Venkateshwar Rao Suryaneni V. Union of India

WP/22816/2020

AI Insights

The case involves Venkateshwar Rao Suryaneni and Lakshmi Suryaneni, who were directors of private companies registered under the Companies Act, 2013. They faced disqualification and deactivation of their DINs due to alleged defaults in filing financial statements and annual returns for three consecutive years, as per Section 164(2)(a) of the Companies Act, 2013. The petitioners challenged the disqualification and DIN deactivation, arguing that the action was retrospective and violated principles of natural justice. The court examined whether the disqualification could be applied retrospectively and whether the DINs could be deactivated based on the grounds cited.

• Counselvise Citation: [2020] 140 COUNSELVISE.COM (IT) 677385 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 15-12-2020
• Assessment Year: misc
• Other Referred Cases: COMMISSIONER OF INCOME TAX (CENTRAL) v. VATIKA TOWNSHIP PRIVATE LIMITED, YASHODHARA SHROFF vs. UNION OF INDIA, GAURANG BALVANTLAL SHAH S/O BALVANTLAL SHAH vs. UNION OF INDIA, BHAGAVAN DAS DHANANJAYA DAS vs. UNION OF INDIA
• Laws Referred To: Companies Act, 2013, Companies (Appointment and Qualification of Directors) Rules, 2014, Constitution of India
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: NAMAVARAPU RAO
• Assessee Lawyers: MARIPATI VISWARAJ
• Keywords: DIN Deactivation; Director disqualification; Natural justice violation; Writ of Mandamus
• Section: 248; 252; 164(2)(a)

Judgement Text

"HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD (Special Original J urisdiction) TUESDAY, THE FIFTEENTH DAY OF DECET IBER TWO THOUSAND AND TWENTY PRESENT THE HON'BLE SRI JUSTICE CHALLA KODANDA RAM wRtT PET|T|ON NO. 22816 0F 2020 Betwee n AND I 2 1. Venkateshwar Rao Suryanenj, DIN No: - 03050426, S/o.Suryanenl Madhava Rao, Aged about 52 years, Occ: Business, Rlo. 1-211A, Burgapet, Venkalapur Mandal, Laxmidevipeta, Warangal - 506345. 2, Lakshmi Suryaneni, DIN No:- 03050480, W/o. Venkateshwar Rao Suryaneni, Aged about 44 years, Occ: Business, Rlo. 1-211A, Burgapet, Venkalapur l rlandal, Laxmidevipeta, Warangal - 506345. ...PETITIONERS Union of lndia, l /linistry of Corporate Affairs, 'A' Wing, Shastri Bhawan, Rajendra Prasad Road, New Delhi - 'l 10001, Rep. by its Secretary The Registrar of Companies (ROC), at Hyderabad, For the State of Telangana, 2\"\" Floor, Corporate Bhawan, GSI Post, Nagole, Bandlaguda Hyderebad, Telangana - 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 of Mandamus, or any other appropriate writ, order or direction, declaring the action of the Respondents in deactivating the DIN numbers of the Petitioners i,e. Petitioner No.1 VENKATESHWAR RAO SURYANENI, DIN No. 03050426 and Petitioner No.2 LAKSHIII SURYANENI. DIN No.03050480 and making him disqualified as a Directors, as illegal, arbitrary, without jurisdiction, contrary to the provisions of the Companies Act, 2013 and Rule 1 1 of the Companies (Appointment Directors) Rules, 2014, violation of the principles of natural .justices besides violating the petitioner's rights guaranteed under Article 14 and Article 19 (1) (g) of the Constitution of lndia. lA NO: 1 OF 2020 Petition under Section '1 51 CPC praying that in the circumstances stated in the affidavit filed in support of the petition, the High Court may be pleased to grant interim direction directing the respondents to restore the DIN number of petitioners i.e. Petitioner No.1 VENKATESHWAR RAO SURYANENI, DIN No. 03050426 and Petitioner No.2 LAKSHit/l SURYANENI, DIN No.03050480, so as to enable the petitioners to discharge the functions as a Director in other companies, to incorporate new companies under the Companies Act, 2013 and to get appoint as a Director in other companies including putting a digital signature, pending disposal of the above writ petition. Counsel for the Petitioner: SRI MARIPATI MAHARSHI VISWARAJ Counsel for the Respondents: SRI NAMAVARAPU RAJESHWAR RAO, ASSISTANT SOLICITOR GENERAL The Court made the following: ORDER THE HON'BLE SRI JUSTICE CHALLA KODANDA RAM WRIT PETITION No. 22816 of 2O2O ORDER: The petitioners challenge their disqualilication from Directorship under Section l6aQ) of lhe Companies Act, 2013, for the alleged default in liling financial statement/ Annual Returns, and consequently seek restoration of their Director Identification Numbers (DlN) viz., 03050426 and 03050480 respectively. Learned counsel lor the petitioners submits that the issue raised in the present Writ Petition is squarely covered by the common order dated 18.07.2019 irr W.P.No.5422 of 2O18 and batch. I-earned Assistant Soljcitor General appearing for the 2\"d respondent - Registrar of Companres does not dispute the aforesaid submrssion, Operative portion ol the aforesaid order reads as under \"For the forcgoing leasons, the impugned orders in the writ petitions to the cxtent of disqualifying the petitioners under Section L64l2lla) of the Act and deactivation of their DINs, are set aside, and the 2.d tespondent is directed to activate the DINS of the petitioners, enabling them to fuaction as Directots other than in strike off companies, It is made clear that this order will not preclude the 2\"d respondent from taking appropriate action in accordarce with law for violations as envisaged under Section L64l2l ol the Act, giving the said provision prospective effect from OL,O4,2O14 and for necessary action against DIN in case of violations of Rule L 1 of the Rules. 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 To, r/P 1. The Secretary, Union of lndla, tVinistry of Corporate Affairs, A Wing, Shastri Bhawan, Rajendra Prasad Road, New Delhi - I 10001 . 2. The Registrar of Companies (ROC), at Hyderabad, For the State of Telangana, 2nd Floor, Corporate Bhawan, GSI Post, Nagole, Bandlaguda Hyderabad, Telangana - 500068 3. One CC to Sri Maripati Maharshi Viswaraj, Advocate IOPUC] 4. One CC to Sri Namavarapu Rajeshwar Rao, Assistant Solicitor General (OPUC) 5. Two CD Copies. liberty to avail alternative remedy under Section 252 of t}re Act. All the writ Petitions are accordingly allowed to the extent indicated above.\" In view of the said Order dated l8.O7 .2OI9 and for the reasons recorded tl-rerein, this Writ Petition is also allowed in terms thereof. No costs. Miscellaneous Pelitions, il any pending, shall stand closed, SD/.CH.VE N KATESWARU LU ASSISTANT REGI R //TRUE COPY' SECTI OFFICER (Along with a Copy of the Common Order dated 18.07.2019 in W.P.No.5422 of 2018 and batch) HIGH CICURT DATED:1511212020 ORDER WP.No.22816 of 2020 ALLOWING THE WRIT PETITION WITHOUT COS S :i il J t d )t 24 DECWf, o o z * * o IHE SI4 r:^pArai: (,1 , k^, THE HON'BLE SRI JUSTICE A.RAJASHEKER REDDY W.P.NOs.5422. 12184, 13520. 13783. 138s5. 14166. 24051. 30993. AND 409s3 0F 2018. 5s47. ss82. 5669. 5687. 5785. 6047.6087. 6L40. 64a4, 67s3. 6454. 69s4. 694L. 700L. 7004. 70t4. 7046, 7069. 7073. 7LOs. 7432. 7454, 7572. 7595. 7732. 776s. 776a. 7a24. 797A. 8111. 8223. 8586. 8590. 9333. 9340. 9381. 9468. 9s63. 9584. 9623. 9726,9737. toosa. tOO99. Lt20A, LL223, LL239. 1L263, ttBag. LL99L. t20t8. !2036. L2040. 12069. 72LOA. L2144. t2ta6. L2194. 12200. 122()9. t22L5. 12217. L2243. L2260. 12262. 1228A. L2342. ,2?EO- 1)417- 1)44)- 1)4'r).1)40R- 125()6- 1) 'r4 1ra,OR, 1)A)1 12702. L2735. L2740, t2845. 12850. L2865. 12A66. L30t3. t36LA. t3730. L3749. L3779. t37Aa. 13439. t3a5s. L3a7A. L39L2, t3917. L3945. I4LOL. 14174. L4207.14350. 14361. L4390. 14392. L4397. 14409. 14582 AND 14597 0F 2019 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 164(2) 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. 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 4. This court granted interim orders in the writ petitions directing the 2n'r respondent to activate DINs of the petitioners, to enable them to function otlrer than in strike off companies. 5. Heard the learned counsel appearing for the petitioners in all the writ petitions, Sri K.Lakshman, learned Assistant Solicitor General appearing for the respondents - Union of India. 6. Learned counsel for the petitioners, contend that before passing the impugned order, notices have not been issued, giving them opportunity, and this amounts to violation of principles of natural justice, and on this ground alone, the impugned orders are liable to be set aside. 7. Learned counsel submits that Section 164(2)(a) of the Act empowers the authority to disqualify a person to be a director, provided he has not filed financial statements or annual returns of the company to which he is director, for any continuous period of three financial years. Learned counsel further submits that this provision came into force with effect from 7.4.2014, and prior thereto i.e., under Section 27a(L)(g) of the Companies Act, 1956 (1 of 1956), which is the analogous provision, there was no such requirement for the directors of the private companies. They contend that this provision under Act 18 of 2013, will have prospective operation and hence, if the directors of company fail to comply 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 2'd respondent, taking the period prior to 7.4.2074, i.e., giving the provision retrospective effect, disqualified the petitioners as directors, which is illegal and arbitrary. 8. With regard to deactivation of DINs, learned counsel for the petitioners submit that the DINs, as contemplated under Rule 2(d) of the Companies (Appointment and Qualification of Directors), Rules, 2014 (for short'the Rules), are granted for life time to the applicants under Rule 10(6) of the said Rules, and cancellation of the DIN can be made only for the grounds mentioned in clauses (a) to (f) under Rule 11 of the Rules, and the said grounds does not provide for deactivation for having become ineligible for appointment as Directors of the company under Section 164 of the Act. Learned counsel fufther 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 Ministry of Corporate Affairs, has floated a scheme dated 29.t2.2077 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 2a8(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 I nd ia. 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 flle financial statements or annual returns for any continuous period .1 of three financial years, automatically entail their disqualification under Section 16a(2)(a) of the Act and the statute does not provide for issuance of any notice. Hence, the petitioners, who have failed to comply with the statutory requirement under Section 164 of the Act, cannot complain of violation of principles of natural justice, as it is a deeming provision. Learned counsel further submits that the petitioners have alternative remedy of appeal under Section 252 of the Act, and hence writ petitions may not be entertained. 12, To consider the contention of the learned Assistant Solicitor General with regard to alternative remedy of appeal under Section 252 ofthe Act, the said provision is required to be considered, and the same is extracted as under for better appreciation: 252. Appeal to Tribunal (1) Any person aggrieved by an order of the Registrar, notifying a company as dissolved under Section 248, may file an appeal to the Tribunal within a period of three years from the date of the order of the 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 justified in view of the absence of any of the grounds on which the order was passed by the Registrar, it may order restoration of the name of the company in the register of com panies; Provided that before passing an order under this section, the Tribunal shall give a reasonable opportunity of making representations and of being heard to the Registrar, the company and all the persons concerned: Provided further that if the Registrar is satisfied, that the name of the company has been struck off from the register of companies either inadveftently or on basis of ancorrect information furnished by the company or its directors, which requires restoration in the register of companies, he may within a period of three years from the date of passing of the order dissolving the company under Section 248, file an application before the Tribunal seeking restoration of name of such com pany. (2) A copy of the order passed by the Trillunal shall b€ filed by the company with the Registrar within thirty days from the date of the order and on receipt of the order, the Registrar shall cause the name of the company to be restored in the register of companies and shall issue a fresh certificate of incorporation, (3) If a company, or any member or creditor or worker thereof feels aggrieved by the company having its name struck off from the register of companies, the Tribunal or an application made by the company, member, creditor or workman before the expiry of twenty years from the publication in the Official Gazette of the notice under sub-section (5) of Section 248, if satisfied that the company was, at the time of ats name being struck off, carrying on business or in operation or otherwise it is just that the name of the company be restored to the register of companies, order the name of the company to be restored to the register of companies, and the Tribunal may, by the order, give such other directions and make such provisions as deemed just for placing the company and all other persons ln the same position as nearly as may be as if the name of the company has not been struck off from the register of companies. ) A reading of above provision goes to show that if the company is dissolved under Section 248 of the Act, any person aggrieved by the same, can file an appeal. Thus the said provision provides the forum for redressal against the dissolution and striking off the company from the register of companies. It does not deal with the disqualification of the directors, and deactivation of their DINs. In the present case, the petitioners are only aggrieved by their d isq ua lification as directors and deactivation of DINs, but not about striking off companies as such. Hence, Section 252 of the Act, cannot be an alternative remedy for seeking that relief, and the contention of the learned Assistant Solicitor General, in this regard, merits for rejection. 13. Under Section 164(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 2073, came into force with effect from O1.04.2074, and the petitioners are disqualified as directors under the said provision. At this stage, the issue that arises for consideration is - whether the disqualification envisaged under Section 164(2)(a) of the Act, which provision came into force with effect from 01.04.2074, 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, whlch clarifies the applicability of the relevant financial years. The relevant portion of the said circular is as under: \"A number of provisions of the Companies Act, 2013 including those relating to maintenance of books of account, preparation, adoption and fjling 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 lst April, 2014. Provisions of Schedule II (useful lives to compute depreciation) and Schedule uI (format of financial statements) have also been brought into force from that date. The relevant Rules pertaining to these provisions have also been notified, placed on the website of the Ministry and have come into force from the same date. The Ministry has received requests for clarification with regard to the relevant financial years with effect from which such provisions of the new Act reiating to rnajntenance of books of account, preparation, adoption and filing of financial statements (and attachments thereto), auditors report and Board's report will be applicable. Although the position in this behalf is quite clear, to make things absolutely clear it is hereby notified that the financial statements (and documents required to be attached thereto), auditors report and Board's report in respect of financial years that commenced earlier than 1't Aprll shall be governed by the relevant provis ions/sched u les,/ ru les of the Companies Act, 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, auditors report and Board's report in respect of financial years that commenced earlier than 07.04.20L4, shall be governed by the provisions under the Companies Act, 1956 and in respect of financial years commencing on or after 01.04.2014, the provisions of the new Act shall apply. 14. 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 Section 27aQ)@) of Act 1 of 1956. The said provision Lrnder Act 1 of 1956 is extracted as under for ready reference: Section 274(1) A person shall not be capable of being appointed dire:tor of a company, if - (g) such person is already a director of a public company which, - (A) has not filed the annual accounts and annual returns for any continuous three financial years commencang on and after the first day of April, 1999; or (B) Provided that such person shall not be eligible to be appointed as a director of any other public company for a period of five years from the date on which such public company, in which he is a director, failed to file annual accout'tts 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 dlrector of a company and such person is already a director of a public company, which has not filed annual accounts and annual returns for any continuous three financial years commencing on 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 764(2) ot 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 $a(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 I 4inistry of the Corporate Affairs, and he has given the provisions of Act 18 of 2013, retrospective effect, which is impermissible, 7. The Apex Court in COMMISSIONER OF INCOME TAX (CENTRAL).L NEW DELHI v. VATIKA TOWNSHIP PRIVATE LIMITEDL has dealt with the general principles concerning retrospectiv ity. 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, I (2015) l sccl 8 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 Iegislation is not just a series of statements, such as one finds in a work of fiction/non fiction or even in a judgment of a court of law. There is a technique required to draft a legislation as well as to understand a legislation. Former technique is known as legislative drafting and latter one is to be found in the various principles of'Interpretation of Statutes'. Vis-;-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. 28. Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current iaw should govern curre,lt 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 existang law and should not find that his plans lrave been retrospectively upset. This principle of law is known as lex prospicit non respicit : law lool(s forward not backward. As was observed in Phillips vs. Eyre t(1870) LR 6 QB 11, 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 acls ought not to change the character of past transactions carried on upon the faith of the then existing law. 29, The obvrous 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. L.td. [{1994) 1 Ac 486]. Thus, legislations which modified accrued rights or which in'rpose obligations or impose new duties or attach a new disability l'rave to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain a former leqislation. 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 legal posil:ion was conceded by the counsel for the parties. In any case, we shall refer to few judgments containing this dicta, a little later. 30. We would also like to point out, for the sake of completeness, that where a benefit js conferred by a legislation, the rule against a retrospective construction is different. If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators object, tnen the presumption would be that such a legislation, giving it a purposive conslruction, would warrant it to be given a retrospective effect. This exactly is the justification to treat procedural provisions as retrospective. In Government of India & Ors. v. Indian Tobacco Association, [(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 to 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 of l.4aharashtra & Ors., [(2006) 6 SCC 289]. It was held that where a law is enacted for the benefit of community as a whole, even in the absence of a provision the statute may be held to be retrospective in nature. However, we are (slc not) confronted with any such situation here. 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, varlous amendments to the lncome tax Act are discussed amply demonstrating as to which amendments are clarificatory/retrospective in operation and which amendments are prospective. 31. In such cases, retrospectivity is attached to benefit the persons in contradistinction to the provision imposing some burden or liability where the presumption attached towards prospectivity, In the instant case, the proviso added to Section 113 of the Act is not beneficial to the assessee. On the contrarv, it is a provision which is onerous to the assessee. Therefore, in a case like this, ',ve have to proceed with lhe normal rule of presumption against retrospective operation. Thus, the rule against retrospective operation is a fundamental rule of law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act, or arises by necessary and distinct implication. Dogmatically framed, the rule is no more than a presumption, and thus could be displaced by out welghing factors. 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 appljcable to block assessments is made clarificatory and would take effect retrospectively from 1st day of luly, 1995. When jt comes to amendment to Section 113 of the Act, ths very circulaT provides that the said amendment along with the amendments in Section 158-BE, would be prospective i.e., will take effect from 1.6.2002.\" 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 Ministry of Corporation affairs has issued the circular No.08/2014 dated 4.4.2074 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 2\"d respondent / competent authority, has disqualified the petitioners as directors under Section 164(2)(a) of the Act 18 of 2013, by considering the period prior to 01.O4.2074, the same is contrary to the circular, and also contrary to the Iaw laid down by Apex Court in the above referred judgment. 19. If the said provision is given prospective effect, as per the circular dated 4.4.2014 and the law laid down by the Apex Court, as stated in the writ affidavits, the first financial year would be from 01-04-2014 to 31.03.2015 and the second and third years financial years would be for the years ending 31.03.2016 and 31.03.2017. The annual returns and financial statements are to be filed with Registrar of Companies only after the conclusion of the annual general meeting of the company, and as per the first i0 proviso to Section 96(1) of the Act, annual general meeting for the year ending 31.03.2OL7, can be held within six months from the closing of financial year i.e., by 30.09.2017. Further, the time limit for filing annual returns under Section 92$) of the Act, is 60 days from annual general meeting, or the last date on which annual general nleeting ought to have been held with normal fee, and within 270 days with additional fee as per the proviso to Section 403 of the Act. Learned counsel submit that if the said dates are calculated, the last date for filing the annual returns would be 30.Lt.2O17, and the balance sheet was to be filed on 30.10.2017 with normal fee and with additional fee, the last date for filing annual returns is 27.O7 .2018. In other words, the d isq ua lification could get triggered only on or after 27.07.201,8. But the periocl considered by the 2nd respondent in the present writ petitions for clothing the petitioners with d isqua lification, pertains prior to 01.04.20L4. Therefore, when the omission, which is now pointed out, was not envisaged as a ground for disq ua lification prior to 1.4.2OL4, the petitioners cannot be disqualified on the said ground. This analogy is traceable to Article 20(1) of the Constitution of India, which states that \"IUo person shall be convicted of any offence except for violation of a law in force at the time of the commission of the act charged as an offencet nor be subjected to a penatty greater than that which might have been inflicted under the law in force at the time of the commission of the offence\". In vlew of the same, the ground on which the petitioners were disqualified, cannot stand to legal scrutiny, and the same is liable to be set aside. 20. A learned Single Judge of the High Court of Karnataka in YASHODHARA SHROFF vs, UNION OF INDIA2 considering Section 16a(2)(a) of the Act ancl other provisions of the Act, and various judgments, passed an elaborate order and held that the said provision has no retrospective operation. The observations of the learned Judge, pertaining to t w.P.No.529l I of2017 and 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 16a(2)(a) of the Act is not u/tra yirus Article 14 of the Constitution. 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 Artlcle 19(1)(g) ofthe Constitution as it is made in the interest ofgeneral public and a reasonable restriction on the exercise of the said right. The object and purpose of the said provision is to stipulate the consequence of a disqualification on account of the circumstances stated therein and the same is in order to achieve probity, accountability, and transparency in corporate governance. (b) That Artjcle (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-d isqua lificatio n nor post-disqualification and this is not in violation of the principles of natural justice, is not ultra ylres Article 14 of the Constitution. (c) That Section 764(2) of the Act does not have retrospective operation and is therefore, neither unreasonable nor arbitrary, in view of the interpretation placed on the same. (d) (e) Insofar as the private companies are concerned, disqualification on account of the circumstances stated under Section 164(2)(a) of the Act has been brought into force for the first time under the Act and the consequences of disqualification could not have been imposed on directors of private companies by taking into consideration any period prior to 01.04.2014 for the purpose of reckoning continuous period of three financial years under the said provision. The said conclusion is based on the principal drawn by way ofanalogy 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-a-vis directors of private companies. Such a disqualification could visit a director of only a public company under Section 2?4(1)(9) of 1956 Act and never a director of a private company. Such disqualification of the petitioners who are directors of private companies is hence quashed. (f) (g) Consequently, where the disqualification under Section 164(2) of the Act is based on a continuous period of three financial years commencing from 01.04.2014, wherein financial statements or annual returns have not been filed by a public or private company, the directors of such a company stand disqualified and the consequences of the said disqualification 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 SIIAH 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 764(2) of the Act of 2013, which had come into force with effect from 1.4.2014 would have prospective, and not retrospective effect and that the defaults contemplated under Section 164(2)(a) with regard to non-filing of financial statements or r r/Special Civil Application N o.22435 of2017 and batch dated 18.12.2018 t)- annual returns for any continuous period of three financial years would be the default to be counted from the financial year 2OL4-75 only and not 201.3-t4. 22. A learned single Judge of the High Court of tu'ladras in BHAGAVAN DAS DHANANJAYA DAS vs. UNION OF INDIA4 also expressed similar view. The relevant portion is as under: 29. In fine, (a) When the New Act 2013 came into effect from 1.4.2014, the second respondent herein has wrongly given retrospective effect and erroneously disqualified the petitioner - directors from 1.1.2016 itself before the deadline commenced wrongly fixing the first financial year from 1.4.2013 to 31.3.2014. (b) By virtue of the new Section 164(2)(a) of the 2013 Act using the expression'for any continuous period of three financial year\" and in the light of section 2(41) defining \"financial year\" as well as their own General circular No.08/14 dated 4,4.2074, the first financial year would be from 1.4.2074 to 31.3.2015, the second financial year would be from 1.4.2015 to 31.3.2016 and the third financial year would be From 1,.4.2076 to 31.3.2017, whereas the second respondent clearly admitted in paras 15 and 22 of the counter aff idavit that the default of Filing statutory returns for the final years commences from 2OL3-74, 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 proceed ings. 23. in view of the above facts and circumstances and the judgments referred to supra, as the impugned orders in present wr:t petitions dis;qualifylng the petitioners as directors under Section 16aQ)@) 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 under for ready reference: 164. Disqualification for appointment of director: 'tl,'.P.No.25,155 of20l7 trnd batch dated 27.07.2018 13 (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 financial 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 Judge of the High Court of Gujarat at Ahmedabad in Gaurang Balvantlal Shah s/o Balvantlal Shah vs. Union of India (2 supra), after analyzing various provisions of the Act and Rules framed thereunder, and by relying on various judgments of the Apex Court, held that Section l6aQ)@) 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 isq u a lification nor post-d isq ua lificatio n and this is not in violation of the principles of natural justice and hence, is not ultra vftes Article 14 of the Constitution. I concur with the said reasoning. 25. Thus, from the above, it is clear that Section 164(2)(a) of the Act is a deeming provision and the disqualification 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) l! 26. The next grievance of th€) petitioners is with regard to deactivation of their DINs. The contention of the learned counsel for the petitioners is that except for the grounds mentioned under Rule 11 (a) to (f) oi the Rules, the DiNs cannot be cancelled or deactivated, and the violation mentioned under Section 16a(2)(a) of the Act, is not one of the grounds mentioned under clauses (a) to (f) of Rule 11, and hence for the alleged violation under Section 16a(2)(a) of the Act, DIN cannot be cancelled. 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 cancellation or deactivation. Rule 11, which is relevant for the present purpose, is extracted as under for ready reference: 11, Cancellation or surrender or deactivation of DIN: The Central Government or Regional Director (Northern Region), Noida or any officer aJthorized by the Regional Director may, upon being satisfied on verification of particulars or documentary proof attached with the application received from any person, cancel or deactivate the Dlli in case - the DIN is found to be duplicated in respect of the same person provided the data related to both the DIN shall be merged with the validly retained number; the DIN was obtained in a ,r'rongful manner or by fraudulent means; of the death of the concerned individual; the concerned individual has been declared as a person of unsound mind by a competent Court; if the concerned individual has been adjudicated an insolvent; Provided that before cancellation or deactivation of DIN pursuant to clause (b), an opportunity of being heard shall be given to the concerned individual; on an application made in Form DIR-s by the DIN holder to surrender his or her DIN along with declaration that he has never been appointed as director in any company and the said DIN has never been used for filing of any document with any authority, the Central Government may deactivate such DIN; Provided that before deactivation of any DIN in such case, the Central Government shail verify e-records. Explanation: for the purposes of clause (b) - The terms \"wrongful manner\" means if the DIN is obtained on the strength of documents which are not legally valid or incomplete documents are furnished or on suppression of material information or on the basis of wrong certification or by making misleading or false information or by m isreprese ntation; (ii) the term \"fraudulent means\" m€rans if the DIN is obtained with an intent to deceive any other person or any authority including the Central Govern ment, 28. Clauses (a) to (f) of Rule 11. extracted above. provides for the circumstances under which the DIN can be cancellecl or deactivated. The said grounds, are different from the ground envisaged under (b) (c) (d) (e) (0 (i) 15 Section 164(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 ldentification Number under Sectlon 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 prescrabed. 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 Central Government under the said Rules would be valid for the life time of the applicant and shall not be allotted to any other person. 30, Rule 11 provides for cancellation or surrendeT or deactivation of DIN. Accordingly, the Central Government or Regional Director or any authorized officer of Regional Darector may, on being satisfied on verification of particulars of documentary proof attached !/ith an application from any person, cancel or deactivate the DIN on any of the grounds mentioned in Clause (a) to (f) thereof. The said Rule 11 does not contemplate any suo motu powers either with the Central Government or with the authorized officer or Regional Director to cancel or deactivate the DIN allotted to the Director, nor any of the clauses mentioned in the said Rules contemplates cancellation or deactivation of DIN of the Director of the \"struck off company\" or of the Director having become 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 DIN 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 counter to the provisions contained in the Rule 11, which specifically provides for the circumstances under which the DIN could be cancelled or deactivated. 31. In that view of the matter, the Court is of the opinion that the action of the 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 course, as per Rule 12 of the said Rules, the individual who has been allotted the DIN, in the event of any change in his particulars stated in Form DIR -3 has to intimate such change to the Central Government within the prescribed time in Form DIR-6, however, if that is not done, 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. l6 31. For the foregoing reasons, the impugned orders in the writ petitions to the extent of disqualifying the petitioners under Section 16a(2)(a) of the Act and deactivation of their DINs, are set aside, and the 2nd respondent is directed to activate the DINs of the petitioners, enabling them to function as Directors other than in strike off companies. 32. It is nrade clear that this order will not preclude the 2nd respondent from taking appropriate action in accordance with law for violations as envisaged under Section L64(2) ot the Act, giving the said provision prospective effect from 0L.04.2OL4 and for necessary action against DIN in case of violations of Rule 11 of the Rules. 33. It is also made clear that if the petitioners are aggrieved by the action of the respondents in striking off their companies under Section 248 of the Act, they are at liberty to avail alternative remedy under Section 252 of the Act. 35, Interlocutory applications pending, if any, shall stand closed. No order as to costs. A.RAJASHEKER REDDY,J DATE: 18-07-2019 AVS 34. All tl-re writ petitions are accordingly allowed to the extent ind icated a bove. "