Sunil Poondla and another V. Union of India and another

WP/2675/2021

AI Insights

The case involves a challenge to the disqualification of directors and the deactivation of their DINs by the Registrar of Companies, invoking Section 164(2)(a) of the Companies Act, 2013. The petitioners argued that their disqualification was arbitrary and violated principles of natural justice, as it was based on defaults occurring before the enactment of the relevant provision of the Companies Act, 2013, which came into force on April 1, 2014. The court examined whether the disqualification could be applied retrospectively and found that it could not, aligning with the principles of prospective application of law and the specific circular issued by the Ministry of Corporate Affairs. The court also addressed the issue of whether prior notice was necessary before disqualification, concluding that the statutory provision did not require it.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 677452 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 08-02-2021
• 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 vs. Union of India
• Laws Referred To: Companies Act, 2013, Constitution of India
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: NAMAVARAPU RAO
• Assessee Lawyers: VANGA ANITA
• Keywords: Director Identification Number (DIN); Disqualification of Directors; Natural Justice; Retrospective effect; Writ of Mandamus
• Section: 151 CPC; 164(2)(a)

Judgement Text

"HIGH COURT FOR ^;,]v5 JJfJ: noF TE LANGANA ( s p e c i a r o.i g in_ai..ir\".f, Ii \" ti o n 1 l 4ol?tY THE EIGHTH DAY oF FEBRUARV r A o rHsu54No q,,Jo rwE r;ti,\"a\", rHE HoNouRABLE sRr .,,iSr:3EX!r,NAND KUMAR sHAVrLr Be twee n: WRIT PETITION NO: 2675 0F 2021 1 F1{l,!F\"',i,U-i1,$rF:r#i,r!?::sti j,;,\".li,.ea.as^r:pation:.Busness nattkl prasuna, D/o Venkat: s ; s, *., - ni; iii sl \"p [1''r.r I :B! \" f, ff , r^1\" [3] -i Aqi\" \"z il:Tli, r?.*ffi ffi \"- AND ...PET|T|oNERS Unron of lndia. Rep bv its Secrelary, l ,4inistry of Corporate Affairs. Shastry P!?uSn Dr. Ralendra prasao tVar{. rue* o6t[i vv vv a. lne HeQistrar, Office of Ren;straT di Companies ROC. 2no Floor. Corporate !!B;BA't\"r, Centrat wate-r d\";r.J. Gsi\"pb;i eun\"oius'rou, Nagote. Hyderabad 2 2 ...RESPONDENTS Petitron under Adicre 226 0f the constitut on of rndia praying that in the crrcumstances stated rn the aff cavit firec there,ith the High court may be p eased lo ssue any appropnate wr l, order or drrect cn moTe par1lcular y n the nature of a v!/rit of IVandamus declar ng the act on of the Respondents rn drsquarifying the per t oners invok ng Seciron '1 64(2) (a) as arb lrary r egal. contrary to the pr ncrples of natura rust ce rn v olation ol the prcvrslons cf lhe companres Act, 20.1 3 and n contrave ntron of the rights guaranteec under Artic e 14 and Anic e '1 g (1)of the constrtution of lnda and consequently direct the Respondents to restore the DIN Nos. 035269'1 6 anc 03526956 of the Pet tioners 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 Respondents to restore the DlNs of the Petitioners DIN Nos. 03526916 and 03526956 so as to enable the Petitioners to continue as Directors of the Company and/or get appoint or reappointed as Directors of any Company and to submit pending annual returns and financial statements of the Company in which they are Directors pending disposal of the Writ Petition Counsel for the Petitioner : M/s VANGA ANITA Counsel for the Respondents : SRI NAMAVARAPU RAJESHWAR RAO ASSISTANT SOLICITOR GENERAL 1. IA NO: 1 OF 2021 The Court made the following: ORDER THE HON'BLE SRI JUSTICE ABHINAND KUMAR SHAVILI T1'rrs rl rit petitlon is beir-rg dislloscci ol :rl ti-le rldmissioll stage u'ith the consent of le:rrned counsel lor tlle respectrr c ORDER: parties This writ petition is filed seeking the following relief: \"...- to issue any appropriate writ order or direction' more particularly, in the nature of a Writ of Mandamus declaring the action of the Respondents in disqualifying the Petitioners invoking Section 164 (2)(a) as arbitrary, illegal, contrary to the principles of natural justice, in violation of the provisions of the Companies Act 2013 and it-' conravention of the rights guaranteed under Article 14 and Article 19 (l) of the Constitlltion ol lndia, and conseclttentlr' dircct the Responclents to restore the DIN Nos'035269 I (> and The petitioners challenge their di squalification from Directorship under Section rcaQ) of the Companies Act, 2OI3, for the alleged default in filing financial statement/Annual Returns, and consequently seek restoration of their Director Identification Numbers (DIN) Nos.03526916 and 03526956, respectively' 03526956 ol thc Pcritior-tci-s ancL pass stich other orclel or orclers . ' WRIT PETITION No'2675 of 2O2l Learncd colrr-rscl for tite petitionel-s submits that the issue raised in the present Writ Petition is squarelv coverecl br the commolr order dated I8.07.20 19 in W.P.No .5422 ol 20I8 and batch, Learned Standing Counsel for the 2nd respondent - Registrar of Companies does not dispute the aforesaid submission. Operative portion of the a-foresaid order reads as under: \"For the foregoing reasons' the impugned orders rn the writ petitions to the extent of disqualifying the petitioners under Section 16a(2)(a) of the Act and cleactivation of their DlNs, are set aside, and the 2'd respondent is directed to activate the DINS of the petitioners, cnabling them to lunctiol.t as Directors other than in strikc o[[ comP;tnres It is r.r.iaclc clci'lr tllilt tllis orclcr 1ll not prcclucle the I I t a S llr)r-'t [],- tt l accordat.rcr: q-itl.t Sectiot.t L h'+ (2) prospcctlYc c flect Act ilor.lt taking ;rl)l)ropr]'ltc :lclloll lll li v ior I tolattous :is cttVLsagcd unclcr ol llr,r . cl. gtr lltt thc saltl pr'''r tsiott ftorn Ll l.u+.2U l'1 'ulrl for ttcccssalr 'tt tiott against DIN iu case oI violations of Rule 1 I of the RLlles It is also made clear that if the petitioners a-re aggrieved by the acdon of the respondents in striking off their companies under Section 248 of the Act' they are at liberty to avail a-lternative remedy under Section 252 of the All the wrtt petitions are accordi'ngly aliowed to the extent indicated above \" To ln vieu, of the said order dated 18.07.2019 and for the reasons recorded therein, this Writ Pctitiorr is also allou ed in terms thereof, No order as lo costs Pending miscellaneous pe tirions, if zurr., sl-rall stanrl closed .D/'K'AMMAJ' ASSISTANT REGISTRAR ,TRUE COPY/I EA SECTION OFFICER l.Thesecretary,Unionoftndia,MlniqtryofCorporateAffairs,ShastryBhavan' Dr.Raiendra Prasad Marg, New Delhi. z ir,,\"'nt\"iiii;. offdt;i fl;;iiii.ioi Corprnies, Roc. 2\"d Floor, corporate - B;;';;;:N;ri'Cdnitrt w\"t,ri'Board, GST Post, Bandlaguda Nagole. Hvderabad - 500068. 3. One CC to M/s. Vanga Anita, Advocate [OPU] 4. One CC to Sri Namavarapu Rajeshwar Rao, Assistant Solicitor General IoPUC] 5. Two CD Copies (along with ihe copy of the order dated 1810712019 in WP No.5422 of 20'18 and batch ) K] >u-- I HIGH COURT DATED:0810212021 ORDER WP.No.2675 ot 2021 ALLOWING THE WRIT PETITION WITHOUT COSTS. L{ 7 19 FrB 2021 t4: E Sr4 1H o .L ( a .J T q, t? 2 THE HON'BLE SRI JUSTICE A,RAJASHEKER REDDY W.P.NOs,5422, 121a4. L3520. t37A3. 13455. 14155 24051.3()993. AND 40953 0F 2018.5547. 5582. 5669. 5687, 5785,6047. 6087. 6L4o.. 64A4, 6753. 6A58. 695a, 6981, 7001, 700A, 70L4, 7046, 7069, 223 858 9361 94 8 956 t4409 14s82 AN 14597 0F 2019 Since, the issue involved ln all the writ petitions ls 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 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 apprication 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 compantes' 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 $aQ) of the Act' disqualifying them as directors, and further making them ineligible to be re-appointed as directors of that company, or any other company, for a period of five years from the date on which the respective companies failed to do so' The Director Identification Numbers (DINs) of the petitioners were also deactivated' Aggrieved by the same' the present writ petitions have been filed' 7 07 3, 7 tos. 7 432. 7 454, 7 57 2, 7 595, 7 7 32, 7 7 65. 7 7 68. 7 a24. 7 e7 a. 9726,9737. 10058. 10099, 11208. 11223. 11239. 11263. 11889. ,-l-991-, L20LA. L2036. 12040. t2069. l2t0a. 12t44. t2ta6. L2194. t22c0, 12209, L2215, 12217, L2243, L2260, 12262, 122a8, L2342. t2350, t24t7. L2432. 12472. L249A. L2506. L2s74' L2598. 1262r, 12702. 12735, L2740, t2A4s, r2a50, L2A65. 1-2A66, t30t3. L36ta' t3730, 13749, 13779, L37Aa. 13839.13A55, 13A78. L3912. 139L7. 13945, L4lOt, t4L74, L4207. t43so, t4361. L4390' L4392. 14397' COMMON ORDER I 4. This court granted interim orders in the writ petitions directing the 2\"0 respondent to activate DiNs of the petitioners, to enable them to function other than in strike off companies. 5. Heard the learned counsel appearing for the petitioners in all the writ petitions, sri K.Lakshman, learned Assistant solicitor General appearing for the respondents - Union of India. 6. Learned counsel for the petitioners, contend that before passing the impugned order, notices have not been issued, giving them opportunity, and this amounts to vioration of principres of naturar justice, and on this ground alone, the impugned orders are liable to be set aside. 7. Learned counsel submits that Section 16a(2)(a) of the Act empowers the authority to disquaJify a person to be a director, provided he has not fired financial statements or annuar returns of the company to which he is director, for any continuous period of three financiar years. Learned counser further submits that this provision came into rorce with effect from 7.4.2074, and prior thereto i,e., under Section 27ae)@) of the Companies Act, 1956 (1 of 1956), which is the analogous provision, there was no such requirement for the directors of the private companies. They contend that this provision under Act 1g of 2013, will have prospective operation and hence, if the directors of company fail to comply with the requirements mentioned in the said provision subsequent to the said date, the authority under the Act' is within its jurisdiction to disquarify them. But in the present cases, the 2nd respondent, taking the period prior to t.4,2014,i.e., giving the provision retrospective effect, disquarified the petitioners as directors, which is illegal and a rbitra ry. 8. With regard to deactivation of DiNs, learned counsel for the petitioners submit that the DINs, as contemplated under Rule 2(d) of ttre Companies (Appo jntment and Qualification of Directors), Rules, 2014 (for short 'the Rules), are granted for Iife 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 1't respondent Government of Ind ia rep rese nted scheme dated 29.12 by the Ministry of Corporate Affairs, has floated a wherein the directors, whose DINs have been Delay Scheme - 2018, 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 which are carrying on the business' can approach the companies, which have no business' cannot approach the Tribunal for restoration' They submlt that since the penal provision is glven retrosPective oPeration, de hors the above scheme, they are entitled to Constitution of invoke the jurisdiction of this court under Article 226 of the India. lO.Withtheabovecontentions,learnedcounselSoughttosetaside the lmpugned orders and to allow the writ petitions' 11. On the other hand lea rned Assistant Solicitor General submits that 2Ol7 viz., Condonation of the comPanles, Tribunal and the failure to file financial statements or annual returns for any continuous period + of three financial years, automatically entail their disqualification under Section 164(2)(a) of the Act and the statute does not provide for issuance of any notice. Hence, the petitioners, who have failed to comply with the statutory requirement under Section 164 of the Act, cannot complain of violation of principles of natural justice, as it is a deeming provision. Learned counsel further submits that the petitioners have alternative remedy of appeal under Section 252 of the Act, and hence writ petitions may not be entertained. 12. To consider the contention of the rearned Assistant Soricitor General with regard to arternative remedy of appear under section 252 of the Act, the said provision is required to be considered, and the same rs extracted as under for better appreciation: 252. Appeal to Tribuna l: (t) Any person aoon,eved by.an o,der of the Regrst.ar, not,tyrng a company as drssolved unoer Sectioi)qg, may frle an appeal to ,nE ri,trnur withjn a perod of three vears from the date or tne oroer_oi ih-e-i\"gltii\",- ,\",i ir the Tribunal is of the opinion that the removal of the. name of the complny iro. Ina r-\"g,rt\"r. of companies is not justified in view of the uur\"n.\" or-unv ii i',\" 6-riloi \"\" which the order was :\"\"rff:,tJr:h:::[,J,.r ,, mav order .\"'toiution oi ir,lia\"iJ or tne .o,punv-in'ii,\" . provided that before pascing.an order under this section, the Tribunal shall grve a reasonabte opDortunirv of miking ,\"piui\"ntutionJ jii ot u\"ing heard to the Registrar, the company and ait the p\".ro-ns conie.nJj',\"\"\" \"\"\" provided further ,h*\"]1,!h.: Registrar is satisfied, rhat the name of the company has been struck off from th\" ,Jgot\", ,ji .#pr\"iJr.\"itner inadverten y or on basrs of incorrect information furnisheld Uv tnu .o,iprnv or rts directors, which ;:#ff:\"fr1T:\":fl,1,,1;.;,\"f ,\"S, or .o,piii\",, #,1, i,in,\" a period or three ,n,-d;';\"';;;::,:;,8:;ii: :1\". \".;,-,0,\"j .,::i1ff1\",i;,:\"#l\"ll;Js:.\"?\":|l; (2) A copy of the order #u.:,4:tr;til.-l.[jld\"{\"\",:'fi i,, l:\";t: :?ii.J3l::: :lT #.H ;:T?i;l regrster of companies uno,nu,,tL-11\"-111: of t.!.\" companv to oe restore!-in'inJ rssue a rresl- certiltcate of rncorporat,on. (3) IF a company, or deeneved by rhe company ;r:,1t\" T:'3::\"\"'.:::9-t\"1.:l'. worker thereor reers :: T,\"1i :'J\", 1\"\" ; i I il : :1,?l ; ;i .:, ;;; ;:; ;,',\",'\"T.;;, j ;\"\": ,,,J;, :::,.',,\"\";, : j bazeue of rne notice ,r0.. ,,\"J l:;lj: I:?':,n.\":. t h-e puir,catron rn the ofi,c,ar company was, at rhe t -\" \"r tr\"\"#\"\";\",t\"; ;ir::t:';:.::.? \"[ ::,,;::**\": j!: operation or otherwrse rt rs lr