Allowed

Gangarapu Venkataramana v. Union of India and Another

Telangana HC1 Feb 2021WP/1964/2021

Case brief

AI extract

What is this about?

A director challenged disqualification for failure to file financial statements or annual returns and sought restoration of his DIN. The court allowed the petition in terms of an earlier common order, setting aside the disqualification and DIN deactivation and directing reactivation for directorships outside struck-off companies. No costs were awarded.

What did the court decide?

Disqualification and DIN deactivation set aside; DIN reactivation directed to enable directorships other than in struck-off companies.

Gangarapu Venkataramana Vs Union of India and Another — Company and Corporate | Telangana HC (2021)

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-..---

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HIGH COURT FOR THE^{STATE OF TELANGANA AT HYDERABAD} (SPecial Original Jurisdiction)

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I'/ONDAY. THE FIRST DAY^{OF FEBRUARY} TWO THOUSAND^{AND TWENTY ONE}

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PRESENT

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THE SRI JUSTICE^{ABHINAND KUMAR SHAVILI}

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WRIT PETITIO N NO:'19^640F2021

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Between:

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6;;";;Jft; Ganoaraou Venkataramana, riio."e-i:_itiiErSiroilAtio^{S/o. Gangarapu Venkatasubba} -r.:o 4, Banjara Hills, Hydbrabad^{Reddy Age} -^{6!^} 500034^Y^ears'

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...PETITIONER

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AND

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1 Union of lndia,^{Rep by its Secrelary, Ministry} 9!^{CorporateAffairs' Shastry} Bhavan. Dr. Raiendra^{Prasadl'4a rg New Uelnr'} 2 ii-,,8 ri"il!i,"i 5'ic"^{o'n6s'li,a, dr comrf nies.Ro,c' 2ndFloor' coroorate} aii;")".YN!", c-;"i,iiwjid,iill'i,^{cS'i"p".iBandlasuda, Nasole, Hyderabad} - 500068

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...RESPONDENTS

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Petition under Article^{226 of the Constitutionof lndia prayingthat in the} circumstancesstatedintheaffidavitfiledtherewith'theHighCourtmaybepleasedto issue any appropriale^{writ, orderor direction more particularlyin the nature of a Writ} of l,4andamus^{declaringthe action of the Respondents in disqualifyingthe Petitioner} invoking Section^{164(2)(a) as arbitrary, illegal'contraryto the principlesof natural} justice, in violation of the^{provisions of the Companies Act'2013 and in contravention} of the rights^{guaranteed under Article '14 andArticle 19(1)ofthe Constitutionof lndia} and consequently^{direct the Respondentsto restorethe DIN No' 02086382 of the} Petrtioner

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IA NO:^{1 0F 2021}

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PetitionUnderSection,l5lCPCprayingthatinthecircumstancesStatedinthe affidavit^{filed in supportof the petition,the HighCourt maybe pleasedto direct the} Respondents to^{restorethe DIN of the Petitioner DIN No 02086382 so as to enable} the Petitioner^{to incorporate a new Company' wherein the Petitioner canbecome} Director^{pending disposalof the Writ Petition'}

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Counsel for^{the Petitioner: M/S'VANGA ANITA}

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Counsel for^{the Respondents:SRINAMAVARAPU RAJESHWAR RAO'} ASSISTANT^{SOLICITORGENERAL}

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The Court made^{the following:ORDER}

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HON'BI.E SRI JUSTICE ABHINAND KUMAR SHAVII.I

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ORDER

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The petilioner choilenges his disquolificolion from Directorship under Seclion 164(2) of lhe Componies Act, 2013, for the olteged defoulf in filing finonciol stolem en f /An n uol Relurns, ond consequenily seek resloroiion of his Director ldenlificotion Number (DlN) viz., 020163A2.

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)

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Leorned counsel for the petitioner submits lhot the issue roised in the presenl Wril pe lion is squorely covered by the common order doted lg.O7.2O19in W.p.No.5422 of 20lB ond bolch.

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Leorned Assistonl Solicilor Generol oppeoring for the 2nd respondent - Registror of componies does not dispute the oforesoid s u bm ission

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Operotive portion of lhe oforesoid order reods os under:

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,,For the foregoing rer petirions ro rhe exrenr ",^{;,,*T,l; j:"J:ffi :HT:;} ::ill l6a(2Xo) of the Act ond de( of their DlNs, ore ser oside, ond rhe 2nd respondenr ,, :""'o''on lo ocrivore the DrNs of rhe per roners, enobring ,n", ,:''""'"o ) funclion os Dlleclors other thon in strlke otf componies. l, is mode cleor lhol respondent from ror,ing oppro::,':r::1il l::::::;:JX; :; for viololions os envlsoged un section^'164(2) of lhe Ac'' giving ,he soid provrsron prospecri, t'"tt from 01 04 2014 ond for necessory oclion ogornsr o,r ,'u Rules. n cose of viololions o, Rule I I o, lhe

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It is olso mode cleor lho petilioners ore oggrieved by rhe ocrion of rhe respondenr, ,t "'n" n srriklng off ,heir componies under

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Section 248 of the Act, lhey ore ot liberty lo ovoil olternolive

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remedy under Se clion 252 of fhe Acf.

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All lhe wri, petilions ore occordingly ollowed lo the exlent

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indicoted obove."

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ln view of the soid order doted 18.07.2019 ond for the reosons

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recorded therein, this Wrii Peiition is olso ollowed in^'ferms thereof.

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No costs.

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Miscelloneous Petitions, if ony pending, sholl stond closed

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SD/- T.TIRUMALA DEVI ASSISTANT REGISTRAR .\

,TRUE COPY//

SECTION OFFICER

To,

Ilujg^.igluw.^{lr/inistry of Corporate-Affairs, Unron} of tndia. Shastry Bhavan. ur. Halendra Prasad lvlarq, New Delhi.

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2 rne Hegtstrar. Office of Registrar of Companies, ROC, 2nd Floor, Coroorate c e n t ra I w a te-r aoa ro o 5i "ilri b riioi, g;di.'', db E] iIilEiZ o" a

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!!BJB8.^t "r,

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3 One CC Io l,4,s Vanga Anita Advocate l,OpUCl 4. One CC to Sri Namivarap, njt".n*aiFrJ,7, srstant Solicitor General tOpUCl

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(Along with a copy of order in w.p.No.5422 of 20 r8 and batch, dated 1g.07.20i9.)

5 Two CD Copies CHR

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HIGH COURT

DATED:01^10212021

ORDER

W.P.No.1964^o12021

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ALLOWING^{THE WRIT PETTTION} WITHOUT^COSTS

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^)-\r
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THE HON'BLE SRI JUSTICE^{A'RAJASHEKERREDDY}

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W.P.NOs.5422. 12184. 13520'^{13783. 13855. 14166'24051.30993'} AND 40953 0F 2018.5547,5582.5669'^{5687.5785' 6047.6087.} 6140. 6484, 6753, 6858,^{6958, 6981. 7001. 7008. 7014. 7046. 7069,} 7073, 7 t}s, 7 432, 7 4s4.^{7572, 7595.7732, 7765. 776A. 7A24. 7974.} errr. ezzs. ssgo. esgo,^{ggss. ge+o,gasr, g+oe,gsog, gse+, gozg.} grio, gtzz. toose. t 11991, 12018, 12036, 12040,^{12069' 12108, 12144, 12186, 12194,} L2200, 12209. t22t5, r22L7'^{t2243. t2260.12262. l22aa, 12342'} tzsso, tzqtt. tzq3z. tzqzz.^{tzqge, tzsoo. tzszq. tzsge. tzozt'} tztoz tz)ts. tzzqo. tzeqs.^{tzaso, tzaos. tzeoo. tgots. tgota'} ts730. tg7qg. ttztg. tszga,^{tzssg, tgess. tgela. tggtz' t3gtz} ' tggqs, tqtot, tqtlq. tqzol^{, tqzso. tqzot, tqggo. tqzgz, tqzgl} ' 14409. 14582 AND^{14597 0F 2019}

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co MON O DER

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Since,theissueinvolvedinallthewritpetitionsisoneandthesame' they are heard together^{and are being disposedof by this common order'}

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The^{petitioners are the directors of the private companles'} registeredundertheCompaniesAct,20l3(18of2013)(forshort'theAct')' Some of the such^{companiesare active, and some of themhave beenstruck} off from the register^{of companiesunder Section248(1)( c ) of the Act' for} not carrying on any^{business operationfor the specified period mentionedin} the said^{provision, and for not makinq any application within the specified} period, for obtaining the^{status of a dormant company under Section 455of} the Act.

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The^{petitioners,who were directorsof the struck off companies'} and who are^{presentlydirectors of activecompanies, during the relevant} period in question, failed^{to file financialstatements or annual returns for a} continuous^{periodof threeyears. Therefore, the 2nd respondentpassedthe} impugned order^{under Section $aQ) of the Act, disqualifyingthem as} directors, and further^{makingthem ineligibleto be re-appointed as directors} of that company,^{or any othercompany,for a periodof five years from the} date on which the^{respective companies failed to do so'The Dlrector} Identification Numbers^{(DINs) of the petitionerswere alsodeactivated'} Aggrieved by the same,^{the present writ petitions have been filed'}

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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.

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Heard the learned counsel appearing for the petitioners in all the writ petitions, Sri K.Lakshman, learned Assistant Solicitor General appearing for the respondents - Union of India.

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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.

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Learned counsel submits that Section 164(2)(a) of the Act empowers the authority to disqualify a person to be a director, provided he has not filed financial statements or annual returns of the company to which he is director, for any continuous period of three financiar years. Learned counsel further submits that this provision came into force with effect from 1.4.2014, and prior thereto i.e., under Section 27ae)@) 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 7.4.2014, i.e., giving the provision retrospective effect, disqualified the petitioners as directors, which is illegal and arbitrary.

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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, 2Ol4 (for

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short'the Rules), are^{grantedfor life time to the applicantsunder Rule10(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 becomeineligible} 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 undersection 252 of} the Act is^provided only^{againstthe dissolution of the company under} Section 248 of the Act.

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Learned counsel further^{submitsthat 1't respondent- Government} of India represented by^{the Ministry of corporateAffairs, has floated a} scheme dated 29.!2.20!7^{viz., Condonationof Delay Scheme -2018'} wherein the directors,^{whose DINs have beendeactivated by the 2"d} respondent, allows^{the DINs of the Directors to be activated'However'such} scheme is not^{applicable to the companieswhich are struckoff under} Section 248(5) of the^{Act. In case of active companies,they can make} application to National^{CompanyLaw Tribunal under Section252 of the Act'} Seekingforrestoration,andtheTribunalcanorderforreactivationofDlNof such directors, whose^{DIN are deactivated. However, under Section 252 only} the companies,^{which are carryinq on the business,can approachthe} Tribunal and the companies,^{which have no business,cannot approach the} Tribunal for restoration.^{They submit that sincethe penal provisionis given} retrospective operation/^{de hors the above scheme,they are entitledto} invoke the^{jurisdiction of this court under Article226 of the constitutionof} I nd ia.

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With the above^{contentions, learned counselsought to set aslde} the impugned orders^{and to allowthe writ petitions'}

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ll.ontheotherhandlearnedAssistantSolicitorGeneralsUbmitsthat failure to file financial^{statementsor annual returnsfor any continuousperiod}

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

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t2. To consider the contention of the learned Assistant Solicitor General with regard to alternative remedy of appeal under Section 252 of the Act, the said provision is required to be considered, and the same is extracted as under for better appreciation:

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252. Appeal to Tribu na I

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(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 witnin a perioO ot three years from the date of the order of the Reqistrar and if the Tribunal is of the opinion that the removal of the name of the company from the register of companjes 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 regrster of com panies;

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Provided that before passing an order under this section, the Tribunal shall give a reasonable opportunity of making representations and of being heard to the Registrar, the company and all the persons concerned:

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Provided further that if the Registrar is satisfied, that the name of the company has been struck off from the register of companies either inadvertenUy or on basis of incorrect information furnished by the company or its directors, which require-s restoration in the register of companies, he may within a period of three years -from the date of passing ofthe order dissolving ttre company under Sectjon 248, file an application before the Trjbunal seeking restoration of name of such compa ny,

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(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 recerpt oi the order, the Registrar shall cause the name of the company to be restored in the register of companies and shall issue a fresh certificate of incorporation.

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(3) If a company, or any member or creditor or worker thereof feets aggrieved by the company having its name struck off from the register of companies, the Tribunal or an application made by the company, memberi r:reditor or workman before the expiry of twenty years from the publication in the Official Gazette of the notice under sub-section (5) of Section i4B, 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 reitored to the register of companies, and the Tribunal may, by the order, give such other directioni and make such provisions as deemed just for placing the iompany and all other persons in the same position as nearly as may be as ii the name oi the company has not been struck off from the register of companles.

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)

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A reading of above^{provision goes} to^{show that if the companyis dissolved} under Section 248 of the Act, any^{person aggrieved by the same,canfile 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 d^{isq ua} lification^{of the directors, and deactivation of} their DINs. In the^present case,^{the petitioners are only aggrievedby 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 seekingthat relief,and the contention of the learned} Assistant Solicitor General,^{in this regard, meritsfor rejection'}

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Under Section^{164(2)(a) of the Act, if the Directorof a company} fails to file financial statements^{or annual returns for any continuousperiod} ofthreefinancialyears,heshallnotbeeligibletobere-appointedasa director of that company^{or appointedin other company for a periodof five} years from the date on which^{the said company fails to do so' The said} provisionundertheActlsof2oL3,cameintoforcewitheffectfrom oL.o4.2oL4,andthepetitionersaredisqualifiedasdirectorsunderthesaid provision.Atthisstage,theissuethatarisesforconsiderationis-whether the d isq ua lification^{envisagedunder Section 164(2)(a) of the Act' which} provision came into force with^{effect fromOI'O4'2014,can be made} applicable with^{prospective effect, or has to be given retrospectiveoperation?} In other words, the^{issue wouldbe, fromwhich financialyear, the default} envisagedunderSection164(2)(a)oftheAct,hastobecalculated,tohold thedirectorofthecompanyliable?Inthisregard,thelearnedcounsel brought to the notice of^{this Court, the General CircularNo'08/14dated} 4.4.2oT4issuedbytheMinistryofCorporationaffairs,whichclarifiesthe applicability of the^{relevantfinancial years'The relevant portion of the said} circu la r is as under:

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"A number of provisions of the^{CompaniesAct, 2013 including those relatingto} maintenance of^{booksof account, preparation, adoption} "nd^{filing of financial} statements^{(and documents requiredto be attachedthereto),Auditors reportsand} ;;;-;;;rd-"i^{Directorsreport(Board'sreport) have been brought into force with}

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effect from 1't April, 2014. Provisions of Schedule Il (usefu lives to compute depreciation) and Schedule III (format of financial statements) have also been brought into force from that date. The relevant Rules pertaining to these provisions have also been notified, placed on the website of the Ministry and have come into force from the same date.

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The Ministry has received requests for clarification with regard to the relevant financial years with effect from which such piovisions of the new Act relating to maintenance of books of account, preparation, adoption and filing of financial statements (and attachments thereto), auditors report and Board,s report will be applicable.

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Although the position in this behalf is quite clear, to make things absolutety clear it is hereby notified that the financial statements (and documents required to be attached thereto), auditors report and Board's report in respect of financial years that commenced earlier than 1st April shall be governed by the relevant provisions/schedules/rules of the Companies Act, 1956 and that in respect of financial years commencing on or after 1st April, 2014, the provisions of the new Act shall apply. "

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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 OL.O4.2Ot4, shall be governed by the provisions under the Companies Act, 1956 and in respect of financial years commencing on or after O1.04.2074, the provisions of the new Act shall apply.

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t4. At this stage it is required to be noticed that the analogous provision to Section 164(2)(a) of the Act t8 of 2013, is Section 274(1)(9) ot Act 1 of 1956. The said provision under Act 1 of 1956 is extracted as under for ready reference:

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Section.274(11 A person shall not be capable of being appointed director of a company, if -

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(9) such person is already a director of a public company which, -

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(A) has not filed the annual accounts and annual 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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Provjded that such person shall not be eligible to be appojnted 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 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).

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A reading of the above provision under Act 1 of 1956, makes it clear that if a person capable of belng 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

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and after the first day of^{April1999, shallnot be eligibleto be appointedas} a director of any other^{public companyfor 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 statutoryrequirement of filing} annual accounts and annual^{returns, is placedon the directorsof a 'public} company'. There is no^{provisionunder the Act 1of 1956, which places} similar obligations on the^{directors of a 'private company"Therefore,non-} filing of annual accounts^{and annual returns by the directors of the private} company? will not disqualify^{them as directors underthe provisionsof Act1} of 1956

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Under Section^{164(2) ot the new legislationi'e', Act 18 of 2013'} no such distincUon^{betweena 'private company'or a 'publiccompany'is} made and as^{per the said provision goes to showthat no personwho is or} has been a director^{of a 'company', fails to file financial statementsor annual} returnsforanycontinuousperiodofthreefinancialyears,willnotbeeligible for appointment^{as a directorof a company'As already noted above'the} said provision, came^{into force with effect from 01'04'2014'}

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Coming to the^{facts on hand,the 2nd respondent has disqualified} the^{petitioners under Section16a(2)(a) of the Act 18 of 2013' for not filing} flnancial statements^{or annual returns,for period prior to 01.04.2014'The} action of the^{2ndrespondentruns contraryto the circularissuedby the} lvlinistry of the Corporate^{AFfairs,and he hasgiven the provisions of Act 18 of} 2013, retrospective^{effect, which is impermissible'}

¶101

The Apex^{Court inCOMMISSIONER OF INCOME TAX} (CENTRAL)-|, NEW DELHI^{v'VATIKA TOWNSHIP PRIVATE LIMITED'} has dealt with the^{general principles concerningretrospectivity 'The relevant} portion of the^{judgmentis thus:}

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A legislation,^{be it a statutoryAct or a statutoryRule or a statutory} ruot]iication,^{-may physically consistsof wordsprinted on papersHowever'} I 1:ors;t scct

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conceptually it is a great deal more than an ordinary prose. There is a special peculiarity in the mode of verbal communication by a legislation. A legislation is not Just^{a series of statements,such as one finds in a work} of^fiction/non fiction or even in a^judgment of a court of law. There is a technique required to draft a legislation as well as to understand a legislation. Former technique is known as legislative drafting and latter one is to be found in the various principles of'lnterpretation of Statutes'. Vis-A-vis ordinary prose, a legislation differs in its provenance, lay-out and features as also in the implication as to its meaning that arises by presumptions as to the intent of the maker thereof.

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Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in the law of today and in force and not tomorrow's backward adjustment of it. Our belief in the nature of the law is founded on the bed rock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. This principle of la,,,v is known as lex prospicit non respicit : law looks forward not backward. As was observed in phillips vs. Eyre [(1870)^LR 6 QB 1], a^{retrospective} legislation is contrary to the general principle that legislation by which the conduct of mankind is to be regulated when 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.

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The obvious basis of the principie against retrospectivity is the principle of 'fairness', which must be the basrs of every legal rule as was observed in the decision reported in L'Office Cher,fien des phosphates v. yamashjta-shinnihon Steamship Co. Ltd. [{1994) 1 Ac 486]. Thus, legistations which modified accrued rights or which impose obligations or impose new dutres or attach a new disability have 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 tegistafion. Wi need not note that cornucopia of case law available on the sub.iect because aforesaid legal position clearry emerges from the various decisions and ihis regal position was conceded by the counsel for the parties. In any case, we shail refer to few judgments containing this dicta, a lit e later,

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.^{30_: Wewould also like to pointout, for the sakeoF completeness,thatwhere} a be,n.efit is conferred by a legislation, the rule against a retrospective construction is different. If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public Aenerally, and wh6re to confer such benefit appears to have been the legislators objeat, then the presumption would be that such a legislation, giving it a purposivi construction, would warrant it to be given a retrospective effect. thls exacily is the justification to treat procedural provisions as retrospective. In Governmenl of India & Ors. v. Indian Tobacco Association, [(2005) 7 SCC 396], the doctrine of fairness was held to be relevant factor to construe a statute conferring a benefit, in the context of it to be given a retrospective operation. The same doctrine of fairness, to hold that a statute was retrospective in nature, was applied in the case of Vijay v. State of Maharashtra & Ors., [(2006) 6 SCC 289]. It was held that where a taw is enacted for the benefit of community as a whole, even in the absence of a provision the statute may be held to be retrospective in nature. However, we are (slc not) confronted with any such situation here.

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In such cases, retrospectivity is attached to benefit the persons in contradistinction to the provision imposing some burden or liability where the presumption attached towards prospectivity, In the instant case, the proviso added to Section 113 of the Act is not beneficial to the assessee. On the 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 fJndamental rule of iaw that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act, or arises by necessary and distinct implication. Dogmatically framed, the rule is no more than a presumption, and thus could be displaced by out weighing factors.

¶109

There is yet another very rnterestrng piece of evidence that clarifies that provrsion beyond any pale of doubt viz., the understanding of CBDT itself regarding this provision. It is contained in CBDT Circutar No.B of 2O-02 dated 27.8.200i, wit6 the subject "Finance Act, 2002 - Explanatory Notes on provision relating to birect Taxes". This circular has been issued after the passing oi th" Finunc" Act, ZOOZ, Oy which amendment to section 113 was made. In this;ircular, vaTjous amendments to the Income tax Act are discussed amply demonstrating as to which amendments are clarificatory/retrospective in operation and which amindments are prospective.

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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 1" day of July, 1995. When it comes^to amendment to Section 113 of the Act, this very circular^provides that the^said amendment alonq with the amendments in Section 158-BE,^{would be prospective} i.e., will take effect from 1.6.2OO2."

¶112

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 provisionapplicableto} past transactions. Further, the Apex Court in the above^judgmentat paragraph No.43, found that the circular issued by the^{authority after passing} of the legislation, clarifying^{the position with regard to applicabilityof the} provisions, has to be construed as an important^{piece of evidence,as it} would clarify the^provision beyond^{any paleof doubt'In the present case,as} already noted above, the^{lvlinistryof Corporationaffairs has issuedthe} circular No.o8/2014 dated^{4.4.2O14 clarifying that financial statements} cornrnuniing after 01.04'2014,^{shallbe governed by Act 18 of 2013 i'e', new} Act and in respect of financial^{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 2"d respondent /^{competent authority, has disqualifiedthe} petitionersasdirectorsunderSectionl6a(2)(a)oftheAct18of2013,by considering the^{period prior to OL,O4.2O74, the same is contraryto the} circular, and also contrary^{to the law laid down by Apexcourt in the above} referred^judgment.

¶113

If the said^{provision is given prospectiveeffect, as per the circular} dated 4.4.20L4 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 thirdyears financialyears 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 meetingof the company, and as per the first}

¶114

¶115

proviso to Section 96(1) of the Act, annual general meeting for the year ending 31.03.2017, can be held within six months from the closing of flnancial year i.e., by 30.09.20L7. Further, the time limit for filing annual returns under Section 92(4) ot 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 are calculated, the last date for filing the annual returns would be 30.77.2077, and the balance sheet was to be filed on 30.10.2017 with normal fee and with additional fee, the last date for filing annual returns is 27.O7.2078. In other words, the disqualification could get triggered only on or after 27.07,2018. But the perlod considered by the 2nd respondent in the present writ petitions for clothing the petitioners with disqualification, pertains prior to 01.04.2Ot4. Therefore, when the omission, which is now pointed out, was not envisaged as a ground for d isq ua lification 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 "No person shall be convicted of any offence except for violation of a law in force at the time of the commission of the act charged as an offence, nor be subjected to a penalty greater than that which might have been infticted 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.

¶116

A learned Single Judge of the High Court of Karnataka in YASHODHARA SHROFF vs. UNION OF INDIA2 considering Section 16a(2)(a) of the Act and other provisions of the Act, and various judgments, passed an elaborate order and held that the said provision has no retrospective operation. The observations of the learned ludge, pertaining to

¶117

'w.P.No.529l^{I of2017and batch} dated 12.06.2019

¶118

¶119

private companies, which are relevant for the present purpose, are extracted

¶120

as under:

¶121

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

¶122

(a) It is held that Section 16a(2)(a) of the Act is not u/tra vlrus Article 14 of the Constitution. The said^provision is not manifestly arbitrary and also does not^fall within the scope of the doctrine of^{proportionality.} Neither does the said^provision violate 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 disqualification on account of the circumstances^{stated thereinandthe same is in} order to achieve probity, accountability, and transparency in'^corporate governance.

¶123

(b) That Article fslc) Section 164(2) of the Act applies by operation^{of law on the basis} of the circumstances stated therein, the^{said provision does notenvisageany} hearing, neither^pre-d isqua lification nor^{post-disqualificationand thisis not in} violation of the^principles of natural^justice, is^not ultra^{vlres Article 14 of the} Constitution.

¶124

(c) That Section 164(2) of the Act does not have^{retrospectiveoperationandis} therefore, neither unreasonable^{norarbitrary, in viewof the interpretationplaced} on the same.

¶125

(d) . . .

¶126

(e) Insofar as the^private companies are concerned,^{disqualification on accountof the} circumstances stated under^{Section 164(2)(a)of the Act has beenbrought into} force for the first time under the Act^{andtheconsequencesof d squalrfcation} could not have been imposed on^{directors of privatecompaniesby taking into} consideration any^periodprior to^{01.04.2014for the purposeof r€ckon'ng} continuous^period of three^{financial years underthe said provisionThesaid} conclusion is based on the^{principaldrawnby wayof analoqyfrom Article 20(1) of} the Constitution, as at^{no point of timepriorto theenforcementof the Act, a} disqualification based on the^{circumstances under Section164(2) of the Actwas} ever envisaged under the^{1956Act vis-e-vis directors of private companiesSuch} a disqualifiaation could^visit a^{directorof only a public companyunder Section} 274(l(g) of 1956 Act and never^{a directorof aprivatecompany Such} disquiliication of the^{petitioners who are directorsof privatecompaniesis hence} q uas hed.

¶127

(0...

¶128

(g) Consequently, where the disqualification^{under Section 164(2)of the Act is based} '-' on a continuous period of three fanancial years commencing from O['O4'2O74' wherein financial statements^{or annual returns have not beenfiled by a public or} private company, the directors of such a company^{standdisqualifiedand the} consequences of the^{said disqualification would applyto themunderthe Act'}

¶129

A learned Single of the^{HighCourtof Gujaratat Ahmedabadin}

¶130

GAURANG BALVANTLAL^{SHAH S/O BALVANTLALSHAH vs' UNIONOF}

¶131

INDIA3 expressed similar^{view as that of the leanedsingle 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 1,4'2074 wouldhave} prospective, and not retrospective effect^{and that the defaults contemplated} under Section 16a(2)(a)^{withregardto non-filingof financial statementsor} 1 r Special Civil Application No.22415 of 20 | 7 and batch dated I 8 12.2018

¶132

¶133

annual returns for any continuous^period of three^{financial years wouldbe} the default to be counted from the financial^yeat 20L4-75 only and not 20t3-14.

¶134

A learned single Judge of the High Court of lVadras in BHAGAVAN DAS DHANANJAYA DAS vs. UNION OF INDIA4 also expressed similar view. The relevant portion is as under:

¶135

In fine,

¶136

(a) When the New Act 2013 came into effect from 1.4.2014, the second respondent herein has wrongly given retrospective effect and erroneously disqualified the petitioner - directors from 1.1.2016 itself before the deadline commenced wrongly fixing the first financial year from 1.4.2OL3 to 31.3.2014.

¶137

(b) By virtue of the new Section 164(2)(a) of the 2013 Act using the expression 'for any continuous period of three financial year" and in the llght of section 2(41) defining "financial year" as well as their own General circular No.08/14 dated 4.4.2014, the first financial year would be from 7.4.2014 to 31.3.2015, the second financjal year would be from 1.4.2015 to 31.3.2016 and the third financial year would be from 1.4.20L6 to 31.3.2017, whereas the second respondent clearly admitted in paras LS and 22 of the counter affidavit that the default of filing statutory returns for the final years commences from 20L3-74, 20L4-75 and 2015-16 i.e, one year before the Act 2013 came into force. This is the basic incurable legal infirmity that vitiates the entire impugned proceed ings.

¶138

In view of the above facts and circumstances and the judgments referred to supra, as the impugned orders in present writ petitions disqualifying the petltioners 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.

¶139

As far as the contention regarding issuance of prior notice before disqualifying the petitioners as directors is concerned, Section 164(2)(a) is required to be noticed, and the same is extracted as under for ready reference:

¶140

Disqualification for appointment of director:

¶141

W.P.No.25455 of 2017 and batch d ated 2'l .0't .2018

¶142

¶143

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

¶144

(a) has not filed financial statements or annual returns for any continuous period of three financial years; or

¶145

(b)

¶146

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.

¶147

A reading of the above^provision makes it clear that it^provides disq ua lification on happenlng 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 ineligibleto be re-} appointed as a director of that company^{or appointedin any othercompany} 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 noticeor} hearing. A learned single ludge^{of the High court of Karnataka in Yashodara} Shroff v. Union of India^{(1 supra), as wellas the learned single Judge of the} High Court of Gujarat at^{Ahmedabadin Gaurang BalvantlalShah s/o} Balvantlal Shah vs. Union of^{India (2 supra),after analyzing various} provisions of the Act and Rules framed thereunder,^{and by relying on various} judgments of the Apex Court, held that Section^{16a(2)(a) of the Act applies} by operation of law on the^{basis of the circumstances stated therein, thesaid} provision does not envisage any^{hearing,neither pre-disqualificationnor} post-d isq ua lification and this is not^{in violation of the principles of natural} justice and hence, is not ultra^yres Article^{14 of the constitution. I concur} with the said reasoning.

¶148

Thus, from the above,^{it is clear that Section16a(2)(a)of the Act} is a deeming^provisionand the^{d isqua lificationenvisagedunder the said} provision comes into force automatically^{by operation of law on defaultand} Legislature did not^{provide for issuance of any prior notice, but the} respondents notified^{disqua lification even beforeit incurred, and deactivated} DINs, which is illegal^{arbitrary and againstprovisions containedin} Section 164(2)(a)^{of the Act}

¶149

¶150

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 16a(2)(a) of the Act, is not one of the grounds mentioned under clauses (a) to (f) of Rule 11, and hence for the alleged violation under Section 16a(2)(a) of the Act, DIN cannot be cancelled.

¶151

Rule 10 of the Rules provide for allotment of DIN and under sub rule (6) of Rule 10, it is allotted for life time. Rule 11 provides for cancellation or deactivation. Rule 11, which is relevant for the present purpose, is extracted as under for ready reference:

¶152

Cancellation or surrender or deactivation of DIN: The Central Government or Regjonal Director (Northern Region), Noida or any officer authorized by the Regional Director may, upon being satisfied on verification of particulars or documentary proof attached with the application received from any person, cancel or deactivate the DIN in case -

(a)

(b)

(c)

(d)

(e)

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 valjdly retained num ber;

¶159

the DIN was obtajned in a wrongful manner or by fraudulent means; of the death of the concerned individual; the concerned individual has been declared as a person of unsound mind by a competent Court;

¶160

if the concerned individual has been adjudicated an insolvent;

¶161

Provided that before cancellation or deactivation of DIN pursuant to clause (b), an opportunity of being heard shall b€ given to the concerned individual;

¶162

¶163

on an application made in Form DIR-5 by the DIN holder to surrender his or her DIN along wjth 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;

¶164

Provided that before deactivation of any DIN in such case, the Central Govern ment shall verify e-records.

¶165

Explanation: for the purposes of clause (b) -

¶166

(i)

¶167

The terms "wrongful manner" means if the DIN is obtained on the strength of documents which are not legally valid or incomplete documents are furnished or on suppression of material information or on the basis of wrong certification or by making misleading or false anformation or by misrepresentation;

¶168

(ii) the term "fraudulent means" means if the DIN js obtained with an intent to deceive any other person or any authority including the Central Government.

¶169

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

¶170

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

¶171

¶172

Section 16a(2)(a) of the Act. Therefore, for the alleged violation^under

¶173

Section 164 of the Act, DINS cannot be cancelled or deactivated,^exceptin accordance with Rule 11 of the Rules.

¶174

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

¶175

"29. This takes the Court to the next^question as to^whethcr the^respondents could have deactivated the DINS^{of the petitionerasa consequenceof the impugned} list? In this regard, it^would be^{appropriate to referto the relevantprovisions} contained in the Act and the^{saidRules. Section153(3)provides that no person} shall be appointed as a^Director of^{a company, untesshe has been allottedthe} Director Identification Number under^{Section154.Section153requ'resevery} individual intending to be^{appointedas Director of aCompany tomakean} application for allotment of^{DIN to the central Government in such form and manner} as.maybeprescribed,sectionl54StatesthatthecentralGovernmentshallwithin 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} injividual, who has already been^{allotted a DINunder Section 154 from applyingfor} or obtaining or^{possessinganotherDlN. Rules 9 and 10 of the said Rules of 2014} prescriue tie procedure fJr making^{application for allotment and for the allotment of} bIr',r, anO further^{provide thatthe bIN allottedby the central Government under the} said Rules would be valid for^{the lifetime of theapplicant and shall notbe allotted to} any other^person.

¶176

30, Rule 11^{provides forcanceltationor surrenderor deactivation of DIN'} Accordingly, the Central^{Governmentor RegionalDirectoror any authorized officer} of Regional Director^{may, on beingsatGfiedon verificationof particulars of} Jocu-"entary^proof attached^{with an applicationfrom any person, cancel o,r} Jeictivate tire'DIN^{on any of the grounds mentionedin Clause(a) to (f) thereof.} The said Rule 11 does^{not contempiateanysuo motu powerseither with the Central} Government or with^{theauthorizedofficerorRegional Director tocancelor} Jeactivate the^{DIN allottedto the Director, nor any of the ctauses mentioned in the} said Rules contemplates^{cancellationor deactivationof DIN of theDirectorof the} "struck off company" or of the^{Director havingbecomeineligible under Section164} of the said Act. The^{reason appearsto be that oncean individual, who is rntendrng} to be the Director^{of aparticularcompanyis allotted DIN by the Central} cou"inrunt,^{such DIN would be valid for the life trme of the applicant and on the} baSiS of such^{DIN he couldbecomeDirectorin othercompaniesalso' Hence,if one} oi1n".ornpuni"t in^{which he vvas Director, is "struckoff", his DIN could not be} cancelled o; deactivated^{as that would run counter to the provisions containedin the} Rule 11, which specifically^{providesfor thecircumstancesunder whichthe DINcould} be cancelled or deactivated.

¶177

In that view of^{the matter, the Court is of the opinion that the action of the} respondents in deactivating^{theDINs of the petitioners -.Directors alongwith the} pr[1"''uiion^-or the impugried list^{of Directorsof "struck off" companies under} leition Zqa, also^{was not leqallytenable.Of course,as per Rule 12 of the said} nri"t, tft" individual^{who has-been allottedthe DIN,in the eventof any change in} his^particulars stated in^{Form DIR-3 has to intimatesuch change to theCentral} Coulinrn"nt within^{the prescribedtime in FormDIR-6, however, if that is not done'} tfre Ottt couta^{not be cancelledor deactivated.The cancellation or deactivationof} theDlNCouldberesortedtobytheconcernedrespondentsonlyasperthe provisions contained in the said^Rules."

¶178

30'Inviewoftheabovefactsandcircumstancesandthejudgment referred to supra,^{the deactivation of the DINsof the petitioners for alleged} violations under Section^{164 of the Act, cannotbe sustained'}

¶179

¶180

For the foregoing reasons, the impugned orders in the writ petitions to the extent of disqualifying the petitioners under Section 1.64(2)(a) of the Act and deactivation of their DINs, are set aside, and the 2nd respondent is directed to activate the DINs of the petitioners, enabling them to function as Directors other than in strike off companies.

¶181

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 L6a(2) of the Act, giving the said provision prospective effect from 01.04.20L4 and for necessary action against DIN in case of violations of Rule 11 of the Rules.

¶182

It is also made clear that if the petitioners are aggrieved by the action of the respondents in striking off their companies under section 24g of the Act, they are at liberty to avail alternative remedy under Section 252 of the Act.

¶183

All the writ petitions are accordingly allowed to the extent ind icated a bove.

¶184

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

¶185

A.RAJASHEKER REDDY,J

¶186

DATE: 18-07-2019 AVS

Gangarapu Venkataramana v. Union of India and Another

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Gangarapu Venkataramana v. Union of India and Another

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