Allowed

Karthik Joshua Rallapati v. Union of India and 2 Others

Telangana HC2 Jun 2020WP/3230/2020

Case brief

AI extract

What is this about?

The Telangana High Court disposed of multiple writ petitions challenging the deactivation of Director Identification Numbers (DINs) without notice. Relying on W.P. No. 5422 of 2018, the court held that DIN deactivation requires adherence to Rule 11 procedures, including notice and an opportunity of hearing, and set aside the impugned orders.

What did the court decide?

Writ petitions allowed; directions to activate DINs of petitioners in active companies; no order as to costs.

Karthik Joshua Rallapati Vs Union of India and 2… — Company and Corporate | Telangana HC (2020)

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HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD (Special Original Jurisdiction)

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TUESDAY, THE SECOND DAY OF JUNE TWO THOUSAND AND TWENTY

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PRESENT

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THE HON'BLE SRI JUSTICE A. ABHISHEK REDDY

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WRIT PETITION NOS: 3230 6405 6866 7228 & 7262 0F 2020

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wP NO.3230 0F 2020:

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Between:

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Karthik Joshua Rallapati, S/o Harish Rallapati, Aged about 38 Years, Rlo 12-2417146111, Kulsumpura Sarada Nagar, l,4ehandipatnam, Hyderabad--.|P?,?|oU_=_

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AND

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Union of lndia, Ministry of Corporate Affairs, A Wing, Shastri Bhavan, Rajendra Prasad Road, New Delhi -1'10 001. Represented by its Secretary.

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Registrar of Companies (Telangana), 2nd Floor, Corporate Bhavan, GSI Post, Tattiannaram Nagole, Bandlaguda, Hyderabad - 500 068.

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Regional Director,3rd Floor, Corporate Bhavan, GSI Post, Tattiannaram Nagole, Bandlaguda' Hyderabad - 500 068

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...REspoNDENTs

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Petition under Article 226 of the Constitution of lndia praying that in the circumstances stated in the affidavit filed therewith, the High Court may be pleased to pass a writ, order or direction, more particularly in the nature of a writ of mandamus declaring the actions of the Respondents in disqualifying and cancelling the Director ldentification Number (DlN), i.e. 5258396 of the Petitioner as arbitrary, illegal and 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 principle of natural^justice besides violating the Petitioners rights guaranteed under Article 14 and Article t S (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 that in the circumstances stated in the affidavit filed in support of the petition, the High Court may be pleased to suspend the disqualif ication of the Petitioner as director and, consequently, direct the Respondents to re sto relrea ctivate the Director ldentification Number ("DlN") i.e. 5258396 of the Petitioner

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Counsel for the Petitioner: Ms. NEHA AKKINENI

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Counsel for Respondents: SRI NAMAVARAPU RAJESHWAR RAO

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ASSISTANT SOLICITOR GENERAL

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WP NO: 6405 OF 2020

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Between:

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Sri Vidyanatha Reddy Bommireddy, S/o Late Sri Ramakrishna Reddy, Aged about. 68 years, R/o Nallagandla Fly Over, Lakshmi Vihar, Phase-2, Serilingampally,K.VRangaReddy,TelanganaState-500019.

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...pETt,oNER

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AND

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1 The l,4inistry of Corporate Affairs,^'A' Wing, Shastri Bhawan,^{Raje rdrzrPrasad} Road, New Delhi - 110 CrO'1 , Represented by its Secretary

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2 The Registrar of Ccnrparies, (For State of Telangana), 2nd Floor Corporate Bhawan, GSI Post,.^-attrannaram Nagole, Bandlaguda, HyderabrrC^- 500 068 R{:SPONDENTS

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Petitron under Article 226 ol lhe Constitution of lndia^pral ing that in the circumstances stated in the affidavjt filed therewith, the High Court^Inay be^pleased to pass an order or direct on or any other^proceedings one in the^r atu'e of Writ of lt4andamus declaring the act on of respondents in deactivating the Dll\l 00536317 and restricting the^petrtioner from filing statutory returns, i.e., the annual^returns and financial statements of the Companies in which he is Director as^{rtrbir rary, 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 justice besides violating the petitioner rights guaranteed under Article 14 and Article 19 (l ) (g) of the Constitution of lndia

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lA NO: 1 OF 2020

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Petition under Sectiorr 151 CPC praying that in the circums:anr:es stated in the affidavit filed in support of the^petition, the High Court may be^pleased to direct the 1st Respondent to restore the DIN 00536317 so as to enab e nle to submit pending annual returns and financial statements for the Companre s irr which are I am appointed as d irecto r

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Counsel for the Petitioner: SRI ANGOTHU NEHRU

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Counsel for Respondents SRI NAMAVARAPU RAJESHWAR RAO ASSISTANT SOLICITOR GEN ERI\L

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WP NO: 6866 OF 2020

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Betwee n :

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'1 . Sri lnduri Vishnu Vardhan, S/o lnduri Subba Rao, Aged about 43 years, R/o 1- 1181141801 , Jayabheri Silicon, Serilingampally, Rangareddi, H,'derabad-500084, Telangana State.

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1. Smt Brinda Prasad Adusumilli, S/o Sri lnduri Vishnu Vardhar, A1;ed about. 42 years, Ryo 1-118/1Al801, Jayabheri Silicon, Seritingamp; rlly, Rangareddi, Hyderabad-500084, T.langana State. ...pETt,oNERS

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AND

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The Ministry of Coroorate Affairs,^'A'Wing, Shastri Bhawan, Ra encra Prasad Road, New Delhi - 1 1t 001, Represented by its Secretary.

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The Registrar of Comtrranies, (For State of Telangana), 2nd Flo,rr, Oorporate Bhawan, GSI Post, Tattiannaram Nagole, Bandlaguda, Hyderatrad - 500 068. RESPONDENTS

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Petition under Article 226 of the Constitution of lndia pr,rying that in the circumstances stated in the affidavit filed therewith, the High Cour: may be pleased to pass an order or directicn or any other proceedings one in the nalure of Writ of l/andamus declaring the action of respondents in disqualifying tl e petitioner as a director and deactivating the 1st petitioner Director ldentificatic n l.lumber (DlN) 0'1687663 and 2nd petitioner Director ldentification Number (DllJ) C2243689 and restricting the petitioner frcm filing statutory returns, i.e., the ar nuerl returns and

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financial statements of the Companies in which he rs Director 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 justice besides violating the petitioner rights guaranteed under Article 14 and Article 19 (1 ) (g) of the Constitution of lndia

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lA NO: 1 OF 2O2O

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Petition under Section 151 CPC praying that in the circumstances stated in the affidavit filed in support of the petition, the High Court may be pleased to direct the 1st Respondent to restore the Director ldentification Number (DlN) 01687663 and 2nd petitioner Director ldentification Number (DlN) 02243689. so as to enable me to submit pending annual returns and financial statements for the Companies in which lam appointed as director

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Counsel for the Petitioner: SRI K. SANDEEP

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Counsel for Respondents: SRI NAMAVARAPU RAJESHWAR RAO

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ASSISTANT SOLICITOR GENERAL

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WP NO: 7228OF 2020

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Between:

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Puttam Brahmananda Reddy, Occ.Business No. 27-1-1472, Adithya Nagar Neilore, Andhra Pradesh lndia-524002

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Puttam Vijaya Nirmala, Occ.Business, Rl/o. Aditya Nagar, Nellore Andhra Pradesh, lndia - 524002 ...PETITIONER

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AND

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1 Union Of lndia, The Ministry of Corporate Affairs Represented by its Secretary A Wing, Shastri Bhawan,Rajendra Prasad Road, New Delhi - 1 10 01 1,

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2 The Registrar of Companies Telangana State, 2nd Floor, Corporate Bhawan, GSI Post, Tattianaram, Nagole, Bandlaguda, Hyderabad - UOO OU?.*urroNDENrs

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Petition under Article 226 of the Constitution of lndia praying that in the circumstances stated in the affidavit filed therewith, the High Court may be pleased to pass an order or direction or any other proceeding one rn the nature of Writ of f,4andamus declaring the action of respondents in deactivating the DIN Numbers is 02081215 and 02081 192 of the Petitioner and restricting the petitioners from filing statutory returns, i.e., the annual returns of the companies in which the petitioner is director. as arbitrary, illegal, without^{jurisdiction.} contrary of the provisions of the Companies Act. 201 3 and Rule 1 1 of the Companies (Appointment of Directors) Rules, 2014, violation of the principle of natural^justice besides violating the petitioner rights guaranteed under Article 14 and Article tg (l) (g) or the Constitution of lnd ia

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lA NO: 1 OF 2020

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Petition under Section 151 CPC praying that in the circumstances stated in the affidavit filed in support of the petition, the High Court may be pleased to direct the 1st respondent to restore the DIN number is 020812'1 5 and 02081192 of the

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Petitioner. So as to enable him to submit the^{annual returns} and^Financial Statements of the compan es in which the petitioner is acting as d rector Counsel for the Petitioner: SRI AJAY BABU MANDADAPU

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Counsel for Respondents:SRl NAMAVARAPU RAJESHWAR RAO

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ASSISTANT SOLICITOR Gt:NERAL

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WP NO: 7262 OF 2021)

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Between:

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Ravisankarreddy Ramala, S/0 Singa Reddy Aged About 39 'ears, Occ-Business R/o. 8-146, Ulavapadu Ulavapadu [\4andalam Prakasam Dist ict, Andhra Pradesh lndia ' 523292

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...PErroNER

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AND

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1 Union Of lndia, The Ministry of Corporate Affairs Represente^j b! its Secretary'A' Wing, Shastri Bhawan, Rajendra Prasad Road, New Delhi -^' 10 011

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2 The Registrar of Companies Telangana State,, 2nd Floor, C<'rporate Bhawan, GSI Post, Tattianaram, Nagole, Bandlaguda, Hyderabad^- U, O O'r?.*=rroNDENT'

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Petition under Article 226 of the Constitution of lndia praying that in the circumstances stated in the affidavit filed therewith, the High Court may be^pleased to pass an order or direction or any other proceeding one in the rature of Writ of It4andamus declaring the action of respondents in deactivatirrg the DIN Number 06569604 of the Petitioner and restricting the petitioner from fil ng statutory returns, i.e., the annual returns of the Petitioner's company as arbilrary, illegal, without jurisdiction, contrar,/ of :he provisions of the Companies Act, :101:l and Rule 11 of the Companies (Appointment of Directors) Rules, 2014, violative of the principle of natural .justice besrdes violating the petitioners' rights guaranteed under Article^'14 and Arlicle 19 (1) (g) of the Constitution of lndia

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lA NO: 1 OF 2020

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Petition under Section 1 51 CPC praying that in the cir ;urr stances stated in the affidavit filed in support of the petition, the High Court ma'/ be pleased to direct the 1't respondent to restore the DIN number 06569604 of th3 P3titioner. So as to enable him to submit the annual returns and Financial Statements of the Petitioner's company and financial statements

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Counsel for the Petitioner: SRI AJAY BABU MANDADAPU

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Counsel for Resporrdents: SRI NAMAVARAPU RAJESHWAR RAO

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ASSISTANT SOLICITOF GE:NERAL

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The Court at the s,tage of admission made the following: COVlMrf N ORDER

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THE HON'BLE SRI JUSTICE A.ABHISHEK REDDY WRIT PETITION Nos.3230 6405 6856 7224 7252 of 2O2O

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COMMON ORDER:

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All these writ petitions arc disposed of by this common order as the issue involved is one and Lhe samc.

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In all these rvrit petitions, the only grievance of the pctitioncrs is that their Director Identification Number (DIN) has been deactivated by thc authorities without putting them on notice or calling lor any explanation, contrary to Companies (Appointment and Qualification of Directors) Rules, 2014 (in short, thc Rulcs of 20 I4) (as amcndcd lrom timc to rimc). In all thcsc cases, the petitioners arc Directors ol Privatc Ljmited Cornpanics and their DIN was deactivated.

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With the consent of both the parties, the prescnt writ petitions are disposed of at the stage ol admission.

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The main case of thc petil.ioners isi that without lollowing the procedure conteml>lated under the Rules ol 201,4, more sper:ilicallv, Rulc 11 thr:rcol, and r.r,ithout issuing an) nolicc nor calling for any explanation, the DIN of the petitioners have been dcactivated. That as a lesult of deactivation ol the DIN, the petitioners are put to great suffering and they are unable to perlorm thc duties and obligations envisaged under the Companies Act, 2013. Therefore, they are unable to comply u'ith the statulory rcquirement of submitting the Annual Returns and other obligations etc. That due to the deactivation of the DIN, cvcn \ rcspect of the companies in activation, the petitioncrs are unablc to perfo]m their obligations.

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WP Nos,323 ) o1.2020 & balL:h r\A It,,l

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The ltarncd Assistant Solicitor Ceneral ha:; ciran'n^thc attention of this Court, the provisiot.ts of the Companres^{,\ct, 2013,} as well as the relevant Rules rnore specificalll^C ompanies (Appointment and Qualification of Directors) Rules., 2 0 14, and relying on the same, has emphatically argued that subsiequent to the enactmenl ol the Companies Act, 2O13, the^prese rt Flules were brought into force in the year 2014. He has drawn ti:e a-tention of this Ccrurt tc, Rule 14 of the Rules ol 2014 to buttress his contention that the pelitioners u'ithout availing tI e :r]ternative remcdy of app,:a1 and liling an application for removal ol disqualification of Director in Form DIR- i0, have r;traight aw:ry approachcd this Court under Article 227 of the Cons.itution of Ir-rdia and therelore the writ petitions are premature ,rnd arc liable to bc dismisse d.

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The le,rrneC ASG has lurther argued that after rh: Rules ol 2O 14 u,erc in< cirporated, a Iegal obligation is cast on the Directors to see that the Annual Returns are filed by the Compz nies of rvhich they are holding as Directors and in case, they do n rt file thc Returns for three consecutive years, they are automatically disqualified irom holding the said post of Director. T:rat the above position has been upheld by this Court in plethora of <:ases, and even in the pres('nt case, the petitioners have not lilec th,:ir Annual RetLlrr'rs lirr tlrrr',-' consccutivc Yc:rrs. after the Rules ol .2014 u'crc brought ir.rto iorr e and the DIN ol the petitioncrs w,er: dezrctivatcd. Hencc, sought ior dismissal of the u,rit petitions.

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It is pr-'r'tinent to extract Rule 14 of the Rules ,ri 2014 rclicd by the learnecl Assistant Solicitor General.

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WP Nos,3230 of 2020 &, batch AAR,.]

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Rule 14 of the Rules of 2Ol4 deals r.r'irh disqualtftcatton of dtrector under sub-section (2) of Sectton 164. Sub-Section (5) thereof reads as under:

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"Any application for removal ol disqualification of directors shall be in Form DIR- 10."

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The only short point involved in these writ petitions is 'rvhether the deactivation of the DIN is legally valid or not, and the same is as per the procedure cont.cmplated under thc Rules of 2014?'

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The above issue is no longer res integra in view of the decision of this Court in W.P.No.5422 of 2018 and balch, dated 18.07.2019, u'herein at para Nos.26, 27 and 28, this Court held as under:-

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"26. The next grieuaftce of the petltioners is ruith regard^to deocttuotion of their DINI. The conlention of the leamed^CounseL for^{the petitionersis that except} for^{Lhe groundsmentionedunder} Rule 1 1 (a) to (fl of tl'te Rutes, the DlNs cannot be cancelLed or deactiuated, ond the uiolation mentioned under Section 16ap)@) of the Act, is not one of the grounds mentioned under clauses^(a) to^(fl of Rule 11, and hence for the oLleged uiototion under Section 164(2)(a) af the Act, DIN ccLnnot be cancelled.

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Rule 10 of the RuLes prouide for atlotment of DIN and under sub ruIe (6) of Rule 10, it ts ollotted for life time. Rule¹¹ prouides for c:ancellation or deactiuation, Rule 11, whtch is releuanl for the present purpose, is extraclecl as under Jc>r^ready reference:

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Cancellatlon or surrender or deactlaatlon of DIN: The Centrat Gouernment or Regional Director^{(NorthemRegion),} Noida or any offrcer authorized by the Regional Director^may, upotl beirry satisfLed on ueri.ftccttion of^{particttlarsor}

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WP Nos.3:30 cf 2020 & batch AAR,.]

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documen!.ary proof attached Luith the opplicatiotl^receiued fronT anA person, cancel or deactiuate the^DIN in^case -

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(a) th.e DIN is fouttd to be duplicated in respe:t o)" the same person prouided the date related to both the DIA' shall^be merqed utth the ualldtg retained number;

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(b) t4e DIN uas obtained in a urongful ;natlner or bl1 Jrttu^{dulentmearts;}

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(cl)^'l he concerned indiuidual hcLs been tleclar':d as a person of unsou nd mind bg a competent Courq

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@)^{rt the concernedindiuidual has beenc d.iu,Ticated att} insoluent;

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Prot ided that before cancellation or deoct:uot'orr of DIN pursuart to clause (b), an opportunitg of being hea.cl shall be giuer to the concerned. indiuidual;

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(0 on an ctppliccLtion made in Form D1R-5 b.LJ the DIh" holcler to sltrrencler his or her DIN elonq uith declarattcn lhel he L as neuer bi:en appoin.te<1 as director in ang compat^q atd tlte said DIN has neuer been used for filing of ang documetlt uttt'L anA authoitA, the Central gouemment may deacttuat,: such DIN;

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Protided that before deactiuation of any DLY in such case, the Central Gouernment shall uerifg e-records.

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Explanation: for lhe purposes of ctause (b) -

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[i) Tlrc terms "wrottgfut manner" means if the DIN is obtoined on the strength of documents u.thich are not tegallg ualid or incomplete doanments are fumislrcd or on suppression of ntatt rial information or on the basts of uronlt ce4iflcation ar bg mttking misleadit5l or Jalse inJi:rn ation or bg misrepresentation;

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(ii) the term "fraudulent means" mearts if the DIN is obtuLincd uith an intention to deceiue ang othe, person or anA authortA including the Cenlral Gouernment.

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Clauses (a) to (j) of Rule ) l, extracted abcue, prouided for^{the ctrcumstancesunder uhich the DIN can be cancelled or} deactiuated. The said grounds, are dLfferent J"om the ground enuisagecl under Section 16a(2)(o) of the Act. T eere:fore, for the alleged tiolatton under Section 164 of the Act, DlNs cannot be cancetleci or deactiuated, except in accordance u'i h Rule 11 of tlte Rules.

¶107

¶108

wP Nos,3230 ol2020 & batch AAR,.]

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ln plethora of cases filed subsequent to the above judgment, this Court has allowed number of writ petitions in terms of the decision rendered in the above^judgment, at the admission stage itself, in cases wherever Returns r.ve re filed prior to 2014.

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Even in cases where the Returns are liled alter the Rules of 2014 have come into force, it is to be seen as to whether the learned ASG has distinguished the cases on the basis of the Annual Returns filed prior to 2014 or after the Rules of 2Ol4 have come into lorce and u,hether Rule 14 (5) oi the Rules of 2014 makes il mandatory to avail the alternate remedy before approaching this Court. Number ol judgments have bccn pronounced by various Hrgh Courts reiterating thc position that insolar as the Rules of 2Ol4 are concerned, the], are applicable prospectively and not re trospective Iy. In cascs where the Returns are not filed after 2014 for three consecutive years and the Companv is struck off, the di squalification of direcLor is automatic, the Courts have gone to the extent of the reiterating that no notice need to be given to the directors and the provision of law is a deeming provision which comes into operation on non-filing of the Returns for a period of three consecutive years.

¶111

The learned ASG has tried to impress upon this Court, that the petitioners have an alternative remedy of appeal and they have to filc an application for removal ol d isqualification as directors in Forrn DRT- 10, the issuc before this Court does not pertain lo thc disqualification ol the Directors per se as such, but only concerned u'ith the deactivation of the DIN ol l)irectors of Active Companies. The above referred^judgment ol rhis Court in W.P.No.5422 ol 20l8

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¶113

WP Nos,323O )f 2020 & batch AAR,J

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and batch has nol been appealed and the same has b:corte final. The^judgment of this Court is applicable to the facts ol th<: presenl case zlnd this Court does not see any reason to deviirte from the princrples laicl dou,n b1, rhis Court in W.P.No.5422 of 20 18 anci batch. The deactivation of the DIN can be only under ?ul: 1 1, and a reading of the Rule 1 i makes it abundantly cle tr, that the petitioners hirl e 10 be put on notice and give n an olrportuniLv of hearing belore th,: DIN is deactivatcd and that too for thr: rcasons envisaged under Rule 11(a) to (l). This Coun is also fortified bv tl-re decision renclercd by a Division Bench of Allahabac High Court reported in Jai Shankar Agrahari v. Union of Indiar n,hercrn r.r,hile dealing u'rth the Fourth Question " whether lhere is any prouision empotuering Registrar of Companies to de-actiuate "DIN' of petittoners utho^,ttere allotted DIN under Section 1 5 4 of the Act. 2013, lhe Division Bench relying on the decision o' thc Gujarat Fligh Court in Gaurang Balvantlal Shah v. Union c,f India2, has held para B1 as under:

¶115

"Qur stion-4 is, thcrelore, ansu ered in lavour o1' pctitionc:-s. We hold that in absence ol an_r 1,r,r,. ision to dcactivate DIN of petitioners if they har,: incurred disqualiftca-ion unde r Section 164 oi Act, 2013 the action of resp<.rndlnts and in particular of ROC, in rlcar:tivating DIN of^pctitioners, cannot bc sustained."

¶116

In vieu o1 the above mentioned facts and c irc urrstanccs, the writ per-iriorrs are allor.r,ed and the impugned o'ders to thc extent of <lt'ac,ivating the DIN ol the petitioners i;r Active Companies are set aside and the respondent No.2 i:; directed to

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'2020^{scconLine A 24} '^{2ot9 ctt} 1t1^++a

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)

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wP Nos.3230 of 2020 & batch AAR,.J

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activate the DIN of the petitioners, enabling them to lunction as Directors other thi.rn those Companies r,i'hich are struck off unc cr Seclion 2zl8 ol thc Companies Act. Hou'ever, it is made clear that this order nill not preclude the official respondents lrom taking necessary action in accordance u,ith law for any violations as envisaged under Section l6aQ) o{ the Act, and as per the procedure contemplated in Rule 11 of the Rules of 2014.

¶122

If the petitioners are aggrieved by the action of the official respondents in striking off their company under Section 248 of the Act, they are at liberty to avail the remedy under Section 252 ol the Act.

¶123

With the abo'.,e said observations, the ,,rit petitions are

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allorved to the extent indicated above

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The mrscellaneous pelitions pending, if any, shall stand closcd. There shall bc no order as Lo costs

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Sd/-K.SAILESHI

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ASSISTANT REGIS

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,TRUE COPY//