Sri. Vijaya Vardineni Ranga Rao, And 2 Others v. The Ministry Of Corporate Affairs, And Another

\ HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD (S pecial Original J urisdiction) THURSDAY. THE THIRTY FIRST DAY OF DECEI\IBER TWO THOUSAND AND TWENTY PRESENT THE HON'BLE DR. JUSTICE SHAMEEM AKTHER WRIT PETITION NO: 24456 OF 20?0 Betwee n:

'1 . Sri. V laya Vardineni Ranga Rao, S/o. Navaneeth Rao Vardineni, Aged About 4'1 Years, Flat No.501, Padmaja Towers Snnagar Colony, Near Ratnadeep Super lVarket Hyderabad, Te la nga na-5000 73.

2. Sri. Srikanth Kothakota, S/o. l\,4anohar Reddy Kothakota, Aged About 40 Years, FIat No 704, Bhanu Deluxe Towers, Behind Green Park Hotel, Ameerpet, Hyderabad,Tela nga na-50001 6.

3. l\,4 r. Rarnanadha Babu Yarlagadda, S/o. I\,4 r. Eswarachandra Vidyasagar Yarlagadda 37, Cannon Dale, Gnr Lane, Near Orr, Kokapet, K.V.Rangareddy, Telangana-5.o07'

...pETrroNERS AND The l\linistry of Corporate Affairs, 3rd Floor, Corporate Bhawan, Bandlaguda, Nagole, Tattiannaram Village, Hayat Nagar Mandal, Ranga Reddy District, H yd e ra bad, Telangana 500 068.

Tire Registiar of Ctmpanles, (AP and Telangana), 2"d Floor, Corporate Bfqwan Gsi Post, rattianna ram Nasole, Band laquda Hyderabao r",rlY€!3330*033 r* Petlt on under Art cLe 226 of the Constitution of lndla praylng that n the c rcunrstances stated in the affidavit filed therewlth. the High Court may be pLeased to pass an order or d rectton or any other proceedrngs one in the nature of Writ of [4andamus.

a. declarrng the action of respondents in deactivating the DIN numbers 026174g8,02617508 and 026175'1 6 of the 1'1, 2nd and 3'd petitioners respectively and restricting the petitioners from filing statutory returns, i.e. the annual returns and financial statements of the companies in which they are directors as arbitrary, illegal, without jurisdiction, contrary to the provisions of the companies Act 2013 and Rule 11 of the companies (Appointment and Qualification of Directors) Rules. 2014. violative of the principles of natural iustice besides violating the petitioners rights guaranteed under Article 14 and Article t I (1) (g) of the constitution of lndia; b.

Issue a writ of mandamus or a writ of any other nature or direction declaring that the publication of the names of the Petitioners on the list of disqualified directors uploaded and published on the website of Respondent No.1 is arbitrary and illegal and quashing the list to the extent pertaining to the Petitioners; c. issue a writ of mandamus or a writ of any other nature or any other direction/order directing the Respondent Nos.1, 2 and 3 not to treat the Petitioners as disqualified directors under section 164 of the companies Act 2013 and for a.ny consequenttal measures and/or effects arising / contemplated there from' cjissueaWritofmandamusorawrttofanyothernatureoranyother directionlorder, directing the Respondent Nos.

the petitioners in the records of the Respondent Nos.'j , 2 and 3 from disqualified directors and consequently directing Respondent Nos l ' 2 and 3 to unfreeze the DirectorSldentificationNumberandDigitalsignalureCertificatesofthePetitioners thereby enabling the Petitioners to act as Directors ancj to file the documents and returns on behalf of all companles in which such Petitioners serve as directors' e. lssue a writ of mandamus or a writ of any other nature or any other ciirection/order directing the Respondent Nos'1' 2 and 3 to allow the Petitioners to file the requisite returns rn relation to the Company to avail the Scheme CFSS-2020' f, issue a writ of mandamus or a writ of any other nature or any othe!'

direction/order directing the Respondent Nos l ' 2 and 3 to enable the Petitioners to file necessary application under CFS3-2020 along with requisite charges IANO: 1O F 2020 Petition under Section 151 CPC praying that in the circumstances stated in theaffidavitfiledinsupportofthepetition,theHighCourtmaybepleasedtostay the disabling of DIN and direct the Respondent to re store the DIN numbers petitioners resPectivelY 026174g8,02617508 and 02617516 of the 1"t 2nd and 3'd SoaStoenabletosubmittheannualreturnsandfinancialStatementsofthe company of which the Petitioner herein is director' pending disposal of the writ petition.

Counsel for the Petitioner: SRI' S' CHAKRAPANI Counsel for the Respondents: SRI NAMAVARAPU RAJESHWAR RAO' ASSISTANT SOLICITOR GENERAL.

The Court made the following:ORDER

THE HON'BLE DT. ]USTICE SHAMEEM AKTHER WRIT PETITION No.24456 OF 2O2O ORDER:

The petitioners challenge their disqualification from Directorship under Section 164(2) of the Companies Act, 2013, for the alleged default in filing financial statement/annual returns, and consequently, seek restoration of their Director identification Numbers (DINs) viz., 02617498, 02617508 and 02617516.

2, Learned counsel for the petitioners would submit that the issue raised in the present Writ Petition is squarely covered by the order, daled 24.09.2020, passed in W.P.No.16522 of 2020, which was disposed of in terms of the common order, dated 18.07.2019, passed in W.P.No.5422 of 2018 and batch.

3. Sri Siripuram Keshava, learned counsel representing Sri Namavarapu Rajeshwar Rao, learned Assistant Solicitor General of India, appearing for the respondents, has fa rly conceded that the order, dated 24.09.2020, passed in W.P.No.16522 of 2020, is similar to the common order, dated lB.O7.2)lg, passed in W.P.No'5422 of 2018 and batch'

4. The operative portion of the common order, dated 18.07.2019, passed in W.P.No.5422 of 20lB and batch, reads as under:

"For the foregoing reasonsr the impuqned orders in the writ petitions to the extent of disquallfylng the petltroners under Section 164 (2) (a) of the Act and deactivation of their DINs, are set aside, and the 2 '

).\\ \\ | \rr:l-i-_<.r ri li):il respondent is directed to activate the DlNs of the petitioners, enabling them to function as Directors other than in strike off companles.

It is made clear that this order will not prec ude the 2'

respondent from taking appropriate action rn accordance with iaw for violations a5 envisaged under Section 164 (2) of the Act, giving the said provrsion prospective effect from 0t.04.2014 and for necessary action against DiN in case of violations of Rule 11 of the Rules, It is also made clear that if the petitioners are ction of the respondents in striking off a aggrieved by the their com panies u der Section 248 of the Act, they are at liberty to avail alternative remedy under Sectjon 252 of n the Act.

All the writ petitions are accordingly allowed to the extent indicated a bove. "

5.

In view of the above, the present \ /rit Petition is disposed of in terms of the conlmon order, dated 18.07.2019, passed in W.P.No.5422 of 2018 and batch. There shall be no order as to CoStS.

Miscellaneous petitions, if any, pending in this Writ Petition _ :1'll':1!'*1'''.-.._---_-_ SD/. K.AMMAJI ASSISTANT REGISTRAR I //TRUE COPY'

SECTION OFFICER To, The Ministrv of Corporate Affairs, 3rd Floor, Corporats Bhawan' Bandlaguda' Nr"""llr'iJiti.i,;u;;; Villrs.. H;vlirlrg,i tv"ioal' Ransa Reddv District Hvderabad, Telangana 500 068 rt; R.;Li;"; of iJ.lpi.ii,tlGP and relansana), 2nd, Floor' corporate ehl*b,i c.i Post, TaitiannJir'.n r'rigor"' Baidlaguda Hyderabad Telangana 500068.

oneaa to Sri S. Chakrapani Advocate [oPUCl one CC to Sri Namavarrp,j'R;i;;h;;iAao essistant Solicitor General [oPUC] (Along wth a copy of order rn W P.No 5422 of 2018 and batch' dated 18 07 2019 ) Two CD Copies .r scHe

HIGH COURT DATED:31 11212020

ORDER

W.P.No.24456 of 2020 t4 r1 -t o ( <'

3" 12 lAN1zrlll 6.

7- * EO DISPOSING OF THE WRIT PETITION WITHOUT COSTS \ J-,'

THE HO N'BLE SRI ]USTICE A.RA]AS HEKER R DDY 111 a2 6 859 726 9 I 11991, 2018. 12036, 1 2040. L2069, t2L a. L2L44, t2L r2L94, 12200, 2209. 122L5. t22L7.12243, l 2260. L2262, L 22Aa. 12342, 12350, 12417. L2432. 12472. 1249a. 12506, I s74. L2598, 12621. t2702, 12735. 12740. 12a45. 128so. 12865, 1 865. 13013, 13 518. L3749 13878 L4 4 50 14390 14409. 14582 AND 14597 0F 2019 COMMON ORDER Since, the issue involved in all the writ petitions ls one and the same, they are heard together and are being disposed of by this common order'

2. The petitioners are the directors of the private 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 provlsion, 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 flle 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 ineliglble 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 IdentificationNumbers(DINs)ofthepetitionersWerealsodeactiVated. Aggrieved by the same, the present writ petitions have been filed'

l

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. Heard the Iearned 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 76ae)e) 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 1.4.2Ot4, and prior thereto i.e., under Section 274(t)(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 2nd respondent, taking the period prior to :- 4.2074, i.e., giving the provision retrospective effect, disqualified the petitioners as directors, which is illega I and arbitrary.

B. With regard to deactivation oF DINs, learned counsel for the petitioners submit that the DIN', as contemplated under Rule 2(d) of the Companies (Appointment and eualification of Directors), Rules, 2Ot4 (for

.) short'the Ru les), are granted for life time to the applicants under Rule 1O(6) and cancellation of the DIN can be made only for the of the said Rules, to (f) under Rule 11 of the Rules, and the grounds mentioned in clauses (a) said grounds does not provide for deactivation for having become ineligible for appointment as Djrectors of the company under Section 164 of the Act. that as against the deactivation, no appeal further submits Learned counsel ls provided under the Rules, and appeal to the Tribunal under Section 252 of the Act is provided only agalnst 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 lvlinistry of Corporate Affairs, has floated a scheme dated 29.72.2017 viz., Condonatlon of Delay Scheme whose - 2018, DINs have been deactivated by wherein the d irecto rs, the 2"d DINs of the Directors to be activated. However, such respondent, allows the scheme is not applicable to off under the companies which are struck In case of active companies, they Section 2aB(5) of the Act.

can make a pplication to National )q) Company Law Tribunal under Section of the Act, and the Tribunal can order for reactivation of DIN of seeking for restoration, 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, Iearned counsel sought to set aside the impugned orders and to allow the writ petitions.

11. On the other hand learned Assistant Solicltor General submits that failure to file financiat statements or annual returns for any continuous period

of three financial years, automatically entail their disq ua lification under section 164(2)(a) of the Act and the statute does not provide for issuance of any notice. Hence, the petitioners, who have failed to comply with the statutory requirement under Section 164 of the Act, cannot complain of violation of principles of natural justice, as it is a deeming provision. Learned counsel further submits that the petitioners have alternative remedy of appeal under Section 252 of the Act, and hence wrlt petitions may not be e nterta in ed.

12. To consider the contention of the learned Assistant Solicitor General with regard to alternative remedy oF appeal under Section 252 of thr: 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 companies;

Provided that before passing an order under this section, the Tribunal shall qive 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, thqt the name of the company has been struck off from the register of companies either inadvertently or on basls of incorrect 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 passinq of the order dissolving the company under Section 248, ftle an application before the Tribunal seeking restoraton of name of such co m 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 of the order, the Registrar shall cause the name of the company to be restored in the register of companies and shall tssue 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 reglster of companies, the Tribunal or an application made by the company, member, creditor or workman before the explry of twenty years from 1.he publication in the Offlcial Gazette of the notice under sub-section (5) of Section 248, 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 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 in the same position as nearly as may be as if the name of the company has not been struck off from the register of companies.

-) A 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 disqualification as directors and deactivation of DINs, but not about striking off companies as such. Hence. Section 252 of the Act, cannot be an alternative remedy for seeking that relief, and the contention of the learned Assistant Solicitor General. in this regard, merits for rejection.

13. Under Section 16a(2)(a) of the Act, if the Director of a company fails to file financial statements or annual returns for any continuous period of three financial years, he shall not be eligible to be re-appointed as a director of that company or appointed in other company for a period of five years from the date on which the said company fails to do so. The said provision under the Act 1B of 2013, came into force with effect from 01.O4.20L4, 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 16a(2)(a) of the Act, which provislon came into force with effect from 07.O4.2Ot4, 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 notlce of this Court, the General Circular No.OB/14 dated 4.4.

"A number of provisions of the Companies Act, 2013 inciuding those relating to maintenance of books of account, preparation, adoption and fillng of financial statements (and documents requ red to be attached thereto), Auditors reports and the Board of Dtrectors report (Board's report) have been brolght into force with

effect from 1't 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 peftaining to these provisions have also been notified, ptaced on the website of the f4inistry 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 maintenance of books of account, preparation, adoption and fiiing of financial statements (and attachments thereto), auditors report and Board's repoft 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), aud tors report and Board's report n respect of financial years that commenced earlier than 1!t April shall be governed by the relevant provrsions/schedules/rules of the Companies Act, 1956 and that in respect of financlal years commencing on or after 1'r Aptil,2014, the provisions of the new Act shall a pply. "

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^04.2074, shall be governed by the provisions under the Companies Act, 1956 and in respect of financial years commencing on or after 07.O412OI4, the provisions of the new Act shall apply.

74. At this stage it is required to be noticed that the analogous provision to Section 164(2)(a) of the Act 18 of 2013, is Section 27 a(l)(g) of 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 - (g) such person is already a director of a public company which, - (A) has not filed the annual accounts and annua returns for any continuous three financial years commencing on and after the frrst day of April, 1999; or (B) Provided that such person shall not be eligible to be appointed as a dtrector 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 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, nlakes 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

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 publlc 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, nonfiling 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) of the new legislation i.e., Act 18 of 2013, no such distinction between a 'private company' or a 'public company' is made and as per the said provision goes to show that no person who is or has been a director of a'company', fails to file financial statements or annual returns for any continuous period of three financial years, will not be eligible for appointment as a director of a company. As already noted above, the said provision, came into force with effect from O1.04.2014.

16. Comlng to the facts on hand, the 2'd respondent has disqualified the petitioners under Section 16a(2)(a) of the Act 18 of 2013, for not filing financial statements or annual returns, for period prior to 01.04.2014. The action of the 2nd respondent runs contrary to the circular issued by the Ministry of the Corporate Affairs, and he has given the provisions of Act 18 of 2013, retrospective effect, which is impermissible.

17. The Apex Court in COMMISSIONER OF INCOME TAx (CENTRAL)-L NEw DELHI v. VATIKA TOWNSHIP PRIVATE LIMITEDL has dealt with the general principles concerning retrospectivity, The relevant portion of the judgment is thus:

27. A leqislation, be it a statutory Act or a statutory Rule or a statutory Notiflcation, may physically consists of words prlnted on papers However, r(tol5)rst.cl

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 ju.t u ="rie. of statements, such as one finds in a work of fiction/non fiction or even ln a judgment of a court of law. There is a technique required to draft a legislation "r *ltl ur to understand a ieqislation Former technique is known as legislative drafting and latter one is to be found in the various principles of'lnterpretatlon of Statute:'. Vis-a-vis ordinary prose, a legislation differs in its provenance, lay-out and features as also jn the implication as to its meaninq that arises by presumptions as to the intent of the maker thereof.

28. Of the various rules guiding how a legislatiorr has to be interpreted, one establ shed rule is that unless a contrary intention appears, a egislation is presumed r'rot to be intencled to have a retrospect ve operation The idea behind the rule s that a current law should goveTn cLlrrent activities La\,{ passed today cannot apply to the events of the past. lf we do something today, \r'/e do rt keeping in the law of today and ln force and not tomorrow's backward adjustment of it' our bel ef ln the nature of the law is founded on the bed rock that every human lleing ls entitled to arrange his affairs by relying on the existing law and should not flnd that his plans have been reLrospectively upset.

This principle of law is known as lex prospicit non respicit : law looks forward not backward As was observed in Phillips vs Eyre t(1b70) LR 6 QB 11, a retrospective {egislation is contrary to the general principle ihat legislation by which the conduct of mankind is to be regulated when introduced 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 law.

29. The obvious basis of the principle against retrospectivity is the principle of 'fairness', which must be the basis of every legal rule as Was observed in the decision reported in L'Office Cherifien des Phosphates v. Yamashita-Sh innihon Steamship Co. Ltd. [{1994) 1 Ac 486]. Thus, legislations which modified accrued rights or which impose obligations or impose new duties or attach a new disability h5ve 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 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 ln any case, we shall refer to few ludgments containing this dicta, a llttle later.

30. We would also like to polnt out, for the sake of completeness, that where a beneflt is conferred by a leqislation, the rule against a retrospective construction is different. If a legislation confers a beneft on some p€rsons but !aithout inflicting a correspondlnq detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators oblect, then the presumptron would be that such a legislation, giving it a purposive constrLction, would warrant t to be grven a retrospective effect. Thi:; exactly is the lustiflcation to treat procedural provisions as retrospective ln Government of India & Ors.

v' Indian Tobacco Association, t(2005) 7 SCC 3961, the doctrine of fairness was held to be relevant factor to construe a statute conferring a benefit, n the context of it to be given a retrospective operation, The same doctrine of fairness, to hold that a itatut" was retrospective in nature, was applied in the case of Vijay v, State oF Maharashtra & Ors., [(2006) 6 SCC 289]. it was held that where a law rs enacted for the benefit of community as a whole, even in the absence of a provlsion the statute may be held to be retrospective in nature. However, we are (slc not) confronted with any such situation here.

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 ofthe Act is not beneficial to the assessee. On the contrary, it is a provision which is onerous to the assessee. Therefore, in a case like this, we have to proceed with the normal rule of presumption against retrospective operation. Thus, the rule against retrospective operation is a fundamental rule of law that no statute shall be construed to have a retrospective operatjon unless such a construction appears very clearly in the terms of the Act, or arises by necessaTy 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,B of 2002 dated 27.8 2002, with the subject "Finance Act, 2002 - Explanatory Notes on provision relating to Direct Taxes". This circular has been issued after the passing of the Finance Act, 2002, by which amendment to section 113 was made. In this circular, various amendments to the Income tax Act are discussed amply demonstrating as to which amendments are cia n ficato ry/retro spective in operation and whlch amendments are prospective

For example, Explanation to section 158-BB is stated to be clarificatory in nature. Likewise, it is mentioned that amendments in Section 145 whereby provisions of that section are made applicable to block assessments is made clarlFicatory and would take effect retrospectively from 1"r day of July, 1995. When it comes to amendment to Section 113 of the Act, this very circular provides that the said amendment along with the amendments in Section 158-BE. would be prospective i.e., will take effect from 7.6.2aO2."

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 tegislation has any intention, to make the sald 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 4.4.2014 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 2^d 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 Ot.O4'20t4, the same is contrary to the circular, and also contrary to the law laid down by Apex Court in the above refe rred j udgment.

lg.Ifthesaidprovisionisgivenprospectiveeffect,aspertheclrcular 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

l0 proviso to Section 96(1) of the Act, annual general meeting for lhe year ending 31.03.2017, 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 92G) of the Act, is 60 days from annual general meeting, or the last date on which annual general meeting 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 €re calculated, the last date for filing the annual returns would be 30.11.2017, 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.O7.2078. In other words, the d isqua lification could get triggered only on or after 27.O7.201A.

But the period considered by the 2^d respondent in the present writ petitions for clothing the petitioners with disqualification, pertains prior to Ol.O4.2Ol4. Therefore, when the omission, which is now pointed out, was not envisaged as a ground for disqualification prior to 1.4.2014, 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 "/Vo 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 under the law in force at the time of the commission of the offence".

In view of the same, the ground on which the petitioners were disqualified, cannot stand to legal scrutiny, and the same is liable to be set aside.

20. A learned Single Judge of the High Court of Karnataka in YASHODHARA SHROFF vs.

UNION .OF INDIA2 considering Section 164(2)(a) of the Act and other provisions of the Act, ancl various judgments, passed an elaborate order and held that the said provision has no retrospective operation. The observations of the learned Judge, pertaining to r t\'.P.N" 52qil ot l0l7 and trarch datcd ll.()6.1019

1t 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 ultra ylrus Articte 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 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 right. The object and purpose of the said provision is to stipulate the consequence of a dlsqualifcatlon on account of the circumstances stated therein and the same is in order to achieve probity, accountability, and transparency in corporate governance.

(b) That Article fslc) Section 764(2) af the Act applies by operatlon of law on the basis of the circurnstances stated therein, the said provislon does not envisage any hearing, neither pre-disqualification nor post-disqualification and this ts not in violation of the principles of natural justice, s not ultra ylres Article 14 of the Constitution.

(c) That Section f64(2) af the Act does not have retrospective operation and is therefore, neither unreasonable nor arbitrary, in view of the interpretation piaced on the same.

(d) (e) Insofar as the private companies are conceTned, 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 contlnuous period of three financial years under the said provision. The said conclusion is based on the principal drawn by way of analogy from Article 20(1) of the Constitution, as at no point of time prior to the enforcement of the Act/ a disqualification based on the circumstances under Section 164(2) of the Act was ever envisaged under the 1956 Act vis-a-vis directors of private companies.

Such a disqualification could visit a director of only a public company under Section 27a(\)(g) 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 disquaiification under Section L6a(2) of the Act is based on a continuous period of three fnancial years commencing from 01,04,2014, wherein financial statements or annual returns have not been filed by a publ c or private company, the dlrectors of such a company stand disquallfied 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 SHAH VS.

UNION OF INDIA3 expressed similar view as that of the leaned single Judge of High Court of Karnataka (1 supra), and held that Section 764(2) ot the Act of 2013, which had come into force with effect from 7.4.2074 would have prospective, and not retrospective effect and that the defaults contemplated under Section 16a(2)(a) with regard to non-filing of financial statements or r rlspecial Civil Application No.22'135 of2017andbatchdated 18 12.

t2 annual returns for any contlnuous period of three financial years would be thedefaulttobeCountedfromthefinancialyear20l4-lSonlyandnot 201"3-14.

22. A learned single Judge of the High Court of Madras in BHAGAVAN DAS DHANANJAYA DAS vs. ttNION OF INDIAA also expressed similar view. The relevant portion is as under:

29. In fine, (a ) When the New Act 2013 came into effect from 1'4.2014, the second respondent herein has wrongly given retrospective effect and erroneously disqualified the petitioner directors frorn 1.1.2016 itself before the deadline commenced wrongly fixing the first financial year from 7.4.2013 to 31.3 2074. By virtue of the new Section 164(2)(a) of the 2013 Act using the expression 'for any continuous period of three financial year" anC in the light oF section 2(41) defining "financial year" as well as their own General circular No.08/14 dale:d 4.4.2074, the first financial year would be from 7.4.7014 to 3t.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 2Z of the counter affidavit that the default of filing statutory returns for the linal years commences from 2073-14, 2074-15 and 2015-16 i e, one year before the Act 2013 came into force. This is the basic incurable leqal infirmity that vitiates the entire impugned proceed ings.

(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 16a(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 lssuance of prior notice before disqualifying the petitloners as directors is concerned, Section 164(2)(a) is required to be noticed, and the same is extracted as under for ready reference:

164. Disqua lification for appointment of director: 'tV.P.No.:5+s5 of 201? al1d barcir drred 27.07.201E

tl

(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 of three financial years, shall be ineligible to be reappointed 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 (l supra), as well as the learned single Judge of the HighCourtofGujaratatAhmedabadinGaurangBalvantlalShahs/o Balvantlal shah vs.

Union of India (2 supra), after analyzing various provisions of the Act and Rules framed thereunder, and by relying on various judgments of the Apex Court, held that Section 164(2)(a) of the Act applies by operation of law on the basis of the circumstances stated therein, the said provision does not envisage any hearing, neither pre-d isq ua lification nor post-disqualification and this is not in violation of the principles of natural justiceandhence,isnorultrayiresArticle14oftheConstitution'Iconcur with the said reasoning.

25. Thus, from the above, it is clear that Section 164(2)(a) of the Act deeming provision and the disqualification envisaged under the said rs a provision comes into force automatically by operation of law on default and Legislature did not provlde for issuance of any prior notice' but the respondentsnotifieddisqualificationevenbeforeitincurred,anddeactivated DINs, which is illegal arbitrary and against provisions contained in Section 164(2)(a) of the Act.

l-+

26. The next grievance of the 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) of the Rules, the DINs cannot be cancelled or deactivated, and the violation mentioned under Section 164(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 164(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 cancellat,on 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 offrcer authorized by the Regior'ral Director may, upon being satisfied on verification of partculars or documentary proof attached with the application received from any person, cancel or deactivate the DIN 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 wrongful manneT oT by fraudulent means; of the death of the concerned individual;

the concerned individual has been declared as a person of unsound mind by a com petent Court;

if the concerned individual has been adjudicated an insolvent; (a) b) c) d) (e) Provided that before cancellation or deactivation of DIN pursuant to clause (b), an opportunity of being heard shall be given to the concerned individual; (0 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 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 shall verify e-records.

Explanationi 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 informaton or on the basis of \/vrong certification or by making misleading or false information or by misrepresentation; (ii) the te.m "fraudulent means" means if the DIN is obtarned with an intent to deceive any other person or any authority including the Central Govern ment.

(j)

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

la 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 Section 154. Section 153 requires every individual intending to be appointed as Director of a Company to make an application for allotment of DIN to the Central Government in such form and manner as may be prescribed.

Section 154 states that the Central Government shall within one month from the receipt of the application under Section 153 allot a DIN to an applicant in such manner as may be prescribed Section 155 prohibits any inclividual, who has already been allotted a DIN under Section 154 from applyrng for or obtainrng or possessing another DIN. Rules 9 and 10 of the said Rules of 2014 prescnbe the procedure for maktng appllcation for allotment and for the allotment of DIN, and further prov de that the DIN allotted by the Central Government under the sai.

j Rules wouid be valid for the life time of the applicant and shall not be allotted to any other person, 30, Rule 11 provrdes for cancellation or surTender or deactivation of DIN' Accordingly, the Central Government or Regional Director or any authorized officer of Reqional Director may, on being satisfied on verification of particulars of docum!

ntary proof attached with an application from any person, cancel or deactivate t'he 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 oi deactivated as that woutd run counter to the provisions contained in the Rulell,whichspecificallyprovidesforthecircumstancesunderwhichtheDlNcould be cancelled or deactivated.

31. In that view of the matter, the Court is of the opinion that the action of the respondentsindeactivatingtheDlNsofthepetitioners-DirectorSalongWiththe pubtication of the impugned list of Directors of "struck off" companies under ieition zag, also was not leqally 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 nl'pu'ti.utu''statedinFormDlR.3hastointimatesuchchangetotheCentral GovernmentwithintheprescribedtimeinFormDlR-6,however,ifthatisnotdone' theDlNcouldnotbecancelledordeactiVated'ThecancellationordeaCtiVationof the DIN could be resorted to by the concerned respondents only as per the provisions contain€d in the said Rules "

30.Inviewoftheabovefactsandcircumstancesandthejudgment 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 164(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 iompanies.

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 01.04.2Ot4 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 petitloners 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 are accordingly allowed to the extent ind icated a bove.

35, Interlocutory applications pending, if any, shall stand closed. No order as to costs.

A.RAJASHEKER REDDY,] DATE: 18-07-2019 AVS