Allowed

Sri Manne Tirumala Venkata Ramana v. Union of India and another

Telangana HC3 Feb 2021WP/2256/2021

Case brief

AI extract

What is this about?

Directors challenged their disqualification and deactivation of their Director Identification Numbers. Following its earlier common order, the court allowed the petition on the same terms, setting aside the challenged action and directing DIN activation for functioning as directors other than in struck-off companies.

What did the court decide?

Disqualification and DIN deactivation set aside on the earlier common order's terms; Registrar directed to activate DINs for functioning as directors other than in struck-off companies.

Sri Manne Tirumala Venkata Ramana Vs Union of India… — Company and Corporate | Telangana HC (2021)

¶1

HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD

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(S pec ial Original J u risd iction)

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WEDNESDAY. THE THIRD DAY OF FEBRUARY

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TWO THOUSAND AND TWENTY ONE

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PRESENT

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THE HON'BLE SRI JUSTICE ABHINAND KUMAR SHAVILI

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WRIT PETITION NO: 2256 OF 2021

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Between

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Sri l,4anne Tirumala Venkata Ramana, S/o K V S H V Satyanarayana^lt4anne. Aged about,60 years. R/o Flat G-2, Plot.8-2-31018.121 , Vidushi Villa Apartment. Road No.^'14, Nandi Nagar Bus stop. Nandi Nagar. Banjara Hills. Khairatabad, Hyderabad, Telangana Stale- 500034

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Sri l\4anne Venkata Sandeep, S/o^li,4anne Tirumala^{Venkata Ramana Aged} about.35 years R/oH.No.560/4. Road No. 92. Banjara^{Hills. Shaikpet.} Hyderabad, Telangana State -500033.

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...'ET'T'ONERS

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AND

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1 Union of lndia, Represented by its l\4inistry of Corporate^{Affairs, Shastri Bhawan,} Dr. Rajender Prasad Road New Delhi-^{1 1000'1}

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2 The Ri:glstrar of Companies, Telangana State, 2nd Floor, Corporate^Bhawan, GSI Poat. Tattiannaram^Nago e. Bandlaguda.^{Hyderabad - 500 068}

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...RESPONDENTS

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Petrtion under Article 226 of the Const^{tut on} of^{lndia prayingthat n the} circumstances stated in the affidavit fi ed therewith,^{the High Court may be pleased to} pass an order or direction or any other proceedings one in the nature^{of Writof} l,4andamus declaring the action of respondents in disqualifying^{the petitioneras} directors and deactivating the 1st^{petitioner Director ldentificationNumber} (DlN) 00291236 2nd petitioner Director ldentification Number^{(DlN) 00291751} ,^and restricting the petitioners from frling statutory^{returns.i.e,. the annual returnsand} financial statements of the Companies in which they are^{Directors as arbitrary.illegal,} without^{jurisdiction,} contrary of the^provisions of^{the CompaniesAct. 2013and Rule} 11 of the Companies (Appointment of Directors)^{Rules,2014, violativeof the} principles of natural lustice besides violating the petitioner rights^guaranteed under Article^'14 and Article t I⁽¹ )^(g) of the Constitution^{of lndia.}

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lA NO: 1 OF 2021

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Petition under Section 151 CPC^praying that^{in the circumstances statedin the} affidavit filed in support of the^petition, the^{High Court may be pleasedto direct the} .1st Respondent to restore the 1'r petitioner Director ldentification Number (DlN) 00291236 2nd petitioner Director ldentification Number^{(DlN) 00291751, so as} to enable^petitioners to submlt^{pending annual returns and financialstatements for} the companres in which they are appointed^{as directors and petitloners enableto} appoint as directors for the^purpose of^{incorporation of further new companiesUnder} Compan es Act. 2013.

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Counsel for the Petitioner: M/s.^{ANGOTHU NEHRU}

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Counsel for the Respondents: SRI^{NAMAVARAPU RAJESHWARRAO,}

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ASST.SOLICITOR GENERAL

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The Court made the following:^ORDER

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THE HON'BLE SRI JUSTICE ABHINAND KUMAR SHAVILI WRIT PETITION No.225 6 of 2021

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ORDER:

¶25

A_ugrievecl by the action ot' 2"'r respondent lLegistrar ol ( onrpanies. in disqLialitr irru the pctitioner.s es I)irccr,,rs Lrrdr.r Scrrit.,n 1().1(l)(a) o1' thc Ciomp,.ies ..\ct. l0lt lir:rl iu tleecrrrati.e thcir l)ilector lcientitlcation Nuurbers (Dl). rltc y-.,rcse nr \'r.it I)crtLion hls ber'rr 1l1ed.

¶26

L Learned coltnsL.l appearine tbr.pctirroncrs e()lrtc.ndcd Lhat tlte /i.i in the present \'rit Petition is squar.elv cover!-rl br the citr.nnror.r or.clcr. dated 18.07.2019 passed by this Court in \/.p.\o.5,112 ol.20lg ancl batch. and hence the same may accordingll,, be allon ed.

¶27

Sri N. Rajeshwar Rao, learned Assistant Solicitor Generai, appearing for respondents, does not dispute the same

¶28

The relevant portion of rhe order in W.p.No,5422 of 20lg and batch dated 18.07.20i9, is as under:

¶29

''2i. ln r ierr oi'the aboi c llrcts lLnri cire rll_,1lrnce s und Lltc.iLiderncnts le li'rlctl to ,ill,.ti. il: ilte intl..Lttnctl orrlers itt ltrcscIt rrIit 1-rcLiLiLrll: (li5(]LrilLil\ in- lltg 1,g1l1i,r;1,r1'. 11, directors uncler Scction l5+(l)(a) L,l Lire .\e l. [rrc bcen passeci considering the periorl priol to (tl.L)J.l{ll-.l. rhe same cilnnot be sustained. anrl ar.e lilil_,le tcr l_.c:c1 asirlc l0 that extent.

¶30

In view olthe above facts and circumstances and the judgment ret'ened to supra, the deactivation of the DINs ol the petitioners for alleged violations under Section 1 64 of the Act, cannot be sustained,

¶31

-. I I^,.,r tit.r I'rri-LtLring rcas(rt'tS. thc illtPLrgncd ()t.(ief) lr tlre rrril It.ritions ro rl)c cxtcnt o1' disclualiiyin.-r tltc l.clrlii)ne^{r.Lnclcr Sccri(rn l{r4(2)(a)} oi' thc Act rnd cie :rclir,rlioir Lrl rhcil I)lNs. ale set aside. and tl.rc 2nd lespondent is dilected lo activate the DINs ol the petitioners. euabling theln to iunction as Directors other than in strike oll courpanies.

¶32

i2, It is made clear that this order n,ill not preclude the 2nd lespondent lrom taking appropriate aotion in eccordance rr'ith ias lbr violations as envisaged under Section )61(2) ol the Act. giving the said provision prL)speclivc e l'lict ll1)nt 01.01.2011 and fbr necessar) lr.li(rl iiciLin5l I)l\ in clrsc ol'r,ioiatirrns ol'I{ulc I I ol'thc I{ Lr 1c:

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ll. lt i. rLlsrr nraclc clcar that if the petitioncls alc lrLr.r'reriil i.r llre rreliorr r,i Llrc rcsPLrntlcnts in striliir,r irii' tlr,.'i1 iL,1rpilrvt: 1:r(lar \eali()p llS rrl'tlrc .\e1. llrc\ rrc i1t lil-.lln t,, lrrlrli lLlleirriilire rcrlcdr under SccLion l5l ot ll r \r1 '

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..\ll tirc uIrt l)clilir)ns a|c accordingll allor'ied Lo the extent in d icated abo\ e.''

¶35

In view of the salne, and for the reasons alike, the present Writ

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Petition is also allowed mutatis mutandis, in terms of the common order dated 18.07.2019 passed in W.P.No.5422 of 2018 and batch. No ol'der as to costs.

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ivliscellaneor.rs petitions pending , il anr', shall star-rd closed

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SD/- I.NAGALAKSHIVlI ASSISTANT RE ISTRA

//TRUE COPY//

SECTION OFFICER

To,

Unron of India.^lv'1inistry of^{Corporate Affairs, Shastri Bhawan,Dr' Raiender} Prasad Road. New Delhi'1 10001

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2 The Registrar of Companies,^{Telangana State., 2nd Floor, Corporate Bhawan'} GSI Po;t. Tattrannaram Nagole.^{BandlagudaHyderabad - 500 068}

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3 One CC to l,4/s. Angothu Nehru^Advocate [OPUC] - 4 One CC to Sri Namivarapu^{Raleshwar Rao, Asst Solicitor General Advocate} loPUCl

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5 Two CD Copies (Along wiih a copy of the order, dt: 18,07.2019ⁱⁿ W.P.^{No.5422l2018 and batch)}

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s|.1 )<{<

HIGH COURT

DATED:0310212021

ORDER

WP.No.2256 of 2021

t H E 14
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TC\if-0 :t

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ALLOWING THE WP WITHOUT COSTS

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.><br>1}{y

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THE HON'BLE SRI ]USTICE A.RAJASH^{EKER REDDY}

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W,P,NOs.5422, 1 21a4. t3520. L37A3, 13855, 1416^{6. 24051.30993.} AND 40953 0F 2o1a. 5547, 5582.5669, 5647,57^{as. 6047. 6047,} 4 4 4 6753 6 5 7 8 70t4 7073 7LO 5- 7432^{-r4s4. -rs'r).} 7ss.^{7732. 7765. 7 -1F\9,} 7^R 24 7^g 7A 8111. 8223. 8s86. 8s90. 9333, 9340, 9381, 9468. 9563, 9584, 9623. 9726,9737, 100s8, 10099. 11208, 11223. 11239, 11263. 11889, 1 1991 1 2o1a. 1 0?6. 't)o4rl_ 12()69. 121()4, L2144 1 ) 1 a6_ 1 21^q4- 1¹ 2oo- 122oI t2215 1 )) 1-1 . 1))4a. 1)26rl.1226 ) 122R 8 1⁾⁴⁴⁾ _ '| 23 <n 1'rL1'' 1 1/l2) 12472 L249^{er r<n61rE7} 1^,EO 8 t26⁾¹ t2702. L2735. ! 740. L2845. 128sO, 12865, 1286^{5. 13013. 13618,} L3730. 1-3749. L3779. l37Ba. 13A39. 138s5. l3A7A.^13912. L39t7, 14101 L4 L43 14397 14449, 1 4sa2 AND 14597^oF 20t9

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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 companiesr} registered under the Companies^{Act, 2013 (18 of 2013)(for short'theAct')'} Some of the such companies^{are active, and some of themhave beenstruck} off from the register of companies^{under Section248(1)( c} )^{of the Act, for} not carrying on any business^{operationfor the specified period mentionedin} the said provision, and^{for not makingany application within the specified} period, for obtaining the status of a dormant^{company under Section 455 of} the Act.

¶59

The petitioners, who^{were directorsof the struck off companies,} and who are^{presentlydirectors of activecompanies, during the relevant} period in question, failed to file financial^{statements or annual returnsfor a} continuous^period of^{threeyears. Therefore, the 2nd respondentpassedthe} impugned order under^{Section164(2) of the Act, disqualifyingthem as} directors, and further making^{them ineligibleto be re-appointed as directors} oF that company, or any^{othercompany,for a periodof five yearsfrom the} date on which the^{respective companies failed to do so'The Director} Identification Numbers^{(D1Ns) of the petitionerswere alsodeactivated} Aggrleved by the same,^{the present writ petitions have been filed'}

¶60

¶61

This court granted interim orders in the writ petitions directing the 2'd respondent to activate DINs of the petitioners, to enable them to function orher rha^ i^ st'ike off compa^ies.

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Heard the learned counsel appearing for the petrtioners 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 16a(2)(a) of the Act empowers the authority to disqualify a person to be a director, provided he has not filed financial statements or annual returns of the company to which he is director, for any continuous period of three financial years. Learned counsel further submits that this provision came into force with effect from 7.4.2074, and prior thereto i.e., under Section 274(t)(g) of the Companies Act, 1956 (1 of 1956), which is the analogous provision, there was no such requirement for the directors of the private companies. They contend that this provision under Act 1B 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 7.4.2OL4, i.e., giving the provision retrospective effect, disqualified the petitioners as directors, which is illegal and a rbitra ry.

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With regard to deactivation of DINS, learned counsel for the petitioners submit that the DINS, as contemplated under Rule 2(d) of the Companies (Appointment and Qualification of Directors), Rules, 2O14 (for

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short 'the Rules), are granted for life time to the applicants under Rule 10(6) of the said Ru les, 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 sa id grounds does not provide for deactivation for having become ineligible for a ppointment as Directors of the company under Section 164 of the Act Learned counsel further submits that as against the deactivation, no a ppea^I 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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9, Learned counsel further submits that 1't respondent - Government of India represented by the 14inistry of Corporate Affairs,^{has floated a} scheme dated 29.12.20!7 viz., Condonation^{of Delay Scheme} -^2018, wherein the directors, whose^{DINshave beendeactivated by the 2nd} respondent, allows the DINs of the^{Directors to be activated. However, such} scheme is not applicable to the^{companieswhich are struck off under} Section 2a8(5) of the Act, In^{case of active companies,they can make} application to National Company Law^{Tribunal under Section252 of the Act,} seeking for restoration, and the^{Tribunal can order for reactivationof DIN of} such directors, whose DIN are deactivated.^{However, under Section 252 only} the companies, which are carrylng^{on the businessr canapproachthe} Tribunal and the companies,^{which haveno business,cannot approach the} Tribunal for restoration. They submit^{that since the penal provisionis given} retrospective operation, de^{hors the above scheme,they are entitledto} invoke the^jurisdiction of this^{court under Article 226 of the constitution of} India.

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

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ll.ontheotherhandlearnedAssistantSolicitorGeneralsubmitsthat failure to file financial StatementS^{or annual returnsfor any continuousperiod}

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of three financial^years, automatically entail their^{disqualification under} Section 16a(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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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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Appeal to Tribunal:

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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 within a period of three years from the date of the order of the Registrar and if the Tribunal is of the opinion that the removal of the name of the company from the register of companies is not.lustified in view of the absence of any of the grounds on which the order was passed by the Registrar, it may order restoration of the name of the company in the register of com panies;

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Provided that before passing an ordeT under this section, the Trbunal shall grve a reasonabie 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 Reg strar is satisfied, that the name of the company has been struck off from the register of companies either inadvertentiy or on basis of incorrect informatjon furnished by the company or its directors, which requires restoration in the register of companies, he may within a period of three years from the date of passing of the order dissolving the company under Section 248, file an application before the Tribunal seeking restoration of name of such com^pany,

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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 receipt of 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 feels aggrieved by the company having its name struck off from the register of companies, the Tribunal or an application made by the company, member, creditor or workman before the expiry of twenty years from the publication in the Official Gazette of the notice under sub-section (5) of Sectjon 248, if satisfied that the company was, at the time of its name being struck off, carrying on business or in operation or otherwise it is just that the name of the company be restored to the register of companies, order the name of the company to be restored to the register of companies, and the Tribunal may, by the order, give such other directions and make such provisions as deemed jLst for placing the company and all other persons in the same position as neariy as may be as if the name of the company has not been struck off from the register of companies.

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A readlng of above provision goes to show that if the company is dissolved under Section 248 of the Act, any person aggrieved by the same. can file an appeal. Thus the said provision provides the forum for redressal against the dissolution and striking off the company from the register of companies. It does not deal with the disqualification of the directors, and deactivation of their DINs. In the present case, the petitioners are only aggrleved by their disqualification as directors and deactivation of DINs, but not about striking off companies as such. Hence, Section 252 of the Act, cannot be an alternative remedy for seeking that relief, and the contention of the learned Assistant Solicitor General, in this regard, merits for rejection.

¶82

Under Section 16a(2)(a) of the Act, if the Director of a company fails to file financial statements or annual returns for any continuous^period of three financial years, he shall not be eligible to be re-appointed^{as a} director of that company or appointed in other^{companyfor a periodof five} years from the date on which the said company fails to do so. The said provision under the Act 18 of 2013, came into force with effect^from 01.O4.2074, and the^petitioners are disqualified^{as directorsunderthe said} provision. At this stage, the issue that arises for consideration^{is - whether} the disqualiFication envisaged under Section^{16+(2)(a)of the Act, which} provision came into force with effect from 0L.O4.2014, can be^made applicable with prospective effect, or has to^{be given retrospectiveoperation?} In other words, the issue would be, from which^{financialyear, the default} envisaged under Section rcaQ)Q) 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 CircularNo.08/14 dated} 4.4.2074 issued by the Ministry of^{Corporationaffairs, which clarifiesthe} applicability of the relevant^{financialyears'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 including those relating to} maintenance of books of^{account, preparation, adoptionandfiling of financial} statements^(and documents^{requiredto be attached thereto),Auditors reportsand} the Board oi Directors report^{(Board'sreport) have been brought into forcewith}

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effect from 1't April, 2014.^{Provisions of ScheduleII(useful livesto compute} depreciation) and Schedule III^{(formatof financial statements) havealso been} brought into force from that date.^{TherelevantRules peftain ng to these provisions} have also been notified,^placedon the^{website of the Ministryand have come into} force from the same date.

¶86

The Ministry has received requests for^{clarificationwith regardto therelevant} financial^years with effect from which such^provisions of the^{new Act relating to} maintenance of books of account,^{preparation, adoption} and^{filing of financial} statements (and attachments thereto), auditors report^{andBoard'sreport} will^be applicable.

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Although the^position in this behalf is^quite clear, to make^{things absolutely clear} it is hereby notified that the financial statements^(and documents^required to^be attached thereto), auditors report and Board's report in^respect of^{financialyears} that commenced earlier than 1't April shall be^governed by the^relevant provis ions/schedu les/ru les 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 a^pply. "

¶88

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 07.04.2074, shall be governed by the provisions under the Companies Act, 1956 and in respect of financial years commencing on or after 01.04.2014, the provisions of the new Act shall apply.

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!4. At this stage it is required to be noticed that the analogous provision to Section 16a(2)(a) of the Act 18 of 2013, is Section 274(7)(g) of Act 1 of 1956. The said provision under Act 1 of 1956 is extracted as under for ready refere nce:

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Section 274(1) A person shall not be capable of being appointed director of a company, if -

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(g) 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 April, 1999; or

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(B)

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Provided that such person shall not be eliqible 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, falled to file annual accounts and annual returns under sub-clause (A) or has failed to repay its deposts or interest or redeem its debentures on due date or pay dividend referred to in clause (B).

¶95

A reading of the above provision under Act 1 of 1956, makes it clear that if a person capable of being appointed director of a company and such person is already a director of a public company, which has not filed annual accounts and annual returns for any continuous three financial years commencing on

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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 statutqry 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 Act¹ of 1956.

¶98

Under Section 164(2) of the new legislation 1.e., Act 18 of^2013, no such distinction between a^'private company' or a^'public company'^ls made and as per the said provision^goes to show that no^{personwho is or} has been a director of a^'company', fails to^{file financial statementsor annual} returns for any continuous^period of three financial^{years,will not be eligible} for appointment as a director of a company.^{As already noted above, the} said provision, came into force with effect^{from 07.04.20L4.}

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16, Coming to the facts on hand, the^{2nd respondent has disqualified} the petitioners under Section rcaQ)G)^{of the Act 18 of 2013, for not filing} financial statements or annual returns,^{for period prior to 01.04.2014. The} action of the 2"d respondent runs contrary^{to the circularissuedby the} Ministry of the Corporate Affairs,^{and he has given the provisionsof Act 18 of} 2013, retrospective effect,^{which is impermissible'}

¶100

The Apex Court in^{COMMISSIONEROF INCOME TAX} (CENTRAL)-L, NEW DELHI V. VATIKA TOWNSHIP^{PRIVATE LIMITEDL} has dealt with the general^{principles concerning retrospectivity. The relevant} portion of the judgment ls thus:

¶101

A legislation, be it a statutory^{Act or a statutoryRuleor a statutory} Notification, may^{physically consistsof wordsprinted on papersHowever,} '^{(zors)r scct}

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conceptually it is a^great deal more than an^{ordinaryprose There is a specia} peculiarity in the mode of verbal communication by a legislation.^{A legislation is not} lust^{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 techniqueis knownas legislative} drafting and latter one is to be foundⁱⁿ the^{various principles of'Interpretationof} Statutes'. Vis-d-vis ordinary^prose, a^{legislationdiffers in its provenance, lay-out} and features as also in the^{implicationas} to^{its meaningthatarisesby presumptions} as to the intent of the maker thereof.

¶104

Of the various rules^guiding how a legislation^has to^{be interpreted,one} established rule is that unless a contrary intention appears,^{a legjslation is presumed} not to be intended to have a retrospective operation.^{The idea behind} the^ruleis 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^{keepingin 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 entitledto} arrange his affairs by relying on the existing law and should not find that^hisplans have been retrospectively upset. This^principle of law is known as lex^prospiclt non respiclt : law looks forward not backward. As was observed in Phillips vs. Eyre [(1870)^{LR 6} QB^{1], a retrospectivelegslationis contraryto the generalprinciple} that legislation by whlch the conduct of mankind is to be regulated when lntroduced 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.

¶105

The obvious basis of the^princlple against retrospectivity is the^principle of 'fairness', which must be the basis of every legal Tule as was observed in the decision reported in L'Office Cherifien des Phosphates v.^{Yamashita-Shinnihon} Steamship Co. Ltd. [{1994) 1 Ac 486]. Thus, legislations which modified accrued riqhts or which impose obligations or impose new duties or attach a new disability have to be treated as^prospective unless the legislative intent is clearly to^give the enactment a retrospective effect; unless the legislatlon is for^purpose of supplying an obvlous omission in a former legislation or to explain a former legislation. We need not note that cornucopia of case law avallable on the subject because aforesaid legal position clearly emerges from the various decisions and this legal^position was conceded by the counsel for the parties. In any case, we shall refer to few judgments containing this dicta, a little later.

¶106

We would also like to point out, for the sake of completeness/ that where a benefit is conferred by a legislation, the rule against a retrospective construction is different. If a legislation confers a benefit on some peTSons but wlthout infllctinq a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. This exactly is the justification to treat^procedural provisions as retrospective. In Government of India & Ors, v, Indian Tobacco Association, t(2005) 7 SCC 3961, the doctrine of fairness was held to be relevant factor to construo 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 law 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.

¶107

In such cases, retrospectivity is attached to benefit the persons in contradistinction to the provision imposing some burden or llability where the presumptron attached towards prospectivity. In the instant case, the proviso added to Section 113 of the Act is not benefrctal to the assessee. On the contrary, it is a provision which is onerous to the assessee. Therefore, in a case like this, we have to^proceed with the normal rule of presumption against retrospective operation. Thus, the rule against retrospective operation is a fundamental rule of law that no statute shall be construed to have a retrospective 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 dlsplaced by out weighing factors.

¶108

There is yet another very interesting piece of evidence that clarlfes that prov sion beyond any pale of doubt viz., the understandrng of CBDT itself regarding this provision. It ls contained in CBDT Circular No.B of 2002 dated 27.8.2002, with the subject "Finance Act, 2002 - Explanatory Notes on provision relating to Direct Taxes". This circular has been issued after the passing of the Finance Act, 2002, by which amendment to section 113 was made. In this circular, various amendments to the Income tax Act are discussed amply demonstratjng as to which amendments are clarificatory/retrospective in operation and which amendments are prospective.

¶109

¶110

For example, Explanation to sectron 158-BB is stated to be clarificatory in nature. Likewise, it is mentioned that amendments ln Section 145 whereby^provisions of that section are made applicable to block assessments is made clarificatory and would take effect retrospective y from 1't 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."

¶111

Thus, the Apex Court in the above^judgment, has made it clear that unless a contrary intention appears, a legislation has to be^presumed to have prospective effect. A reading of Section 164 of the Act does not show that the legislation has any intention, to make the said^provision applicable^to past transactions. Further, the Apex Court in the above^judgment at paragraph No.43, found that the circular issued by the authority after^passing of the legislatlon, clarifying the^{position with regard to applicabilltyof the} provisions, has to be construed as an important^piece of^{evidence, as it} would clarify the provision beyond any^pale of^{doubt.In the present case/as} already noted above, the^Ministry of^{Corporationaffairs has issuedthe} circular No,OB/2014 dated^{4.4.2014 clarifying that financial statements} commencing after 01.04.2014,^{shallbe governed by Act 18 of 2073i.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,sincein the present} cases, as the 2nd respondent /^{competentauthority, has disqualifiedthe} petitioners as directors under Section^{16a(2)(a) of the Act 18 of 2013, by} considering the^{period prior} to^{Ot.O4.2Ot4,the same is contrary to the} circular, and also contrary^{to the law laid down by ApexCourt in the above} referred^judg ment.

¶112

If the said^provislon is^{glven 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^{flnancial year would be from 01-04-2014to} 31.03.2015 and the second^{and thirdyearsfinanclal yearswould 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 Companles only after the} conclusion of the annual^{general meeting of the company. and as per the first}

¶113

¶114

proviso to Section 96(1) of the Act, annual general meeting for the year ending 31.03.2077, can be held within six months from the closing of financial year i.e., by 30.09.2017. Further, the time limit for filing annual returns under Section 92@) of the Act, is 60 days from annual general meeting, or the last date on which annual general meeting ought to have been held with normal fee, and within 270 days with additional fee as per the proviso to Section 403 of the Act. Learned counsel submit that if the said dates are calculated, the last date for filing the annual returns would be 30.1L.2017, and the balance sheet was to be filed on 30.10.2017 with normal fee and with additional fee, the last date for filing annual returns is 27.O7.2078. In other words, the dlsqualification could get triggered only on or after 27.07.2078. But the period considered by the 2"d respondent in the present writ petitions for clothing the petitioners with disqualification, pertains prior to 01.04.2074. Therefore, when the omission, which is now pointed out, was not envlsaged as a ground for disqu a lification prior to 7.4.20t4, the petitioners cannot be disqualified on the said ground. This analogy is traceable to Article 20(1) of the Constitution of India, which states that "/Vo person shall be convicted of any offence except for violation of a law in force at the time of the commission of the act charged as an offence, nor be subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the commission of the offence". In view of the same, the ground on which the petitioners were disqualified, cannot stand to legal scrutiny, and the same is liable to be set aside.

¶115

A learned Single Judge of the High Court of Karnataka in YASHODHARA SHROFF ys, UNION OF INDIA2 considering Section 164(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

¶116

2 w.P.No.529l I of 2017 and batch dated 12.06.2019

¶117

¶118

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

¶119

as under:

¶120

In view of the aforesaid d scussion, I have arrived at the following conclusions

¶121

(a) It s held that Section 16a(2)(a) oF the Act is not u/rra^ylrus Article 14 of the Constitution, The said provision is not manifestly arbltrary and also does not fa I w thin the scope of the doctrine of proportionality. Neither does the said provision violate Articie 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 therein and the same is in order to achieve probity/ accountability, and transparency in corporate 9OVernance.

¶122

(b) That Article (slc) Section 164(2) of the Act applies by operation of law on the basis of the circumstances stated therein, the said^provision does not^envisageany hearing, neither^{pre-disqualification} nor^post-d isqua lification and this is notⁱⁿ violation of the^principles of natural^justice, is nol ultra vlres^{Article 14} of^the Constitution.

¶123

(c) That Section 764(2) of the Act does not have retrospective operation and is therefore, neither unreasonable nor arbitrary, in view of the^{interpretationplaced} on the same.

¶124

(d) . . .

¶125

(e) Insofar as the private companles are concerned, disqualification^{on accoLrnt of the} circumstances stated under Section 164(2)(a) of the^{Act has beenbrought lnto} force for the first time under the Act and the^{consequencesof disqualiflcation} could not have been imposed on^directors of^{privatecompaniesby takinginto} consideration any^periodprior to^{01.04.2014for thepurposeof reckoning} continuous^period of three^{financial years under the saidprovislon.Thesaid} conclusion is based on the^principal drawn^{by wayof analogyfrom Article 20(1)of} the Constitution, as at no^point of time^{priorto theenforcementof the Act,a} disqualification based on the circumstances^{under Section164(2) of the Act was} ever envisaged under the 1956^{Act vis-e-vis directors of privatecompanies. Such} a disqualification could visit a^{directorof onlya public companyunder Section} 27a0)G) of 1956 Act and never a director^{of a privatecompany Such} disqualification of the^{petitioners who are directorsof privatecompaniesis hence} quashed.

¶126

(f)...

¶127

(9) Consequently, where the disqualification under^{Section 164(2) of the Act is based} on a continuous^period of three^{financial years commencingfrom01.04.2014,} wherein financial statements or annual^{retuTnshave not beenfiledby a public or} private company, the directors of such a company stand^{disqualifiedand the} consequences of the said disqualification^{would applyto themunderthe Act.}

¶128

A learned Single of the High Court^{of Gujaratat Ahmedabadin}

¶129

GAURANG BALVANTLAL SHAH S/O^{BALVANTLALSHAH VS. UNIONOF}

¶130

INDIA3 expressed similar view as^{that of the leanedsingle Judgeof Hlgh} Court oF Karnataka (1 supra), and^{held that Section 164(2) of the Act of} 2013, which had come into^{force with effect from 14.2O74 wouldhave} prospective, and not retrospective effect and that^{the defaults contemplated} under section 164(2)(a) with^regard to^{non-filingof financial statementsor} I r Special Civil Application No.224i5 ol l0I7 and batch dated 18 12.20I8

¶131

¶132

annual returns for any continuous^{period of threefinancial years wouldbe} the default to be counted from the^{financial year2014-15 only and not} 2073-t4.

¶133

A learned single Judge of the High Court of N4adras in BHAGAVAN DAS DHANANJAYA DAS vs. IJNION OF INDIA4 also expressed similar view. The relevant portion ls as under:

¶134

In fine,

¶135

(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 1.4.2013 to 31.3.2014.

¶136

(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 light of section 2(41) defining "financial year" as well as their own General circular No.08/14 dated 4.4.?074, the first financial year would be from 1.4.2014 to 31.3.2015, the second financial year would be from 1.4.2015 to 31.3.2016 and the third Financial year would be from 1.4.2016 to 37.3.2077, whereas the second respondent clearly admitted in paras 75 and 22 oF the counter affidavit that the default of filing statutory returns for the final years commences from 2O73-L4, 2074-75 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.

¶137

In view of the above facts and circumstances and the judgments referred to supra, as the impugned orders in present writ petitions disqualifying the petitioners as directors under Section 16a(2)(a) of the Act, have been passed considering the period prior to 01.04.2014, the same cannot be sustained, and are liable to be set aside to that extent.

¶138

As far as the contention regarding issuance of prior notice before disqualifying the petitioners as directors is concerned, Section 16a(2)(a) is required to be noticed, and the same is extracted as under for ready reference:

¶139

Disqualification for appointment of director:

¶140

o w.P.No.25455 0f 2017 ard barch dated 2?.0?.2018

¶141

¶142

(2) No person who is or ltas been a drrectoT of a company^which

¶143

(a) has not f led fnancal statements or annilal returns for any continuous

¶144

r^{6r .o or rqr^.} 'l-ar^{c a' ,nd-._ of}

¶145

(b) . . ,

¶146

. Shall be eligible to be re-appornted as a director of that company^or appointed in other companies for a^period of^{fiveyearsfrom the date on which the} said company fails to do so.

¶147

A reading of the above^provislon makes^{itclear that itprovides} disqualification on happening of an event^{i.e., if a person who is or has been} a director of a company has not^{filed financial statements or annual returns} for any continuous period of three financial^{years, shall be ineligible to be re-} appointed as a director of that^{companyor 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 Judge^{of the High court of Karnataka in Yashodara} Shroff v. Union of India^{(1 supra), as wellas the learnedsingle Judge ofthe} 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 Sectlon^{16a(2)(a) of the Act applies} by operation of law on^{the basis of the circumstances statedtherein, thesaid} provision does not envisage any hearing,^{neitherpre-disquallficationnor} post-disqualification and this is not^{in violation of the principles of natural} justice and hence, is not ultra vlres Article^{14 of the constitution. I concur} with the said reasoning.

¶148

Thus, from the^{above, it is clear that Section164(2)(a) of the Act} is a deeming^{provisionand the d isq ua lificationenvisaged under the said} provisioncomesintoforceautomaticallybyoperationoflawondefaultand Legislature did not^{provide for issuance of any prior notice, but the} respondentsnotifieddlsqualificationevenbeforeitincurred,anddeactivated 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 164(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 Regional 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 validly retained number;

¶159

the DIN was obtained 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 com petent Court;

¶160

if the concerned ind vidual has been adjudicated an rnsolventj

¶161

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

¶162

(f)

¶163

on an application made in Form DiR-5 by the DIN holder to surrender his or her DIN along with declaration that he has never been appointed as director in any company and the said DIN has never been used for filing of any document with any authority, the Central Government may deactivate such DIN;

¶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 information or by m isrep resentation;

¶168

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

¶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 violationunder} Section 164 of the Act, DINs cannot be cancelled^{or deactivated, exceptin} accordance with Rule 11 of the Rules.

¶173

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

¶174

"29. This takes the Court to the next question as to whether the respondents could have deactivated the^{DiNsof the petitionerasa consequence of the lrnpugned} iist? In this regard, it wou d be appropriate to^{referto the relevantprovisions} contained in the Act and the^said Rules.^{Section153(3)providesthat no person} shall be appointed as a Director of a^{company, unlesshe hasbeenal otted the} Director Identification Number under^{Section154.Section153 requires every} individual intending to be appointed as Director^{of aCompany tomakean} application for allotment of^{DINto theCentralGovernment in suchform and manner} as may be^prescribed. Section^{154 states that the Central Government shall within} one month from the^receipt of^{the application under Section 153 allot a DIN to an} applicant in such manner as may^{be prescribed.Section 155 prohibits any} individual, who has already^{been allotted a DINunder Section 154 from applyingfor} or obtaining or^{possessinganotherDIN.Rules 9 and 10 of the saidRules of 2014} prescribe the procedure for making application for allotment^{and for the allotment of} bIru, and further^provide that the^{DINallottedby the CentralGovernment underthe} said Rules would 6e valid^{for theIife time of the applicant and shall notbe allotted to} any other^person.

¶175

30, Rule 11^provides for^{cancellationor surTender or deactivation of DIN'} Accordingly, the Central^{Governmentor RegionalDirectoror any authorized officer} of Regional Director may,^{on beingsatisfiedon verification of padiculars of} documlntary^proof attached^{with an applicationfrom any person, cancel or} deactivate t'he DIN on any of the^{grounds mentionedin Clause(a) to (f) thereof} The said Rule 11 does not conternplate^{anysuomotu powerseither with the Central} Government or with the^{authorizedofficerorRegional Directortocancelor} deactivate the DIN allotted to the^{Director, nor any of the clausesmentioned in the} sald Rutes contemplates^{cancellation or deactvationof DIN of theDirectorof the} "struck off company" or of the Director having become^{inellgible under Section164} oF the sa cl Act.^{The reason appearsto be thatoncean individual, who is intending} to be the Director oF a^{partrcular companylsal otted DIN by theCentral} Government, such DIN^{would be validfor the lfe t rne of the appicant and on the} basis of such DIN^{he couicl becomeDirectorn othercompaniesalso Hence,f one} of the companies tn^{which he was Director, ls "struckoff", his DIN could not be} cancelled or deactivated^{as that would run counter to the provisions contained in the} Rule 11, which specifically^{providesfor the circumstancesunder whichthe DIN could} be cance.led or deact vated.

¶176

In that view of the^{matter, the Court is of the opinion that the actlon of the} respondents in deactlvating the^{DINS of thepetitioners-Directors alongwith the} publication of the impugned list of Directors of^{"struckoff" companies under} iection 248, also was not^{legallytenable.Of course,as per Rule 12 of the said} Rules, the 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} Government within the^{prescribedtime in FormDlR-6, however,if that is not done,} the DIN could not be cancelled or^{deactivated.The cancellation or deactivation of} the DIN could be resorted to by^{the concerned respondentsonly as perthe} provisions contained in the said Rules."

¶177

In view of the above^{facts and circumstancesand the judgment} referred to supra, the deactivation^{of the DINs of the petitioners for alleged} vlolations under Section 164 of the^{Act, cannotbe sustained.}

¶178

¶179

For the foregoing reasons, the impugned orders in the writ petitions to the extent of disquallfying the petitioners under Section 164(2)(a) of the Act and deactivation of their DINs, are set aside, and the 2nd respondent is directed to activate the DINS of the petitioners, enabling them to function as Directors other than in strike off companies.

¶180

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 764(2) ot the Act, giving the said provision prospective effect from OL.O4.2OL4 and for necessary action against DIN in case of violations of Rule 11 of the Rules.

¶181

It is also made clear that if the petitioners are aggrieved by the action of the respondents in striking off their companies under Section 248 of the Act, they are at liberty to avail alternative remedy under Section 252 of the Act.

¶182

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

¶183

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

¶184

A.RAJASHEKER REDDY,J

¶185

DATE: 18-07-2019 AVS

Sri Manne Tirumala Venkata Ramana v. Union of India and another

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Sri Manne Tirumala Venkata Ramana v. Union of India and another

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