Allowed

Smt Itha Deepa v. Union Of India

Telangana HC1 Oct 2020WP/17276/2020

Case brief

AI extract

What is this about?

Directors challenged disqualification for alleged filing defaults and deactivation of their DINs. Following an earlier common order, the court allowed the petition, setting aside disqualification and deactivation and directing DIN restoration for functioning as directors other than in struck-off companies. No costs were awarded.

What did the court decide?

Disqualification and DIN deactivation set aside; Registrar directed to activate the petitioners' DINs for functioning as directors other than in struck-off companies.

Smt Itha Deepa Vs Union Of India — Company and Corporate | Telangana HC (2020)

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HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD (Speciat Original^{jurisdiction)}

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THURSDAY, THE FIRST DAY OF OCTOBER TWO THOUSAND AND TWENTY

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PRESENT

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THE HON'BLE SRI JUSTICE CHALLA KODANDA RAM

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WRIT PETITION NO: 17276 OF 2020

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Between:

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1 . Smt ltha Deepa, S/o ltha Srivenu, Aged about 43 years R/o 1-86/16. Patm County, Beside Safrani School, Raidurg, Golconda, Hyderahad, Telangana500033.

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Sri Garlapati Srikanth Reddy, S/o Surender Reddy Garlapati, Aged about 34 years, R/o Plot No. 439, Road No.20, Jubiliee Hills, Hyderabad, Telangana500033.

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...PET|T|ONERS

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AND

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Union of lndia, Rep. by the Ministry of Corporate Affairs, A-Wing, Shastri Bhawan, Rajendra Prasad Road, New Delhi^- 110001 , Represented by its Secretary.

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The Registrar of Companies, (For State the of Telangana), 2nd Floor, Corporate Bhawan, GSI Post, Tattiannaram Nagole, Bandlaguda Hyderabad - 500 068.

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,,,RESPONDENTS Petition under Article 226 of the Constitution of lndia praying that in the circumstances stated in the affidavit filed therewith, the High Court may be pleased lo pass an order or direction or any other proceedings one in the nature of Writ of Mandamus declaring the action of respondents in disqualifying the^petitioner as a directors and deactivating the^petitioner Director ldentiflcation Number^(DlN) 02593745 and 2nd^petitioner Director ldentification Number^(DlN) 02593746 and restricting the petitioners from filing statutory returns, i.e., the annual returns and financial statements of the Companies in which they are Directors and restricting the petitioners to incorporate new companies Under Companies Act. 20'13 as arbitrary, illegal, without^{jurisdiction,} contrary of the provisions of the Companies Act, 2013 and Rule 1 1 of the Companies (Appointment of Directors) Rules, 2014, violative of the principles of natural justlce besides violating the petitioner rights guaranteed under Article 14 and Article 19 (t ) (g) of the Constitution of lndia.

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lA NO: 1 oF 2020

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Petition under Section 151 CPC^praying thatⁱⁿ the circumstances^{statedin the} affidavit filed in support of the^petition, the High Court may be^{pleasedto direct the} 1st Respondent to restore the 1st^{petitioner Director ldentification Number(DlN)} 025937 45 and 2nd^petitioner Director^{ldentification Number(DlN) 02593746so as to} enable^petitionerS to Submit^pending annual^{returnsand financialStatements for the} Companies in which they are^{appointed as directors, and petitioners enableto} incorporate new companies Under^{Companies Act. 2013.}

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Counsel for the Petitioner: SRl.^ANGOTHUNEHRU

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Counset for the Respondents:^{SRl. NAMAVARAPU RAJESHWARRAO,} ASSISTANT SOLICITOR GENERAL

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The Court made the following: ORDER

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f.I:IE] HON'BLE SRI JUSTICE CHALLA K')DITNDA^RAM

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WRIT PETITION No. L7276 of^'.21\20

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OR.DEII:

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The petitioners challenge their dis,qualification from Directorship under Section 164(2\ of the Comparries Act, 2013, for the alleged default in filing financial statemerrt/Annual Returns, and co::sequently seek restoration of their Directlr Identification Numbe:s (DIN) viz., 02593745 and 02593746 res:ectively.

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L:arned counsel for the petitioners subrn:ts that the issue raised .r'r the present Writ Petition is squarell' covered by the common order dated 18.07.2019 in W.P.No.5,421) of 2018 and batch.

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LerLrned Standing Counsel for the 2"a resF,onclent - Registrar of Companies does not dispute the aforesaid subr::ission.

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Opt:rertive portion of the aforesaid order reads as under:

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"For^{the foregoing reasons, the impugrLed} orders ln th€ writ petitions to the extent of disqrralifying the petltioners undcr Section L6aQl@l of tt,e Act and deactivation of thelr DINS, are set aside, and the 2"d respondent ls directed to activate the DINs of th,3 petitioners, enabling them to function as Ditectors other thsn in strike off c,rmpanies,

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It is made clear that this order will not pr:eclude the 2"a respondent from taklng appropriate action in 1c,:ordance with law for violations as envisaged under Sectio[ .164(21 of the Act, giving the said provislon proapective effect from O1.O4.2014 and for necessary action against DLV in case of r/iohtlons of Rule 11 of the Rules.

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It is also made clear that if the pet:it)orLers are aggrieved by the action of the :espondents in s:riklng off thei' companies under Section 248 of the Act, the:, are at liberty 16 avail alternative remedy under Section ilSlZ of the Act.

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All the $r.it petitions are accordingly allowed to the

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extent indicated above-"

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ln view of the said Order dated 18.07 .2019 and for the

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reasons recorded therein, this Writ Petition is also allowed in terms

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thereof. No costs.

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Miscellaneous Petitions, if any stand closed.

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SD/.B.SATYAVATHI ASSISTANT REGISTRAR //TRUE COPY//

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SECflON OFFICER

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To,

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The Secretary, t,4inistry of Corporate Affairs, Union of lndia, A-Wing, Shastri Bhawan, Rajendra Prasad Road, New Delhi - 1 10001.

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The Registrar of Companies, (For State the of Telangana), 2nd Floor, Corporate Bhawan, GSI Post, Tattiannaram Nagole, Bandlaguda Hyderabad - 500 068.

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J. One CC to Sri Angothu Nehru Advocate [OPUC] 4. One CC to Sri, Namavarapu Rajeshwar Rao, Assistant Solicitor General [OPUC]

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(Along with a copy of order, dated 18.07.2019 in W.P.No.5422 of 2018 and batch)

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t Two CD Copies

CHR

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HIGH COUIlT

DATED:01 l10t',2020

ORDER

W.P.No.1727r?; of 2020

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DISPOSING OF THE WRIT PETTTION WITHOUT CC)S S

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tI0
t0

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THE HON'BLE SRI JUSTICE A.RA]ASHEKER REDDY

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W.P.NOs.5422. 12184. 13520. 13783. 13855, 14166. 24Os1.30993. ANp 40953 0F 2018. s547. 5582. 5669, 5687. s78s. 6047. 6087. 6L40. 6484. 6753. 6A5A. 695A. 69AL, 700L.700A.7014.7046.7069, 7073. 7tos. 7432. 7454, 7572, 7595. 7732. 7765. 776a. 7A24. 797A. 8111, 8223. 8586. 8590. 9333. 9340. 9381. 9468. 9s63. 9584. 9623. 9726.9737. 10058. 10099. 11208. 11223. 11239. 11263. 11a89. LL99t. L20L8. L2036. L2040. L2069. 12108. 12144. t21A6. 12194. 122()0. L2209. L22L5. L22L7. L2243. 12260. 12262. t22AA. 12342. 12350. L24L7. L2432. L2472. L2498, 72506. 12s74. t2s9a. 72621. 12702. 12735, 12740. 12845, 12850. 12865. 12866. 13013. 13618. L3730. L3749. L3779. L37AA, L3839. L3A55. L3A7A. L39L2. L39L7. L3945. t4t0t. L4174. L4207. L4350. L436L. 14390. L4392. 14397, L4409, 145a2 AND L4597 0F 20L9

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COMMON ORDER

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Since, the issue involved in all^{the writ petitions is one and the same,} they are heard together and^{are being disposedof by this common order.}

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The^petitioners are the^{directors of the private companies,} registered under the companies^{Act, 2013 (18 of 2013) (for short'theAct').} Some of the such^{companiesare active, and some of them have been struck} offfromtheregisterofcompaniesunderSection24s(1)(c)oftheAct'for not carrying on any^{business operationfor the specifiedperiod mentionedin} thesaidprovision,andfornotmakinganyapplicationwithinthespecified period, for obtaining the^{statusof a dormantcompanyunder Section 455 of} the Act.

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The^{petltioners/who were directorsof the struck off companies'} andwhoarepresentlydirectorsofactivecompanies,duringtherelevant period in^{question, failed to file financial statementsor annual returnsfor a} continuous^{period of three years' Therefore'the 2nd respondentpassedthe} impugned^{order under Section 164(2) of the Act' disqualifying them as} directors,^{and furthermakingthem inerigibreto be re-appointed as directors} of that company,^{or any other company'for a period of five years from the} date on^{whichthe respective companiesfailed to do} so. The^Director identification^{Numbers (DINs)of the petitionerswere} also deactivated. Aggrieved^{by the same, the present writ petitions have been filed'}

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)

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This^{couft granted interim orders in the writ petit ons directing the} 2nd respondent^{to activate DINsof the petitioners' to enablethem to function} other than^{in str ke off comPanies'}

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Heard^{the learned counsel appearingfor the petitionersin all the} writ^{petitions,Sri K.Lakshman, learned AssistantSolicitor (;eneral appearing} for the respondelts -^{Unionof India'}

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6.Learnedcounselforthepetitioners,contend-hatbeforepassing the impugned^{order,notices have not been issued,givin'3 them opportunity'} and this amounl:s^{to violation of principlesof natural justice, and on this} ground alone, the impugned orders^{are liableto be set as de'}

¶63

Learned counsel submits that^{Section 164(2)(a)of the Act} empowers the authority^{to disqualify a person to be a ciirec:tor, provided he} has not filed financial statements^{or annualreturns of the company to which} he is director, I'or any continuous^{periodof three financial years.Learned} counsel further submits that this^{provision came into for(:e with effectfrom} t.4.2014, and prior thereto i.e., under Section 27aQ)@) 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^prospoctive operation and hence, if the directors of company fail to comply wi:l' the requirements mentioned in:he said provision subsequent to the saicl date, the authority under the Act, is within its jurisdiction to disqualify therr. 8,ut in the present cases, the 2nd respondent, taking the period prior to L.4,2074, i.e., giving the provision retrospective effect, disqualified the petitioners asr directors, which is illegal and a rb itra ry.

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Witi regard to deactivation of DINS, learned counsel for the petitioners sub,.it thar the DIN', as contemplated uncer luie 2(d) of the Companies (Ar,trointment and eualification of Directors ), ttules, 2014 (for

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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.

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Learned counsel further submits that l't respondent - Government of India represented by the Ministry of Corporate Affairs, has floated a scheme dated 29.72.201,7 viz., Condonation of Delay Scheme - 2018, wherein the directors, whose DINs have been deactivated by the 2"d respondent, allows the DINs of the Directors to be activated. However, such scheme is not applicable to the companies which are struck off under Section 248(5) of the Act. In case of active companies, they can make application to National Company Law Tribunal under Section 252 of the Act, seeking for restoration, and the Tribunal can order for reactivation of DIN of such directors, whose DIN are deactivated. However, under Section 252 only the companies, which are carrying on the business, can approach the Tribunal and the companies, which have no business, cannot approach the Tribunal for restoration. They submit that since the^{penalprovision} 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.

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With the above contentions, learned counsel^{sought to set aside} the impugned orders and to allow the^{writ petitions.}

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On the other hand learned Assistant^{SolicitorGeneralsubmitsthat} failure to file financial statements or^{annualreturns for any continuousperiod}

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of three financial^{years,automaticallyentail their disrlualificationunder} section 164(2)(ir) of the Act^{and the statute doesnot pro'riJe for issuanceof} any notice. Hence, the^{petitioners,who have failed to cc'mply with the} statutory requirement under Section^{164 of the Act, calnot complain of} violation of principles of natural^justice, as^{it is a deemingp -o'rision'Learned} counsel further submits that the^{petitionershave alterrrative remedyof} appeal under Section 252 of the Act, and hence^{writ petiticns may not be} entertained.

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To consider the contention of the learned l\ssistant Solicitor General with regJard to alternative remedy of appeal under l;ection 252 of the Act, the said provision is required to be considered, itnC the same^is extracted as und,?r for better appreciation:

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252. , l)peal to Tribunal:

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(1) Arr)/ person aggrieved by an order of the Registrar, n,)t fying a company as dissolved unler Section 248, may file an appeal to the Tribunal \vitlin a^period of three^years fror'i the date of the order of the Registrar and if th{r^'Tribunal is of the opinion that the removal of the name of the company from the re(ii:ter of companies is not JUstrfied in view of the absence of any of the grounds on which the order was passed by the tlegistrar, it may order restoration of the name of thrl ccmpany in the register of corr Dan es;

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Providrl.l that before passing an order under this section the Tribunal shall give a reasonal)le opportunity of making representations and of oeinq heard to the Registrar, the :)mpany and all the persons concerned:

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Provideij further that if the Registrar is satisfied, that the name of the company ilas l).:err struck off from the register of companies either iradvertently or on basis of inc.rrrect information furnished by the company or ils directors, which requires restori,ton in the register of companies. he may withrr ir teriod of three years from the dale of passing of the order dissolvang the compa ry under Section 248, file an eppli:ation before the Tribunal seeking restoratior r)f name of such company.

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(2) A :r)py of the order passed by the Tribunal shall be f l3r b.r' the company with the Regis:rar within thirty days from the date of the order ard or receipt of the order, the Re(J strar shall cause the name of the company to l€ r3stored in the regaster of conrl. an es and shall issue a fresh certificate of incorporal ion.

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(3) It a company, or any member or creditor or w()Tlier thereof feels aggrieved by l:he company having its name struck off frorn tfe register of companies, th,: Tr bunal or an application made by the company, rnember, creditor or workman beFore the expiry of twenty years from the publicati)n in the Official Gazette of the nctice under sub-section (5) of Section 248, f satisfied that the company was, nt ihe time of its name being struck off, carryjng ()n business or in operation or otherwise it is just that the name of the company be r3stored to the register of con)panies, order the name of the company to be reston)d to the regjster of companies, ,:nc the Tribunal may, by the order, give such olhtr directions and make such prcVjsions as deemed just for placing the company and all other persons in the same plsition as nearly as may be as if the name of the Conlpany has not been struck off iro n the register of companies.

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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 disq ua lificatio n 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 rejectlon.

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Under Section 164(2)(a) of the Act, if the Director of a company fails to file flnancial 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 flve 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 01.04.2074, and the petitioners are disqualified as directors under the said provision. At this stage, the issue that arises for consideration is - whether the d isq ua lification envisaged under Section 164(2)(a) of the Act, which provision came into force with effect from 01.04.2014, 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 164(2)(a) of the Act, has to^be calculated, to^hold the director of the company liable? In this regard,^{the learnedcounsel} brought to the notice of this^Court, the^{General Circular No.08/14dated} 4.4.20t4 issued by the Ministry of^{Corporationaffairs, which clarifiesthe} applicability of the relevant Financial^{years. The relevant portion of the said} circu la r is as under:

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"A number of provisions of the Companies^{Act, 2013 includingthose relating to} maintenance of boots of^{account, preparation, adoptionand filing of financial} statements^(and documents^{requiredto be attachedthereto),Auditors reportsand} the Board oi Directors^{report (Board's report) have been brouqhtinto forcewith}

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effect from 1s' April, 2014. Provisions of Schedule^{11 (usefu I verito compute} depreciation) irnd Schedule III^(format of^{financial statements) havealso been} brought into for.e irom that date. The relevant^{Rules pertaining to th:seprovisions} have also beer notified,^placed on the website of the Ministry^{arrdhave comeinto} force from the same date.

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The lvlinistrv f,as received requests for clarification with regard t() the^relevant financial years with effect from which such^provisions of the n':v/ l\ct^relating to maintenance of books of account,^preparation, adoption and fi inE of financial statements (arr.l attachments thereto), auditors report and Board's^report will be applicable.

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Although th3^position in this behalf is^quite clear, to make things, alsolutely clear it is hereby n,::ified that the financial statements (and documeits required to be attached ther€to), auditors report and Board's report in respect^()f 1'nancial^years that commen:.id earlier than 1't April shall be governed t)y the relevant provisions//sch,rlules/rules of the Companaes Act, 1956 and thdt rn respect of financial years^(:onrmencing on or after lstApril, 2014, the provis oIs tf the new Act shall apply.^"

¶86

A reading of th: aDove circular makes it clear the finanr:i,rl statements and the documents required to be attached thereto, auditors rep,ort and Board's report in respect of financial years that commenced earlior than 07.O4.2074, shall be governed by the provisions under the Companies Act, 1956 and in respect of financ al years commencing on or after 01.O4.i,.CLtl, the provisions of the new Act s;hall apply.

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At this stage it is required to be noticed that the analogous provision to Seciion 76aQ)@) of the Act 18 of 2013, is Sie ction 27aO)G) ot Act 1 of 1956. The said provision under Act 1 of 1956 s, {lx:racted as under for ready referer ce::

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Section 2^z A person shall not be capable of being appf,irt€d director of a company, if -

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(g) such pr:rson is already a director of a public company whictl, -

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(A) has not filed the annual accounts and annLra returns for any continuous three financial years commencing on and after the first day of Aprit, 1999; or

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(B)

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Provided rhat sucr person shall not be eligible to be appointed as a director of any other public coxpany for a period of five years from tire date ot which such public company, in !vnich he is a director, failed to file annual accounts and annual returns under sub-claLse (A) or has failed to repay its deposits or int{rrlst or redeem its debentures on due date or pay dividend refeired to in clause (B).

¶93

A reading of the above provision under Act 1 of 1956, m;rkes it clear that if a person capable ,:rf being appointed director of a company anC such person is already a direct.r of a pubric company, which has not fired annuar accounts and annual retu.ns for any continuous three financiar yea-s commencing on

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and after the first day of April 1999, shall not be eligible to be appointed as a director of any other public company for a period of five years from the date on which such public company, in which he is a director, failed to file annual accounts and annual returns. So the statutory requirement of filing annual accounts and annual returns, is placed on the directors of a 'public company'. There is no provision under the Act 1of 1956, which places similar obligations on the directors of a 'private company'. Therefore, 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.

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Under Section 764(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 01.04.2074.

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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 2nd respondent^{runs contraryto the circularissuedby the} Ministry of the corporate^{Affairs, and he hasgiven the provisionsof Act 18 of} 2013, retrospective^{effect, whichis impermissible'}

¶98

The Apex^{Court inCOMMISSIONER OF INCOMETAX} (CENTRAL)I,NEWDELHIv.VATIKATOWNSHIPPRIVATELIMITEDI has dealt with the^{general principles concerningretrospectivityThe relevant} portion of the^{judgmentis thus:}

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A legislation,^{be it a statutoryAct or a statutoryRule or a statutory} Notifica tion,--naav^{physically consistsof wordsprinted on papersHowever'} I (2015)l sccl

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conceDtually it^{s a great deal more than an ordinaryproserter3is a special} peculianty in tlre^{mode or u"'uar'tornin''iilationOv a legiitationA leqislation is not} iust a series of^{stai:ements,au.n ia on"finds in a work of fiction/1c nf iction oreven} i;: ;,;;.',;r; ;;';;,;;i i"*^' ?"'" i' "^{iechnique required.tc c rata reeislation} as well as to^{understanda r"gisraii;n.-rormertechniqueis kno\vnas legislative} drafting^{and latter one i, to u" ioino- in it'"} '"tiout principles oF'lnlerpretation^of Statutes'.^{vis-;-visoroinarypro-s-e,'ai"gitiutiondiffers.in.its p'overTance'lay-out} ;;;;;;;r r";;t;r.o^{in tt" i;plic-ati;;a;io its meaninethataris(rs bv presumptions} as to the intent^{of the maker thereof'}

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of the^{various rules guiding how a legislation hasto be in:erpreted'one} established^{rule is thatunr"r,u tontiuty intenti6n appears' a legi:;laticrnis presumed} not to be^{intended to nau"u} 'et'osplitive^operationThg iq:'^{behind the rule is} that a current^{iaw should governculrentactivitiesLaw passed:oda'/ cannot apply} to the events^{3f the past. rr*" oo somlrningtoday, we do-itl<€eping in the_l.aw.of} today and^{rn flrce and not tomotrowS bickwird adjustmentof i-OJr belief in the} i"irl"-oitr,"^{l6v,/ rs founded on inu o"o rock that every humanb(rin3is entitled to} arrange hrs^{affairs by relyingonihe existinglawand should not fnd that his plans} iu[ i""^{n- r"tr.rrp eciivelyurset This princlple of law.is known aslex prospicitnon} .'"reJi l"* rr"i,^{ro.waro noi backwardAs was observedin F'hillipsvsEyre} t(1870)^{LR 6 QB 11, a retrosp;;i;;legislationis contrary to tle g€:neral principle} rh:r tadiqtiri.n hv which tn" aonOrai oihantlnd^{is to be regulated when introduced} ;;;il;;i;;i;;;'t;-;";i ;'th irtrre acts^{oueht not to chansethe character or past} iirniu.tion.^{crrriedon uponthe faith of the then existing law'}

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Tlre obv^{ous basis of the principle againstretrospectivitl/s i:he principle of} 'ruir-ness;, wh ch must be the^{basis o? e'jty legalrule as was ol)served in the} i".irLn^{'r"por,"oin L'office cherifien des ihosphatesvY'rrra:;hita-Shinnihon} it"ur*nip Lc.^Ltd. t{199a)^{1Ac 4861. Thus, legislationswhich modifiedaccrued} .ionls or'*nlcr. nrposL^{obligationsot irnpose new dutiesor att;tc.r} 'r^{new disability} 'nl""i" o" ir'r.,"iii pio=p-ectire unless the legislative intent is (:learly to give the ;;;;;";i a rr:trospective^{effect;unlessthelegislationis forpurpose of supplying} an obvious orrission^{in a formerIegislationor io explaina fornrer legislation.We} need not note that cornucopia^{of cas!law available on the subje(tbe':ause aforesaid} legal^position clearly^{emergesfrom the variousdecisionsand this legal position was} .o-niei"o by the^{counsel- for the parties. In any case,we slallrefer to few} judgments co''rl:aining this dicta, a little^later.

¶104

We wsuld also^{like to point out, for the sakeof completenesj,thatwherea} Uenefit is conferred^{by a legisiation,the rule against a retrospe(:tive constructionis} different. If^{a legislation confers a benefit on some persons but ,',ithoutinflictinga} corresponding^{rjeiriment on someotherpersonoron the public aerrerally, and where} to confer su:h benefit^{appears to have been the legislatorsotJect,thenthe} presumption vrculd be that such a legislation,^{giving it a puiposive construction,} would warrant it to be^given a^{retrospective} effect.^{This exactly is [h(: justificationto} treat^{procedLral grovisions} as retrospective.^{In Governmentcf India& Ors.v.} Indian Tobac(o Association, t(2005)⁷ SCC^{3961, the doctrine ofFa rness was held to} be relevant factor to construe^{a statute conferringa benefit,in the co"ltext of it to be} given a retrcspective operation. The same doctrine of fairnos;, to hold that^a statute was rei:rospective in nature, was appliedⁱⁿ the^{caseof Vijay v.State of} Maharashtra t ors., [(2006) 6 SCC 289]. It was held that^{whe rrr a law is enacted} for the benefii: of community as a whole, even in the absenc€ of 3^provisionthe statute may t,3 held to be retrospective in nature. However, w(: are^(slcnot) confronted wi[h any such situation here,

¶105

In r;uch cases, retrospectivity is attached to benefil the^persons in contradistinct on to the^provision imposing some burden or lirbility where the presumption a:tached towards prospectivity. In the instant cas€, :h6: proviso added to Section 113 of the Act is not beneficial to the assessee. On tl'e^(:ontrary, it is a provision which is onerous to the assessee. Therefore, in a cas3 ike this, we have to proceed !\a:h the normal rule of presumption against retrcsl)e(tive operation. Thus, the rule against retrospective operation is a fundamental nJle of law that no statute shall be construed to have a retrospective operation Jnless such a construct on appears very clearly in the terms of the Act, or arisos by necessary and distinct irTplication. Dogmatically framed, the rule is no more th.rn a^presumption, and thus could be displaced by out weighing factors.

¶106

Ther€ rs yet another very interestang^piece of evidenc{r that clarifies that provision bey,)nd any pale of doubt vaz., the understanding of Cllt)T itself regarding this provision It is contained in CBDT Circular No.8 of 2002 dar:el i:7.8.2002, with the subject "l:inance Act, 2002 - Explanatory Notes on provision relating to Direct Taxes". This circular has been issued after the passing of the Financc Act,2OO2, by which amendrrentto section 113 was made. In this circular, vlrioLs amendments to the Incom(r l:ax Act are discussed amply demonstrating as to which amendments are cla rificato r)'/ retrospective in operation and which amendment:; are prospective.

¶107

¶108

For example, Explanation to section 158-BB is stated to be clarificatory in nature. Likewise, it is mentioned that amendments in Section 145 whereby provisions of that section are made applicable to block assessments is made clarificatory and would take effect retrospectively from lst 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 1.6.2002."

¶109

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 afterpassing} of the legislation, clarifying^{the position with regard to applicabllityof the} provisions, has to be construed as^{an important pieceof evidence,as it} would clarify the^{provision beyond any paleof doubt. In the present case, as} already noted above,^{the Ministryof corporation affairs has issued the} circularNo.08/20l4dated4.4.20l4clarifyingthatfinancialstatementS commencing after^{01.04.2014,shall be governed by Act 18 of 2073 i'e''new} Act and in respect^{of flnancial years commencing earlierto 01'04'2014'shall} be governed^{by Act 1 of 1956' At the cost of repetition' since in the present} cases, as the^{2ndrespondent /competent authority' has disqualifiedthe} petitioners as directors^{undersection 16a(2)(a)of the Act 18 of 2013' by} considering^{the periodprior to O1'04'2014'the same is contraryto the} circular,^{and also contraryto the law laid down by ApexCourt in the above} referred^judgment'

¶110

If^{the said provision is given prospectiveeffect' as per the circular} dated^{4.4,2014 and the law laid down by the Apex Court'as statedin the} writ affidavits,^{the first financial year wouldbe from01-04-2014to} 31.03.2015^{and the second and third years financiaryears wourd be for the} years endinq^{31'03'2016and 31'032017'The annual returnsand financial} statements^{are to be filed with Registrar of Companies only after the} conclusion^{of the annual general meetingof the company' and as per the first}

¶111

¶112

provrso to Section^{96(1)of the Act'annual general meetrng for the year} ending 31.o3.2c17,^{can be held within six monthsfrcnr the closing of} flnancial^{year i'€., by 30'09'2017' Further' the time llmit for filing annual} returns under^{sectiongz(4) of the Act, is 60 days frcnr annualgeneral} meeting,^{or the ast date on which annual generalmeetirrg ought to have} been held^{with normalfee, and within270 dayswith addition;rl fee as per the} proviso to Section^{403 of the Act' Learned counselsubrnitthat if the said} dates are^{calculated, the last date for filing the annual returns wouldbe} 30.11.2Ot7, ar(:^{the balancesheet was to be filed on 30'10'2017 with} normal fee^{and ,,r,ilh additional fee, the last date for filir g annual returnsis} 27 ,07 .2Ot8. In^{other words, the disqualification could g:t t-iggered only on} or after 27.07.?-018.^{But the period considered by the 2'd rr:spondent in the} present wrtt petitions for clothing^{the petitioners 'r'it h disqualification,} pertains prior :o 07,04.20L4. Therefore,^{whenthe omiss;ion,which is now} pc.rinted out,^\r'i as not envisaged as a^{groundfor disc uallfication priorto} 1.4.2014, the petitioners cannot be disqualified^{on th€ said ground. This} analogy is traceable to Article 20(1) of the Constitution^c,f India, which states that "/Vo perso't sltall be convicted of any offence except for violation of a law in force at the time of the commission of the act charge'o as an offence, nor be subjected to a penalty greater than that which might hzrve been inflicted under the law in force at the time of the commission ct'the offence". In view of the sanre, the ground on which the petitioners; rvere disqualified, cannot stand to legal scrutiny, and the same is liable to be set aside.

¶113

A lr:arned Single Judge of the High CoJrt of Karnataka in YASHODHARA SHROFF vs. UNION OF IND'Itt2 considering Section 16a(2)(a) of the Act and other provisions of :l-e Act, and various judgments, passed an elaborate order and held that the saicl provision has no retrospective operation. The observations of the learneci .ludge, pertaining tO

¶114

'^w.p.No.529l I of 2l l: rnd batch dared 12.06.2Olg

¶115

¶116

private companies, which are relevant for the present PUrpOSe, are extraCted as under;

¶117

In view of the aforesaid discussion, I have arrived at the following conclusions:

¶118

(a) It is held that Section 1641 co,,titution.-;#,';il' ffil:iiti,l{:}:i",=',;"",,r1,,,#r,Iffi j,::.f"j,. f"l i:; within the scope of the doctrine of proportionatity. f,leitn"r,Oo", the said provrsion and viotate public purpose and Articte 19(1)(o) of tne conititution a reasonabte of the sajd.provision restrjction "" ti," i, l;;li; ;;;;:;;e "r"iiir" "iit"'lu,ol.,gt,. io - ,l,prt"," "ih-e consequence interest The objector eenerarof a disquarification on account of the circumstances siated therein and the same is in governance.:ld:r^{toachieveprobity,accountability,unJ'-t.unipurun.y} in corporate

¶119

(b) That Articte (sic) Seclon 164(2) of th e Act applies by operation of law on the basis

¶120

of the circumstances stated therein ,^the said^provision does not envisage any

¶121

hearing, neither pre-disqualification nor post-disqualification and this is not in

¶122

violation of the principles of natural justice, is not ultra ylres Article 14 of the Constitution.

¶123

(c) That section 164(2) of the Act does not have retrospective operation and is therefore, neither unreasonable nor arbitrary, in view of the interpretation placed on the same.

¶124

(d)...

¶125

(e) Insofar as the private companies are concerned, d isqua lification 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 of analogy from Article 20(1) of the Constitution, as at no point of time prior to the enforcement of the Act, a d isqualification 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} 274(L)(g) of 1956 Act and never a director of a^private company.^Such disqualification of the^{petitioners who are directorsof private companies is hence} q u ashed.

¶126

(0...

¶127

(9) Consequently, where the disqualification^{under Section 764(2)of the Actisbased} '-' on a continuous period of three Rnancial years commencing from 01 04 2014, wherein financial statements^{or annual returns havenot beenfiled by a public or} private company, the directors of^{such a company stand disqualifled and the} consequences of the^{said disqualification would applyto them undertheAct'}

¶128

2t. A learned Single^{of the High Courtof Gujaratat Ahmedabadin}

¶129

GAURANG BALVANTLALSHAH^{S/O BALVANTLALSHAHvs' UNIONOF}

¶130

INDIA3 expressed^{similar view as that of the leaned single Judgeof High} Court of Karnataka^{(1 supra), and held that Section164(2)of the Act of} 2013, which^{had come into force with effect from l'4 '2014 would have} prospective, and^{not retrospective effectand that the defaults contemplated} under Section^{164(2)(a) with regard to non-filingof financial statementsor} I r/Special Civil Application No 22435 of2017 and batch^{datcd 18 12 2018}

¶131

¶132

period^{of threefinancial years wculd be} annual^{returnsfr)r any continuous} 261a--15^{only and not} the default^{to tcr countedfrom the financial year} 2Al3-L4.

¶133

A^{lea-rteCsingleludgeof the HighCourt of Matlr:s in BHAGAVAN} OF INDIA4^{als()expressed similar} DAs^{DHANAN;"q'YADAS vs'} 'INION

¶134

view. The^{relev;iTtportion is as under:}

¶135

In^fine:,

¶136

(a) 'When lll liia^{the ''r"rrtiiaeni New Act herein has wrongty 2013 came into effecl' given frc'm 1'4'2014' rotrospective effectthe} ;;;"",-;;;;;;v disquatified^the ieti[ion:r^{-directorsfrom} i. iz,iiii,t!rr^{tieroi" tne aeiotine commen(:ed wronslv fixins the} iirrili"arl.iur^{year from r'4'20fi to 31'3'2014} Lrv virtue of the^{new sectron 164(2)(a)of tlre} 3013 tc.t^usinqthe

¶137

(b) ;lr;";;;""ir;;-";;^{;""ti;;"r'periodor thre,i rinanciar vear"and} 2(41) defining^{"financ-a1 Tear" as well as their}

¶138

.r^'c.,.i,"i.f ';,r^{[h;i;;i "i.til," circularlto.08/t4daied4'4 2014' the first financial} ""rr^{""1a be from 1,4.2014to 31 3'2015, the secondfinancial} J.;; ;;;i; o-" rrorn l.+.zors^{to 31'3 2016 ard the third financial} ;.;; ;;;l; u" r.rn^{L 4,2016to 31'3'2017,whereasthe second} i"rrona"nt clearly^{admitted in paras15 an)ZZ of thecounter} ";;;;;it-th.i^{ine'default of filing statutoD' rel:urnsfor the final} y€ars commences from^{z1l3-14, 2OL4-15and 2015-16ie' one} ye,ar before the Act 2013^{came into force' This is the basic} ia:urable legal infirmity that^{vitiates 1he entireimpugned} p roceed ings.

¶139

In 'riew of the above facts and^{circumstancert arrd the judgments} referred to supra, as the impugned orders in^{prosentwrit petitions} disqualifying the petitioners as directors under Section f.64(2)(a) of the^Act, have been passed considering the period prior to 01.C4.2014, the same cannot be sustalned, and are Iiable to be set aside to tha - '3xtent.

¶140

As 'ar as the contention regarding issuance of pt'ior notice before disqualifying tt),3 petitioners as directors is concerned, S,:cr:ion 164(2)(a) is required to bo noticed, and the same is extracted a:; :nder for ready reference:

¶141

Disqualification for appointment of director;

¶142

o W.P.No.25455 of 2l -, ,rnd barch dated 27.07.2018

¶143

¶144

(2) No person who is or has been a director of a company whjch_

¶145

o"r.o "fi)nlXtr[""t":,':ir:::;'L"l statements or annuar returns ror any continuous

¶146

(b).

¶147

:ll"::Hffi L#ii!"",?.i:.ff^{3ff f} :;od',:"fl^',?:H.f :^j:ij".,"Tfl il*J

¶148

A reading of the above provision makes it clear that it provides d isq ua lification 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 retu rns for any continuous period ofthree financiar years, sha, be inerigibre 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 fairs to do so, The provision does not provide for issuance of any prior notice or hearing. A learned singre Judge of the High court of Karnataka in yashodara Shroff v. Union of India (1 supra), as well as the learned single ludge of the High Court of Gujarat at Ahmedabad in Gaurang Balvanflal Shah s/o Ba lva ntla I Shah vs. Union of India (2 supra), after analyzing varjous provisions of the Act and Rules framed thereunder, and by rerying on various judgments of the Apex Court, held that Section 764(2)(a) of the Acr appties by operation of law on the basis of the circumstances stated therein, the said provision does not envisage any hearing, neither pre-d isq u a lification nor post-disq ua lificatio n and this is not in violation of the principles of natural justice and hence, is not ultra yftes Article 14 of the Constitution. I concur with the said reasoning.

¶149

Thus, from the above, it is clear that Section 16a(2)(a) of the Act is a deeming provision and the disqualification envisaged under the said provision comes into force automatically by operation of law on default and Legislature did not provide for issuance of any prior notice, but the respondents notified d isq ua lification even before it incurred, and deactivated DINs, which is illegal arbitrary and against^{provisions containedin} Section 16a(2)(a) of the Act.

¶150

¶151

The^{next grievanceof the petitionersis withregaldto deactivation} of their^{DINS' -lhe contentionof the learned counselfor fhe petitionersis} that except^{for the grounds mentionedunder Rule 11 (a) to (f) of the Rules'} the DINS^{cannotbe cancelledor deactivated'and the Violation mentioned} under Section^{:'6a(2)(a) of the Act' is not one of the grounds mentioned} under clauses^{(a) to (f) of Rule 11' and hencefor theallergecLviolation under} Section^{16+(2)(a)of the Act' DIN cannot be cancelled'}

¶152

Rule^{10 of the Rulesprovide for allotmentof t)It{ and under sub} rule⁽⁶⁾ of^{Rule 10, it is allotted for life time'Rtrlt:} 11^{provides for} cancellation^{or deactivation' Rule 11' whichis relevent} for the Present purpose, is extracted^{as under for ready reference:}

¶153

cancellation^{orsurrenderordeactivation of l)IN:TheCentral} Government rr^{Regional Oirectoi itiortnern Region), Noida or a']) oificer authorized} hv thp Reoionl Jlrector may,^{upon being satrifredon verifrcationof particularsor} ;;.;;";i;;; deactivate the ;;^{DIN in case} ";i^{uttu.n"J*itr,'tt'e -applLationreceivedfroman/ person' cancel or}

(a)

(b)

(c)

(d)

(e)

th: DIN is found to^{be duplicatedin respectof the sErererson provided} thsoatarelatedtoboththeDlNshallbemergedWitrtheValidlyretained nLmber;

¶160

th3 DIN was obtained^{in a wrongful manner oTby fraLdrlentmeans;} of t're death of the concerned^individual; the concerned individual has been declared^{as a per!or'r cf unsound mind} b) a clm Petent Court;

¶161

if :he,:oncerned individual^{has been adjudicatedan lns()lv(lnt;}

¶162

Provded that before cancellation or^{deactivationof DIN pu-s'rantto clause(b),} an opportuni:! of being heard shall^{be givento theconcernedin'li'/idual;}

¶163

(f)

¶164

or^,3n application made in Form DIR-5 by^{the DIN holderto surrenderhis'} or her DIN all|rg with declaration that he has never been appsirt€d^{as director in} any company and the said DIN has never been used for filing ol any document^with any authorit)', the Central Government may deactivate such DIN;

¶165

Provided that before deactivation of any DIN in suc'r case, the Central Government shall verify e-records.

¶166

Expl;natlon: for the purposes of clause (b) -

¶167

(r)

¶168

The terms "wrongful manner" means if the DIN is obtained on the strength of iocuments which are not legally valad or incomplete documents are

¶169

Furnished or cn suppression of material information or on tte basis of wrong certificat on or by making misleading or false information or by nri:;representation;

¶170

(ii) the term "fraudulent means" means if the DIN is obtained with

¶171

an intent to deceive any other person or any authority incluclin,l the Cen:ra I Government.

¶172

ClaLses (a) to (f) of Rule 11, extracted above, provides for the

¶173

circumstances under which the DIN can be cancelled o- deactivated. The said grounds, are different from the ground envisaged under

¶174

¶175

secrion 164(2)(a) or the Act. Therefore, for the areged vioration under Section 164 of the Act, DINS cannot be cancelled or deactivated, except in accordance with Rule 11 of the Rules.

¶176

Learned Single Judge of the Gujarat High Court in the decision cited 2 supra, held as under:

¶177

"29. This takes the Court to the next questjon as to whether the respondents could have deactivated the DlNs,of the petitioner ". u .onr"qr-"n.u of the impugned list? In this regard, it would be appropriate t" ,.f"i t" ii" relevant provisions contained in the Act and the said Rules. Section 153(3) pro;ides that no person shall be appointed as a Director of a company, ,ni.r, i5 hu, been allotted the Dlrector IdentiFication Number under section 154. secttn-is: requires every individual intending to be appointed as Director of a^-ompany to make an application for allotment oF DIN to the centrar Government in suc'h form and manner a5 may be prescribed. sec on 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 1S5 prohibits any individual, who has already been allotted a DIN under Sectjon 154 from applying for or obtaining or possessing another DIN. Rules 9 and 10 of the said Rutes of ,014 prescribe the procedure for making application for allotment and for the allotment of DIN, and further provide that the DIN allotted by the Central Government under the said Rules would be valid for the life time of the appticant and sha not be allotted to any other person.

¶178

30, Rule 11 provides for cancellation or surrender or deactivation of DIN. Accordingly, the Central Government or Regional Director or any authorized officer of Regional Director may, on being satisfied on verification of particulars of documentary proof attached with an application from any person, cancel or deactivate the DIN on any of the 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 deectivate 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 indivldual, 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 couldnotbe} cancelled or deactivated as that would^run counter^{to the provisions contained in the} Rule 11, which specifically^provides for the circumstances under^{whichtheDIN could} be ca ncelled or deactivated.

¶179

31, In that view of the^{matter, the Court is of theopinionthatthe action of the} resDondents in deactivating the DINs of the^petitioners -^{Directors alongwiththe} publication of the impugned list of Directors^{of "struckoff" companiesunder} bectlon 2+8, also^{was not legallytenable. Of course, as per Rule 12 of the said} nuies, the individual^{whohas-beenallottedthe DIN,in the eventof any change in} nii^particutats stated^{in Form DIR-3 has to intimate such change to the central} couuin."nt^{withinthe prescribedtime in FormDIR-6, however, if thatis not done,} ine Olru coutO^{not be cancelledor deactivatedThe cancellationor deactivation of} the DIN coutd^{be resorted to-btlhe concerned respondentsonlv as perthe} provisions contained^{in the said Rules "}

¶180

In view^{of the abovefacts and circumstances and the judgment}

¶181

referred to supra,^{the deactivationof the DINs of the petitionersfor alleged} violations^{under Section 154 of the Act, cannot be sustained'}

¶182

¶183

For^{the foregoing reasons'the impugnedorders in the writ} petitions !o the extent^{ofdisqualifying thepetitionersunder} Sectjon 164(2)(a)^{of the Act and deactivationof their DII\ls'are set aside'} and the 2"^{re5pondentis directed to activate the DINs} ')f^{the petitioners'} enabling them^{r:o frnction as Directorsother thanin strike cff companies}

¶184

It ls made clear that^{this order will not: precludethe 2nd} respondent frcm taking appropriate^{action in accord'lrrc(: with lawfor} violations as envisaged under Section^{L64(2) of the Act, giving thesaid} provision prospective effect from 01.O4.2014 and for necessary action against DIN in^(:ase of violations of Rule 11 of the^Rules.

¶185

It is also made clear that if the petitioners a13 aqgrieved by the action of the respondents in striking off their companies uncer Section 248 of the Act, they are: at liberty to avail alternative remedy und,:r Section 252 of the Act,

¶186

All the writ petitions are accordingly allowerJ to the extent indicated a bcve.

¶187

I r terioc r..,tory applications pendinq, if any, shall s:and closed, No order as to costs.

¶188

A.RAJASHEKER RI:I}DY,J

¶189

DATE: 18-07-2119 AVS

Smt Itha Deepa v. Union Of India

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Smt Itha Deepa v. Union Of India

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