7 and after the first day of April 1999, shall not be eligible to be appointed as a director of any other public company for a period of five years from the date on which such public company, in which he is a director, failed to file annual accounts and annual returns. So the statutory requirement of filing annual accounts and annual returns, is placed on the directors of a 'public company'. There is no provision under the Act 1of 1956, which places similar obligations on the directors of a 'private company'. Therefore, non- filing of annual accounts and annual returns by the directors of the private company, will not disqualify them as directors under the provisions of Act 1 of 1956. 15. Under Section 76 Q) of the new legislation i.e., Act 18 of 2013, no such distinction between a 'private company' or a 'public company' is made and as per the said provision goes to show that no person who is or has been a director of a'company', fails to file financial statements or annual returns for any continuous period of three financial years, will not be eligible for appointment as a director of a company. As already noted above, the said provision, came into force with efFect from 01.04.2074. 16. Coming to the facts on hand, the 2nd respondent has disqualified the petitioners under Section 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 2nd respondent runs contrary to the circular issued by the IVlinistry of the Corporate Affairs, and he has given the provisions of Act 1B of 2013, retrospective effect, which is impermissible. 17. The Apex Court in COMMISSIONER OF INCOME TAX (CENTRAL)-L NEW DELHI v. VATIKA TOWNSHIP PRIVATE LIMITEDt has dealt with the general principles concerning retrospectivity. The 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, '(zors)r sccr S conceptually i: s a great deal more than an ordinary prose. Tlere is a special peculiarity in the rlode of verbal communication by a legislation. A legislation is not just a series of stirtements, such as one finds in a work of fictioni non fiction or even in a judgment of ir court of law. There is a technique required t ) Jreft a legislation as well as to uncerstand a legislation. Former technique is k lcwn as legislative drafting and l,rt:e one is to be found in the various principles ('f'lnterpretation of Statutes'. Vi:,-a .,is ordinary prose, a legislation differs in its trrovenance, lay-out and features es also in the implication as to its meaning that arisls b)'presumptions as to the intert of the maker thereof. 28. Of thi: various Tules guiding how a legislation has to l)e interpreted, one established ru e is that unless a contrary intention appears, a legislation is presumed not to be int€nlej to have a retrospective operation. The ide. behind the rule is that a current la a should govern current activities. Law passed today cannot apply to the events ol't re past. If we do something today, we do it kr:eping in the law of today and in forc. and not tomorrow's backward adjustment of il. Our belief in the nature of the law is founded on the bed rock that every human being is entitled to arrange his alfeirs by relying on the existing law and should nol find that his plans have been retrospectively upset. This principle of law is known ls lex prospicit non respicit : law looks forward not backward. As was observed ir Phillips vs. Eyre [(1870) LR 6 QB 1], a retrospective legislation is contrary to the general principle that legislatior by which the conduct of mankind is to be regulatlc when introduced for the first time io deal with future acts ought not to change tt e character of past transactions carri(id on upon the faith of the then existing law. 29. The obvious basis ofthe principle against retrospectivit / rs the principle of 'fairness', wh clr must be the basis of every legal rule as wi!s observed in the decision reportec in L'Office Cherifien des Phosphates v. Ylma:;hita-Shinnihon Steamship Cc. Ltj. [{1994) 1 Ac 486]. Thus, legislations whi(h modified accrued rights or whi(h inrpose obligations or impose new duties or attirc:'r a new disability have to be tr:ated as prospective unless the legislative intent i: cleary to give the enactment a retrrspective effect; unless the legislation is for p.rrpor;e of supplying an obvious ornrssion in a former legislation or to explain a forr'reT l39islation. We need not not€ that cornucopia of case law available on the subje(:t because aforesaid legal position c e.rrly emerges from the various decisions and this leqa position was conceded by th€, counsel for the parties. In any case, we shall refer to few judgments coltai ring this dicta, a little later. 30. lve wruld also like to point out, for the sake of completrnes:i, that where a benefit is conferred by a legislation, the rule against a retrospe:tive construction is different. If d ellislation confers a benefit on some persons bul u/ithout inflicting a correspondiner de:riment on some other person or on the public €enerally, and where to confer su:f l)enefit appears to have been the legislator; object, then the presumption would be that such a legislation, giving it a purl)osive construction, would warrant it to be given a retrospective effect. This exactly s th(r justification to treat procedLr.rl lrovisions as retrospective. In Government (f India & Ors. v. Indian Tobacco Association, [(2005) 7 SCC 396], the doctrine of fairness was held to be relevant feclror to construe a statute conferring a benefit, in tfe co\"rtext of it to be given a retr()sfective operation. The same doctrine of fairnirss, to hold that a statute was retrospective in nature, was applied in the case ol Vijay v. State of Maharashtra I Ors., [(2006) 6 SCC 289]. It was held that wht:re a law is enacted for the benelit of community as a whole, even in the absenc(r of a provision the statute may be held to be retrospective in nature. Howeve-, wr-. are (slc not) confronted witf any such situation here. 31. In ;LCl cases, retrospectavity is attached to ben( fit the persons in contradistinction to the provision imposing some burden or liabrlity where the presumption atta.hed towards prospectivity. In the instant cas(:, the proviso added to Sectaon 113 o'the Act is not beneficial to the assessee. On the :ontrary, it is a provision which ij onerous to the assessee. Therefore, in a case like this, we have to proceed v/ith the normal rule of presumption against retrr)spe(:tive operation, Thus, the rule a(tainst retrospective operation is a fundamental rule of law that no statute shall be construed to have a retrospective operation unless such a construction rFpcars very clearly in the terms of the Act, or arisss b),necessary and distinct mpli(ration. Dogmatjcally framed, the rule is no more :han a presumption, and thus could bc displaced by out weighing factors. 43. Ther,: is yet another very interesting piece of eviden(e th3t clarifies that provision beyond any pale of doubt viz,, the understanding of CBDT itself regarding this provision. Il is contained in CBDT Circular No.B of 2002 d;t€rd ,27.8,2002, with the subject \"Finance Act, 2002 - Explanatory Notes on provisi,)n r€lating to Direct Taxes\", This c rcJlar has been issued after the passing of the Finance Act,2002, by which amendmert to section 113 was made. In this circular, ariolts amendments to the Incom3 tax Act are discussed amply demonstrating as to v/hi(:h amendments are clarificat()r,//r etrospective in operation and which amendments arre prospective. 9 For example, Explanation to section 158-BB is stated to be clarificatory in nature. Likewise, it is mentioned that amendments in Section 145 whereby provisions of that section are made applicable to block assessments is made clarificatory and would take effect retrospectively from 1't day of July, 1995. When it comes to amendment to Section 113 of the Act, this very circular provides that the said amendment along with the amendments in Section 158-BE, would be prospective i.e., will take effect from 7.6.2002.\" 18. Thus, the Apex Court in the above judgment, has made it clear that unless a contrary intention appears, a legislation has to be presumed to have prospective effect. A reading of Section 164 of the Act does not show that the legislation has any intention, to make the said provision applicable to past transactions. Further, the Apex Court in the above judgment at paragraph No.43, found that the circular issued by the authority after passing of the legislation, clarifying the position with regard to applicability of the provisions, has to be construed as an important piece of evidence, as it would clarify the provision beyond any pale of doubt. In the present case, as already noted above, the lulinistry of Corporation affairs has issued the circular No.08/2014 dated 4.4.20L4 clarifying that financial statements commencing after 01.04.2014, shall be governed by Act 18 of 2013 i.e., new Act and in respect of financial years commencing earlier to 01.04.2014, shall be governed by Act 1 of 1956. At the cost of repetition, since in the present cases, as the 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 07.O4.2014, 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 circular dated 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 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 l0 proviso to Section 96(1) of the Act, annual general m,:eting for the year ending 31.03.2017, can be held within six months from the closing of financial year i.e./ by 30.O9.2017. Further, the time lirlit l'or filing annual returns under iection 92(4) of the Act, is 60 days from annual general meeting, or ther last date on which annual general me€tinE ought to have been held with normal fee, and within 270 days with addi:ionill fee as per the proviso to Secticn 403 of the Act. Learned counsel submit that if the said dates are calculated, the last date for filing the annuel returns would be 30.77.2017, ard the balance sheet was to be filed cn 30.10.2017 with normal fee and rvil:h additional fee, the last date for filirrg annual returns is 27.07.2078. Irr cther words, the disq ua lification could g:t triggered only on or after 27.O7.21078. But the period considered by the 2'd rerspondent in the present writ petitions for clothing the petitioners r ith disqualification, pertains prior to 01.04.2014. Therefore, when the omi:;siorr, which is now pointed out, was not envisaged as a ground for disquali=ication prior to 1,.4.20L4, the letitioners cannot be disqualified on the said ground. This analogy is traceable to Afticle 20(1) of the Constitution o'India, which states that \"/Vo person shall be convicted of any offence except 'or violation of a law in force at the ti,ne of the commission of the act chargei as an offence, nor be subjected to a p\"ru1r, greater than that which might ha te been inflicted under the law in iorce at the time of the commission of tf'e offence\". In view of the same, the ground on which the petitioners were disqualified, cannot stand tc, legal scrutlny, and the same is liable to be s€t aside. 20. A learned Single Judge of the High CoL rt r)f Karnataka in YASHODHARA SHROFF vs. UNION OF INDIA2 considering Section 16a(2)(a) of the Act and other provisions of the / ct, and various judgments, pas;sed an elaborate order and hetd that the:;aid provision has no retrospective ooeration. The observations of the learned Judge, pertaining to rw.p.No.529u of 20 t7 ud batch dated 12.06.2019 ll private companies, which are relevant for the present purpose, are extracted as under: 208. In view of the aforesaid discussion, I have arrived at the following conclusions: (a) It is held that Section 164(2)(a) of the Act is not u/tra ylrus Article 14 of the Constitutaon. The said provision is not manifestly arbitrary and also does not fall within the scope of the doctrine of proportionality. Neither does the said provision violate Article 19(1)(9) of the Constitution as it is made in the interest of general public and a reasonable restriction on the exercise of the said ri9ht. The object and purpose of the said provision is to stipulate the consequence of a disqualification on account of the circumstances stated therein and the same is in order to achieve probity, accountability/ and transparency in corporate 9OVernance. (b) That Article (slc) Section 164(2) 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, is nol ultra yres 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 takang into consideration any period prior to 01.04.2014 for the purpose of reckoning continuous period of three financial years under the said provision. The said conclusion is based on the principal drawn by way of analogy from Article 20(1) of the Constitution, as at no point of time prior to the enforcement of the Act, a disqualification based on the circumstances under Section 164(2) of the Act was ever envisaged under the 1956 Act vis-i-vis directors of private companies. Such a disqualification could visit a director of only a public company under Section 27aQ)@) of 1956 Act and never a director of a private company. Such disqualification of the petitioners who are directors of private companies as hence quas hed. (f) (9) Consequently, where the disqualification under Section 164(2) ot the Act is based on a continuous period of three flnancial years commencing from 01.04.2014, wherein financial statements or annual returns have not been filed by a public or private company, the directors of such a company stand disqualified and the consequences of the said disqualaficataon would apply to them under the Act. 21. A learned Single of the High Court of Gujarat at Ahmedabad in GAURANG BALVANTLAL SHAH S/O BALVANTLAL SHAH vs. UNION OF INDIA3 expressed similar view as that of the leaned single Judge of High Court of Karnataka (1 supra), and held that Section 76aQ) of the Act of 2013, which had come into force with effect from t.4.2O14 would have prospective, and not retrospective effect and that the defaults contemplated under Section $aQ)@) with regard to non-filing of financial statements or 3 r/Special Civil Application No.22435 of 2017 and batch dated 18.12.2018 12. annual returns fcr any continuous period of three finanr;ial years would be the default to be counted from the financial year 2014-15 only and not 20L3-L4. 22. A learned single Judge of the High Court of Ma lras in BHAGAVAN DAS DHANAN: AYA DAS vs. UNION OF INDIA4 als ) expressed similar view. The releva rt 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 give-r retrospective effect and erroneously disqualified the petitioner - directors from 1.1.2016 ltself before the deadline commen(ed vrongly fixing the f rs,t financial year from 1.4.2013 to 31.3.201 1. (b) Ely virtue oF the new Section 164(2)(a) of tle 2013 Act using the €,xl)ression 'For any continuous period of thr(re financial year\" and i1 lhe light of section 2(41) defininq \"financia )/eer\" as welL as their c)wn General circular No.08/14 dated 4.4.2C71, the first financial y,e,rr would be from 1.4.2074 to 31.3.2015 th(: second financial 1'ear would be from 1.4.2075 to 31.3.2016 irnd the third financial )'e.rr would be from 1.4.2016 to 31.3.2017 'whereas the second respondent clearly admitted in paras 15 and 22 of the counter :rff,davit that the default of filing statutory returns for the final )/e,irs commences from 2Ot3-74, 2Ol4-15 rnd 2015-16 i.e, one 1,ear before the Act 2013 came into force. fhis is the basic incurable legal infirmity that vitiates t re 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 16+(2)(a) of the Act, have been pas;sed considering the period prior to 01.04,:2014, the same cannot be sust.tined, and are liable to be set aside to thal extent. 24. As far as the contention regarding issuance cf prior notice before disqualifying tl-e petitioners as directors is concerned, r;ection 164(2)(a) is required to be noticed, and the same is extracted ls under for ready refe re nce: 164. Disqualification for appointment of director: 'W.P.No.25455 of 2ll7 ind batch dated 27.0't.2OtB l3 (2) No person who is or has been a director of a company which- (a) has not filed financial statements or annual returns for any continuous period of three financial years; or (b) . . . Shall be eligible to be re-appointed as a director 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 disqualification on happening of an event i.e,, if a person who is or has been a director of a company has not filed flnancial statements or annual returns for any continuous period ofthree financial years, shall be ineligible to be re- appointed as a director of that company or appointed in any other company for a period of five years from the date on which the said company fails to do so. The provision does not provide for issuance of any prior notice or hearing. A learned single Judge of the High Court of Karnataka in Yashodara Shroff v. Union of India (1 supra), as well as the learned single ludge of the High Court of Gujarat at Ahmedabad in Gaurang Balvantlal Shah s/o Balvantlal Shah vs. Union of India (2 supra), after analyzing various provisions of the Act and Rules framed thereunder, and by relying on various judgments of the Apex Court, held that Section 164(2)(a) of the Act applies by operation of law on the basis of the circumstances stated therein, the said provision does not envisage any hearing, neither pre-disqualification nor post-d isq ua lification and this is not in violation of the principles of natural justice and hence, is not ultra vires Article 14 of the Constitution. I concur with the said reasoning. 25. Thus, from the above, it is clear that Section 16a(2)(a) of the Act is a deeming provision and the d isq ua lification 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 d isq ua lification even before it incurred, and deactivated DINs, which is illegal arbitrary and against provisions contained in Section 164(2)(a) of the Act. (a) t1 26. The n,-.rt grievance of the petitioners is with regard to deactivatlon of their DINs. l-he contention of the learned counsel f,)r the petitioners is that except for tl.re, grounds mentioned under Rule 11 (a !o (f) of the Rules, the DiNs cann()t [)e cancelled or deactivated, and the v,ol,:tion mentioned under Section 154(2)(a) of the Act. is not one of the grounds mentioned under clauses (a) to (f) of Rule 11, and hence for the all,:gerl violation under Section 16a(2)(a) of the Act, DIN cannot be cancelled. 27. Rule 10 of the Rules provide for allotment of DII'I and under sub rule (6) of Rule 10, it is allotted for life time. Rule 11 provides for cancellation or deactivation. Rule 11, which is relev,rnt for the present purpose, is extracted as under for ready reference: 11. Cancellation or surrender or deactivation of tllN: The Central Government or R,rgional Director (Northern Region), Noida or arry ofiicer authorized by the Regional Director may, upon being satisfied on verificaton of particulars or documentary proof attached with the application received from a ly person, cancel or deactivate the DI ,'J in case - th(r DI is found to be duplicated in respect of the sane Ferson provided th(r da:a related to both the DIN shall be merged with the validly retained nu nber; th(r DII! was obtained in a wrongful manner or by frau l!lent means; of :he jeath of the concerned individual; the cofcerned individual has been declared as a pers)r of unsound mind by a com petent Court; if thc (oncerned individual has been adjudicated an inliolvent; Provided tl^at before cancellation or deactivatjon of DIN pur;uant to clause (b), an opportunity of being heard shall be given to the concerned inc ividLal; on an npplication made in Form DIR-s by the DIN holCer to surrender his or her DIN a or]g with declaration that he has never been app(,inted as director in any company ancl the said DIN has never been used for filing of any document with any author ty the Central Government may deactivate such DIN Provicied that before deactivation of any DIN in sucl ca:,e, the Central Government :ihal verify e-records. Explarirti,rn: forthe purposes ofclause (b) - Thl terms \"wrongful manner\" means if the DIN s obtained on the strength of cocuments which are not legally valid or incompete documents are furnished or on suppression of material information or on :he l)asis of wrong certification or ly making misleading or false information or by n is rep resentation; (ii) the terrn \"f\"audulent means\" means if the DIN is obtained /vith an intent tc deceive any other peTson or any authority incl ldin! the Certral Govern ment. 28. Clauses (a) to (f) of Rule 11, extracted above, provides for the circumstances urder which the DIN can be cancelled o' deactivated. The said grounds aTe different from the ground errvisaged under (b) (c) (d) (e) (f) (i) 15 Section 16a(2)(a) of the Act. ThereFore, for the alleged violation under Section 164 of the Act, DINs cannot be cancelled or deactivated, except in accordance with Rule 11 of the Rules. 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 list? In this regard, it would be appropriate to refer to the relevant provisions 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 obtaining 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 Centra, Government under the said Rules would be valid for the Iife 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 qrounds 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 ineligible under Section 164 of the said Act. The reason appears to be that once an individual, who is intending to be the Director of a particular company is allotted DIN by the Central Government, such OIN would be valid for the life time of the applicant and on the basis of such DIN he could become Director in other companies also. Hence, if one of the companies in which he was Director, is \"struck off\", his DIN could not be cancelled or deactivated as that would run counteT to the provisions contained in the Rule 11, which speciflcally provides for the circumstances under which the DIN could be cancelled or deactivated. 31. In that view ofthe matter, the Court is ofthe opinion that the action ofthe respondents in deactivating the DINS of the petitioners - Directors along with the publication of the impugned list of Directors of \"struck off\" companies under Section 248, also was not legally tenable. Of couTse/ as per Rule 12 of the said Rules, the individual who has been allotted the DIN, in the event of any change in has particulars stated in Form DIR -3 has to intimate such change to the Central Government within the prescribed time in Form DIR-6, however, if that is not done, the DIN could not be cancelled or deactivated. The cancellation or deactivation of the DIN could be resorted to by the concerned respondents only as per the provisions contained in the said Rules.\" 30. 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. t6 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 res;pondent is directed to activate the DIN:; of the petitioners, enabllng them to function as Directors other than in strike off companies. 32. It is made clear that this order will not p-eclude the 2nd respondent from taking appropriate action in accoTcanc3 with law for violations as en'risaged under Section 16aQ) of the Act, giving the said provision prosl)€rctive effect from O1.04.2014 and for necessary action against DIN in r:ase of violations of Rule 11 of the Rules. 33. It is also made clear that if the petitioners are aggrieved by the action of the respondents in striking off their companies under Section 248 of the Act, they are at liberty to avail alternative remedy under Section 252 of the Act. 34. AII lhe writ petitions are accordingly allc wecl to the extent indicated abov(. 35. Interlocutory applications pending, if any, shdll stand closed. No order as to cos1,s. A.RA]ASHEKER REI)DY,J DATE: 18-07--11019 AVS "