VINOD SAKARAM V. Union of India

WP/23830/2020

AI Insights

The case involves a writ petition filed by Vinod Sakaran, Prakash B, and Vatsalatha Thulasi, who were directors of certain private companies. These companies were either active or had been struck off from the register of companies. The petitioners were disqualified as directors and their DINs were deactivated under Section 164(2)(a) of the Companies Act, 2013, due to non-filing of financial statements or annual returns for three consecutive years. The petitioners challenged this action, arguing it was arbitrary, illegal, and violated principles of natural justice and constitutional rights under Articles 14 and 19(1)(g). The court examined whether the disqualification could be applied retrospectively and whether the procedure followed was in accordance with the law.

• Counselvise Citation: [2020] 140 COUNSELVISE.COM (IT) 721686 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 24-12-2020
• Assessment Year: misc
• Other Referred Cases: COMMISSIONER OF INCOME TAX (CENTRAL)-L NEW DELHI v. VATIKA TOWNSHIP PRIVATE LIMITED, YASHODHARA SHROFF v. 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, Constitution of India
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: NAMAVARAPU RAO
• Assessee Lawyers: KANDURI RAJANI
• Keywords: Director Identification Number; Disqualification; Natural Justice; Retrospective operation; Writ petition
• Section: 455; 248(1)(c); 164(2)(a)

Judgement Text

"HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD (Special Original Jurisdiction) THURSDAY, THE TWENTY FOURTH DAY OF DECEIVBER TWO THOUSAND AND TWENTY PRESENT THE HON'BLE SRI JUSTICE ABHINAND KUMAR SHAVILI WRIT PETITION NO: 23830 OF 2020 Between: AND 1 2 vlNoD SAKARAN/, s/o. satyanarayana sakaram Aged about 36 years, R/o. .13-15, sri 9l Nqgqt Uppat, Ranga Reddy Disi, Hyderabad - SOio oOo reiangl\"i.li,Oia. \" ' PRAKASH B, S/o surva Nariyanamurthy Bhamidrpati Aged adout-38 vears. Rro. n. No 1-e-56/A/B Ftat 30i rnori'ritiiei sir\";i N;.i5\"i;rX.rgrr;ito\"\"ir'oli'l sriiiozo, Telangana, lnd ia. yAryl^slLA.TlA THULASI, D/o. venkata Subbaiah rhurasi Aged about 41 vears R/o. 1 1/s60. N/okshasundum Srreet proddatur, KADApA- sr oioo Enorrra F;;1:B[+[?;X,.*, 3 1 Hlig!:!ltO11 |e\"q by its Secretary, Ministry of Corporate Affairs, Shastry Bhavan, Dr. Kajendra prasad Marq., New Delhi 2 The Registrar, _office of Registrar of companies. 2nd Floor, corporate Bhavan, Near Central Water Board, GST Post Bandlaguda, Nagole, tiyOeranaO-- SO0-068-- ' .RESPONDENTS Petition under Article 226 ol the constitution of lndia praying that in the circumstances stated in the affidavit filed therewith, the Hjgh court may be pleased to issue a writ, order or direction more particularly one in the nature of Writ of lVandamus declaring the action of the Respondents in disqualifying the Petitioners tnvoking 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 in contravention of the rights guaranteed under Article 14 and Article 19 (1)(g) of the Constrtution of lndia and consequently direct the Respondents to restore the DIN numbers of petitioners i.e. 1. VINoD sAKARAt / (DlN. 02423026) 2. PRAKASH B (DlN. 03030632) and 3. VATVStLATHA THULAST (DlN 03032343) 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 djrect the respondents to reactive the DIN numbers of Petitioners i.e. 1. VINoD SAKARAtv (DlN. 02423026) 2. PRAKASH B (DlN. 03030632) and 3. VAMSTLATH.A THULAS1 (DtN. 03032343) so as to enable the Petitioners to comply with the statutory requirements in the AADHARANA LAW AND IVANAGEMENT CONSULTANTS PR|VATE L|M|TED bearing CIN No. U93000TG201 0PTC069048 under law pending disposal of the writ petition Counsel for the Petitioners: SMT. KANDURI RAJANI Counsel for Respondents: SRI NAMAVARAPU RAJESHWAR RAO ASSISTANT SOLICITOR GENERAL The Court made the following: ORDER HON'BLE SRIJUSTICE ABHINAND KUMAR SHAVILI W.P.No.23830 of 2020 ORDER When the matter is taken up for hearingl, learned counsel on either side furirly concede that the issue involved in this rvrit petltlon 1S squarclv covered b.v the comrnon order datecl 18.07 .2019 in W.P.No.S 422 of 2018 and batch. Following the order dated 18.07.2019 in W.P.No.5422 of 2018 and batch, this Writ Petition is allowed. No costs. Pending miscellaneous petitions) if any, shall stand closed. To, //TRUE COPY// SECTION OFFICER 1 2 The secretary, Mrnistrv of corporare Affairs, Union of rndia, shastryBhavan, Dr. Rajendra Prasad tVarci., New Delhi r ne Heqistrar. office of Reqrstrar of companies. 2nd Froor. corporate Bhavan, Near Central Waler Board. GST Fosr sindrig;01. irrgliE. ivo\"rabad - 500068 9n\" 99 to Smt. Kandurt Ralani Aovolii\" iOputj\" \"' ' one CC ro Sri N. Raieshwai nao. niJiiia,iiso'iiii,tor cenerar lopUCl Two CD Copies 3 4 A IVBC SD/.M.MANJULA ASSISTANT REGISTRAR - HIGH COURT DATED: 2411212020 ORDER WP.No.23830 of 2020 ,irAt* .i. ALLOWING THE WRIT PETITION WITHOUT COSTS , 1 t05 IAN 2021 * * P,,iTCHE0 o 14 E H s 1 o l W,P.NOs.5422, t2la4, 13520, 13743, 13855, 14L66. 24OSL, 3O993, AND 40953 0F 2018, 5547,55a2,5669, 5687, 57a5,6047,60a7, 6!40, 6444, 67 53, 6458, 695f3. 694L, 7 0()1. 7 008. 7 014. 7 046, 7 069, 7073, 7ros, 7 432. 7454, 7572. 7595, 7732. 7765. 776a. 7a24. 797a. 8111, 8223, 8585. 8590, 9333. 9340, 9381, 9468, 9563, 9584, 9623. o'f 'rR o-r',.-, r nnEQ r nnoo r D A 1't '?? 11??O I t ' 6?r 188q LL99t, L20LA, L2036, L2040, L2069. L2LOA. 12t44, t2ta6, t2L94. 12200, t2209,122t5, 12217, t2243, t2260, 12262, t22aa, t2342. 12350. 12417.12432. 12472. 1249A. 12505. 12574. 12s98. ,-2621. L2702, 12735, L2740, L2A45, 12850, 12865, 12a66. 13013, 13618, L3730. L3749, L3779.13788. r3A39.13A55. t3A7A, L39L2. 139t7, L3945, L4LOL. L4t74, 14207,14350, 14361. t4390, L4392. 14397, L4409, 14582 AND L4597 0F 20L9 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 obtaininq 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 dlrectors 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 dlrectors, 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. THE HON'BLE SRI ]USTICE A,RAJASHEKER REDDY 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 2nd respondent to activate DINs of the petitioners' to enable them to function other than in strike off companies' 5.HeardthelearnedcounselappearingforthepetitionerSinaIlthe 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 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 financlal years Learned counser further submits that thrs provision came into force with effect from r.4.2014, and prior thereto i'e ' under Section 27a1.1r)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 fair to compry with the requirements mentioned in the said provision subsequent to the said date' the authority under the Act, is within its jurisdiction to disqualify them' But in the present cases, the 2nd respondent, taking the period prior to L'4'2014' i'e'' giving the provision retrospective effect' disqualified 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 the Companies (Appointment and Qualification of Directors)' Rules' 2014 (for t 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 1't respondent - Government of India represented by the lYinistry of Corporate Affairs, has floated a scheme daled 29.72.2017 viz., Condonation of Delay Scheme - 2018, wherein the directors, whose DiNs have been deactlvated 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 provis on 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 fallure 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 Sectlon 164 of the Act, cannot complain of violation of principles of naturaljustice, as it ls 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. L2. To consider the contention of the learned Assistant Solicitor General with regard to alternative remedy of appeal under Section 252 of the 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, notifylng a company as dissolved under Section 248, may file an appeal to the Tribunal within a pertod of three years from the date of the order of the Reqistrar 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 reg ister of com pa n ies; Provided that before passlng 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 ail 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 inadverten y or on basis of incorrect information furnished by the company or its directors, which require_s 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 pa ny. (2) A copy 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 and on receipt oi 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 workeT thereof feels aggrleved 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 )48, if satisfied that the company was, at the time of its name being struck off, carrying on business or in operation or otherwise it is just that the nanre of the company be restored to the reqister 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 directioni and make such provisions as de€med just for placing the iompany and all other persons in the same position as nearly as may be as if the name ol. 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 dissorved under Section 248 of the Act, any person aggrieved by the same, can file an appeal. Thus the said provision provides the forum for redressar against the dissolution and striking off the company from the register of companies, It does not dear with the disq ua rification of the directors, and deactivation of their DINs. In the present case, the petitioners are only aggrieved by their disquarificatron 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 rerief, and the contention of the learned Assistant Solicitor General, in this regard, merits for rejection. 13. Under sectron rcae)@) of the Act, if the Director of a company fails to fire financiar statements or annuar returns for any continuous period of three frnancial 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 0L'04'2074, and the petitioners are disquarified as directors under the said provision' At this stage, the issue that arises for consideration is - whether the d isq ua lification envisaged under Section rcae)@) of the Act, which provision came into force with effect from 07.04.2014, 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 16aQ)@) of the Act, has to be carculated, to hoid the director of the company liable? In this regard, the learned counsel brought to the notice of this court, the General Circurar No.0Bl14 dated 4.4.2OI4 issued by the Ministry of Corporation affairs, which clarifies the applicability of the rerevant financrar years. The relevant portion of the said circular is as under: \"A number of provisions of the Companies Act, 2013 including those relating to marntenance of books of account, preparation, uaoption unO filjng of financial statements (and documents required to be attaciieo tn\"rltoi nuoitorc reports and the Board of Direcrors report (aoara,s ;ili;;\"; '0\"\"\"'7[rgn, into force with _ra--.r. / t- () effect from 1tr April, 2014. Provisions of Schedule Il (useful lves to compute i\"pr\".,\"u\"\"f- uno's.n\"out\" rll lfoimat of financial statements) have also been irJrqr',f into'for.\" from that date The relevant Rules pertaining to these provlsions ;\"\";;L; L\"\" notified, placed on the website of the lvlinistry and have come into force from the same date. The Ministry has received requests for clarification wrth.,regard to the relevant fi\";;;i\"i ;;;;; wiin errect from which such provisions of the new Act relatinq to maintenance of books of account, preparatron' adoption,and filing of financial ri.i\"r\"\"tt 1\"\"4 attachments tr',\"'\"ttjl, 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'ne'rei,v noli?ilJ tnut $re rinaniiar statements (and documents required to be attached thereto), auditors repo,t unO Board's report in respect of financial years itut-.-orruna\"o earlier than 1't April shall be -go_verned by the relevant pr\"\"it. \" til.n\"J, tes/iu tes of the com'panies Act' 1956 and that in respect of financial years commencing on or after i* 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 0l'04'2014' 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 27 a(1)(9) ot Act 1 of 1956. The said provision under Act 1 of 1956 is extracted as under for ready reference: Section 274(1) A person shall not be capable of being appointed director of a company, if - ig1 such person is already a director of a public company which' - (A) has not filed the annual accounts and annual returns for any continuous three financial years commencing on and after the first daY of APril, 1999; or (B) Provided that such person shall not be eligible to be appointed as a director of any \"tn\"r prUli. i..pany for a period of flve years from the date on which such pulllic ;;;pJ\",, i; *niin n\" is a director, failed to file annual accounts and annual returns ;;;;;;;b clause (A) or has failed to repav its deposits or interest or redeem its J\"U\"ntrt\"= on due date or pay dividend referred to in clause (B)' A readlng of the above provision under Act 1 of 1956, makes it clear that if a person capable of being appointed director of a company and such person is already a director of a public company, which has not filed annual accounts and annual returns for any continuous three financial years commencing on 1 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 .publlc 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 164(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 07.04.2074. 16. Coming to the facts on hand, the 2nd respondent has disqualified the petitioners under Section 164(2)(a) of the Act 18 of 2013, for not filing financial statements or annual returns, for period prior to 01.04.2014. The action of the 2\"d respondent runs contrary to the circular issued by the Ministry of the Corporate Affairs, and he has given the provisions of Act 1B of 2013, retrospective effect, which is impermissible. L7. The Apex Court in COMMISSIONER OF INCOME TAX (CENTRAL)-L NEW DELHT v. VATIKA TOWNSHTP PRIVATE LIMITEDI has dealt with the general prjncjples concerning retros pectjv ity. The relevant portion of the judgment is thus: 27, A iegislation, be it a statutory Act or a statutory Rule or a statutory Notification, may physically consists of words printed on papers. However, I ' 1:o r51r s{:c t T l- 3 conceptually it is a great deal more than an ordinary prose. There is a special peculiarity in the mode of verbal communication by a legislation. A legislation is not just a series of statements, such as one finds in a work of fiction/non fiction or even in a judgment of a court of law. There is a technique required to draft a leqislation 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'lnterpretation of Statutes'. Vis-e-vis ordinary prose, a legislation differs in its provenance, lay-out and features as also in the implication as to its meaning that arises by presumptions as to the intent of the maker thereof. 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 law should govern current activities. Law passed today cannot apply to the events of the past, If we do something today, we do it keeping in the law of today and in force and not tomorrow's backward adjustment of it. Our belief in the nature of the law is founded on the bed rock that every human being is entitled to arranqe his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. This principle of law is known as lex prospicit non respicit : law looks forward not backward, As was observed in Phillips vs. Eyre [(1870) LR 6 QB 1], a retrospective legislation is contrary to the general principle that legislation by which the conduct of mankind is to be regulated when rntroduced for the first time to deal with future acts ought not to change the character of past transactions carried on upon the faith of the then existing la!ry. 29. The obvious basis of the principle against retrospectivity is the principle of 'farrness', which must be the basis of every legal rule as was observed rn the decision reported in L'Office Cherifien des Phosphates v. Yamashita-Shinnlhon Steamship Co. Ltd, [{199a) 1Ac 486]. Thus, legislations which modified accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to grve 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 legislation. We need not note that cornucopia of case law available on the subject because aforesaid legal position clearly emerges from the various decisions and this legal position was conceded by the counsel for the parties. In any case, we shall refer to few judgments containing thjs dicta, a little later. 30. We would also like to point out/ for the sake of completeness, that where a benefit is conferred by a legislation, the rule against a retrospective construction is different. If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. This exactly is the justification 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 jn nature, was applied in the case of Vijay v. State of Maharashtra & Ors., [(2006) 6 SCC 289]. It was held that where a taw ts enacted for the benefit of community as a whole, even in the absence of a provison the statute may be held to be retrospectlve in nature. However, we are (s/c not) confronted w th any such situation here. 31. In such cases, retrospectivity is attached to benefit the persons in contradlstinctlon to the provision imposing some burden or liability where the presumption attached towards prospectivity. ln the instant case, the proviso added to Section 113 of the Act is not beneficial to the assessee. On the contrary, rt rs a provision which is onerous to the assessee. Therefore, in a case like this, we have to proceed with the normal rule of presumption against retrospective operation. Thus, the rule against retrospective operation is a fundamental rule of law that no statute shall be construed to have a retrospective operatron 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 weighing factors. 43. There is yet another very interesting piece of evidence that clarifies that provision beyond any pale of doubt viz., the understanding of CBDT itself regarding this provision. It is contained in CBDT Circular No,8 of 2OO2 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 Fanance Act, 2002, by which amendment to section 113 was made. In this circular, various amendments to the Income tax Act are djscussed amply demonstrating as to which amendments are clarificatory/retrospective in operation and which amendments are prospective, I For example, Explanation to section 158-BB is stated to be clartficatory in natlrre. Likewise, it is mentioned that amendments in Section 145 whereby provisions of that section are made applicable to block assessments is made ctarificatory and would take effect retrospectively from 1., day of luly, 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 f .6.2OO2.\" 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 N4inistry of Corporation affairs has issued the circular No.08/2014 daled 4.4.2014 clarifying that financial statements commencing after 01.04.2014, shall be governed by Act 18 of 2013 i.e., new Act and in respect of financial years commencing earlier to 01.04.2014, shall be governed by Act 1 of 1956. At the cost of repetition, since in the present 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 01.04.2074, the same is contrary to the circular, and also contrary to the law laid down by Apex Court in the above referred judg ment. 19. If the said provision is given prospective effect, as per the circular dated 4.4.2074 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 thlrd 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 10 proviso to Section 96(1) of the Act, annual general meeting for the year ending 31.03.2017, can be held within six months from the closing of financialyeari.e.,by30.0g.20lT.Further,thetimelimitforfilingannual returns under Sectlon 92@) of the Act, is 60 days from annual general meeting, or the last date on which annual general meetlng ought to have been held with normal fee, and within 270 days with additional fee as per the provisotoSection403oftheAct.Learnedcounselsubmitthatifthesaid dates are calculated, the last date for filing the annual returns would be 30.17.2077, 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 disqualification could get triggered only on or after 27.o7.2078. But the period considered by the 2nd respondent in the present writ petitlons for clothing the petitioners with disqualification' pertainspriortoOl.04.2014.Therefore,whentheomission,whichisnow pointedout,wasnotenvisagedaSagroundfordisqualificationpriorto L,4.2Ot4,thepetitionerscannotbedisqualifiedonthesaidground'This analogy is traceable to Article 2o(1) of the constitution of India, which states that \"No 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 offence, nor be subjected to a penalty greater than that which might have been inflicted underthelawinforceatthetimeofthecommissionoftheoffence,,,In view of the same, the ground on which the petitioners were disqualified' cannot stand to legal scrutiny, and the same is liable to be set aside' 20. A learned Single Judge of the High Court of Karnataka in YASH1DHARAsHRoFFys'UNI,NoFINDIA2considering secflon 164(2)(a) of the Act and other provisions of the Act, and various judgments,passedanelaborateorderandheldthatthesaldprovisionhasno retrospective operation. The observations of the learned Judge, pertaininq to ' w.P.No.529t t of 2017 and batch dared 12.06.2019 a ll private companies, which are relevant for the present purpose, are extracted as under: 208. In vrew of the aforesaid discusslon, I have arrived at the following conclusions (a) ]t is held that Section 164(2)(a) of the Act is not u/tra virus Atlicle 14 of the Constrtution. The said provision rs not manifestly arbitrary and also does not fall within the scope of the doctrine of proportionality. Neither does the said provisron 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 rlght. The oblect 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 9OVerna nce. (b) That Article fslc) Section 164(2) of the Act applies by operation of aw 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 nol ultra vlres Article 14 of the Constitution. (c) That Sectaon 164(2) ot 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 drrector of only a public company under Sectron 274(l)(g) of 1956 Act and never a director of a private company. Such disqualification of the petitioners who are directors of private companies ls hence quashed. (f) ... (g) Consequently, r/here 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 sald disqualification would apply to them under the Act' 21. A learned Single of the High Court of Gujarat at Ahmedabad in GAURANG BALuANTLALSHAH S/O BALVANTLALSHAH 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 Spccial (rril , pplication No.ll'll5 ol 20l7anclbatchdatcd l8' ll :(l l8 t2 annual returns for any continuous period of three financial years would be the default to be counted from the financial year 2014-15 only and not 2073-14. 22. A learned single Judge of the High Court of Madras in BHAGAVAN DAS DHANANJAyA DAS vs. UNION OF INDIA4 also expressed similar view. The relevant portion is as under: 29. In f ine, (a) (b) 23, In view of the above facts and circumstances and the judgments referred to supra, as the impugned orders in present writ petitions disqualifying the petitioners as directors under Section 164(2)(a) of the Act' have been passed considering the period prior to 01'04'2014' the same cannot be sustained, and are liable to be set aside to that extent' 24. As far as the contention regarding issuance of prior notice before disqualifying the petitioners as directors is concerned, Section 16a(2)(a) is required to be noticed, and the same is extracted as under for ready reference: 164. Disqua lification for appointment of director: When the New Act 2013 came into effect from 14 2014' the i\".onO .\".ponaent herein has wrongly given retros.pective effect unJ \"rron\"outly disqualified the petitioner - directors from i.i.zore itself before the deadline commenced wrongly fixing the first financial year from L.4.2013 to 31'3 2014' By virtue of the new Section 164(2)(a) of.the 3913 tc: using the eipr\"ssion 'for any continuous period of three financial year\" and i\" In\" fight of section 2(41) defining \"financial year\" as-.well as their o*n c\"ii\"tuf circular o'087t4 dated 4'4'20L4, the first financial V\"ur *oriO be from L.4.2o14 to 31 3'2015, the second financial ir\"\"l. *oufa be from 1.4.2015 to 31'3 2015 and the third financial ir\"u. wouta be from 1.4.2OL6 to 31'3 2017, whereas the second leiponOent clearly admitted in paras t5 and 22 of the counter uifilirit-lf,ut the default of filing statutory returns for the final y\"ur. .ornrn\"n.es from ?073-74, 2014-15 and 2015-16 ie' one V\"u.- U\"for\" the Act 2013 came into force This is the basic irrcurable legal infirmity that vitiates the entire impugned proceedings. o tv.1,.No.25455 of20l? aDcl batch datcd 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 c6mpanies 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 disqualificationonhappeningofaneventi.e.,ifapersonwhoisorhasbeen a director of a company has not filed financial statements or annual returns foranycontinuousperiodofthreefinanCialyears,shalIbeineligibletobere- appointed as a director of that company or appointed in any other company for a perlod of five years from the date on which the said company fails to do so. The hearing. Sh roff v. H igh Cou rt of Ba lvantla I Sha h provision does not provide for issuance of any prior notice or A learned single Judge of the High Court of Karnataka in Yashodara Union of Indla (1 supra), as well as the learned single Judge of the Gujarat at Ahmedabad vs. Union of India in Gaurang Balvantlal Shah s/o (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-disqualiflcation nor post-disqualification and this is not in violation of the principles of natural justice and hence, is not ultra vlres Article 14 of the Constitution' I concur with the said reaso n in g. Thus, from the above, it is clear that Section 16a(2)(a) of the Act ts a deeming provision and the disqualification envisaged under the said provislon comes lnto force automatically by operation of law on default and Legislature did not provide for issuance of any prior notice' but the respondents notified disqualification even before it incurred' and deactivated DINs, which is illegal arbitrary and against provisions contained in Section 16a(2)(a) of the Act. rule (6) of cancellation l.+ 26. The next grievance of the petitioners is with regard to deactivation of their DINs. The contentlon of the learned counsel for the petitioners is that except for the grounds mentioned under Rule 11 (a) to (f) of the Rules' the DINs cannot be cancelled or deactivated, and the 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 10, it is allotted for life time. Rule 11 provides for 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 authorized by the Regional Director may, upon being satisfied on verification of particulars or uirauruniu-tv proof attached with tne applrcation received from any person' cancel or deactivate the DIN in case - theDlNisfoundtobeduplicatedinrespectofthesamepersonprovided thedatarelatedtoboththeDlNshallbemergedwiththevalidlyretained number; the DIN was obtained in a wrongful manner or by fraudulent means; of the death of the concerned individual; the concerned lndividual has been declared as a person of unsound mrnd Dy a com Petent Court, if the concerned indlvidual has been ad.ludicated an insolvent; ProVldedthatbeforecancellationordeactivationofDlNpUrsuanttoclause(b), an opportunity of being heard shall be given to the concerned individual; on an application made in Form DIR-5 by the DIN holder to surrender his or her DIN along with declaration that he has never been appointed as director in iny .ornpuny an-d 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 shall verify e-records. (b) (c) (d) (a) (f) (i) 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 furniihed or on suppression of material information or on the basis of wronq certification or by making misleading or false information or by misrepresentation; (ii) the term \"fraudulent means\" means if the DIN is obtained with an intent to deceive any other person or any authority including the Central Govern ment. 28. Clauses (a) to (f) of Rule 11, extracted above, provides for the circumstances under which the DIN can be cancelled or deactivated. The said grounds, are different from the ground envisaged under (e) l5 Section 164(2)(a) of the Act. Therefore, for the alleqed 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 ludge 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 rmpugned list? In this regard, it would be appropriate to refer to the relevant provislons contarned 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 Section 154, Section 153 requlres every indrvidual intending to be appointed as Director of a company to make an appllcation for allotilent of DIN to the Central Government in such form and manner ii'.ay ue prescribed. section 154 states that the central covernment shall within one -ontn 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 iriiiuiOraf, who has already been allotted a DIN under Section 154 from applyinq for or obtaining or possessing another DIN. Rules 9 and 10 of the said Rules of 2014 ;;\";;;G; i;\" prlcedure fJr making application for allotment and for the allotment of 6rlrl,-\"\"J iurine, proulde that the -DlN allotted by the central Government under the iuiO'nut\"t would be valid for the life time of the applicant and shall not be allotted to any other person. 30. Rule 11 provides for cancellation or surrender or deactivation of DIN' n..-iinqiy,li'\" Centrat Government or Regional Director or any authorized. officer of Regio-nli Director may, on being satisfied on -verification of particulars of io.r.l\"t\"iv prooi utta.'t eo with Jn application from any person' cancel o-r J\"iitiult\" t't,\"'ofN on any ofthe grounds mentioned in CIause (a) to (f) thereof. ihe said nule 11 does not contempi-ate anY suo motu powers either with the Central i\"r*\".\"rt oi with the autho;ized officer or Regional Director to cancel or J\"u.tiuut\" the DIN allotted to the Director, nor any of the clauses mentioned in the ;;n;l;; iontemplates cancellation or deactivation of DIN of the Director of the iiirr.t ofi company\" or of the Director having become ineligible under section 164 of the said Act. The reason appears to be th;t once an indrvrdual' who is intending to be the Director of u paiticulul- company is allotted DIN by the Central Cor\"Lr\"nt, such DIN would be vaiid for the life time of the applicant and on the basrsofsuchDlNhecouldbecomeDirectorinothercompaniesalso.Hence,ifone oi ln\" .oapuni\". in which he was Director, is \"struck off\"' his DIN could not be ianietlea o; deactivated as that would run counter to the provisions contained in the Artu tl, *n,.n specifically provides for the circumstances under which the DIN could be cancelled or deactivated. 31. In that vlew of the matter, the Court is of the opinion that the actron of the l.\"rponO\"nt, rn deactivating tne Ott\"ls of the petitioners - Directors alonq with the prfr[\"t,o\"-or ine impugiea list of Directors of \"struck off\" companies under !\".t,on zaa, also was not legally tenable. of course, as per Rrte 12 of the said [ri\"., tn\" inAiviOuat who has been allotted the DIN, in the event of anv change in nis purticutars stated in Form DIR -3 has to intimate such change to the Central co\"lin.unt withrn the prescribed time in Form DIR-6, however, if that is not done, G Offrf corfa not be cancelled or deactivated The cancellation or deactivation of in\" olf'l .orfO be resorted to by the conceTned 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' 16 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 2.d respondent is directed to activate the DINS of the petitioners, enabling them to function as Directors other than in strike off companies. 32. It is made clear that this order will not preclude the 2nd respondent from taking appropriate action in accordance with law for violations as envisaged under section 164(2) of the Act, giving the said provision prospective effect from o1.o4.2074 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 petltioners 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. All the writ petitions aTe accordingly allowed to the extent ind icated a bove. 35. Interlocutory applications pending, if any, shall stand closed. No orde r as to costs, DATE: 18-07-2019 AVS A.RAJASHEKER REDDY,J "