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2021 (1) TMI 350 - HC - Companies LawDisqualification of Director - Non filing of annual returns - Scope of the circular - Validity of action of including the petitioner in the list of Directors of Companies who had defaulted in filing Annual Returns - sections 164 and 167 of the Companies Act, 2013 - petitioner has submitted that, all High Courts for different reasons have taken the view that defaults prior to April 2014 cannot be taken into consideration and in support of such contention, he has relied upon MUKUT PATHAK ORS., YOGESH KHANTWAL, AARTI KHANTWAL, AND VINEET WADHWA VERSUS UNION OF INDIA AND ANR. 2019 (11) TMI 319 - DELHI HIGH COURT - petitioner has relied upon a judgment in SUBHAS KUMAR BISWAS, BANKIM KUMAR BISWAS, GAUTAM KUMAR BISWAS, SANJAY DAS, RAMESH KUMAR AGARWAL, RAMKRISHNA DAS, SUBHAM AGARWAL AND ANOTHER, VIJAY KUMAR SINGHAL AND ANOTHER, RADHEYSHYAM JAJOO VERSUS UNION OF INDIA AND OTHERS 2020 (3) TMI 806 - CALCUTTA HIGH COURT and CHETAN CHOKHANI VERSUS UNION OF INDIA AND OTHERS 2019 (11) TMI 1388 - CALCUTTA HIGH COURT and submitted that the penalty introduced under section 164 through the proviso therein came into effect from May 7, 2018 and therefore, a person cannot be held to be disqualified on the basis of events happening prior to May 7, 2018. On the other hand, respondents has relied upon an Order dated August 31, 2018 passed in MUKUL SOMANY ANR. VERSUS REGISTRAR OF COMPANIES, WEST BENGAL ANR. 2018 (5) TMI 2032 - CALCUTTA HIGH COURT and submitted that, the Court refused to extend the interim order. He has submitted that, in a writ petition, where the issue of disqualification of Director was involved and where there subsisted an interim Order, the Court, upon finding that the issue of this qualification of Director was pending before the Supreme Court from a judgment of the Bombay High Court, refused to extend the interim Order. HELD THAT - The defaults for non filing of annual returns are in respect of a company which is governed by the provisions of the Act of 2013 in as much as, the definition of a company as has been provided in Section 2 (20) of the Act of 2013 includes a company incorporated under any previous company law. The Act of 1956 being a previous law governing the affairs of the company will come within the meaning of the phrase under any previous company law as has been provided in Section 2 (20) of the Act of 2013. In the facts of the present case, the defaults of not filing of the annual returns of the defaulting company are for the period on and from the commencement of the unamended provisions of Sections 164 and 167 of the Act of 2013. Both Sections 164 and 167 of the Act of 2013 have come into effect on and from April 1, 2014. The period of default taken into consideration by the Registrar of Companies, in the facts of the present case, had commenced from April 1, 2014. Therefore, the Registrar of Companies has taken into consideration defaults in respect of a company governed by the provisions of the Act of 2013 and in respect of a period which is also governed by the Act of 2013 - In the facts of the present case, as on the date of Section 164 of the Act of 2013 having come into effect, the petitioner was a director of the defaulting company. The petitioner had continued to remain as a director of the defaulting company till the cessation of his directorship on June 27, 2016. The petitioner did not continue to remain as a director of the defaulting company for a continuous period of three financial years for which the defaulting company was in default in filing the annual returns. In the facts of the present case, the defaults are for periods from April 1, 2014 till March 31, 2017. Therefore, the defaults are for a period subsequent to Section 164 of the Act of 2013 coming into force. The decision on the topic as to why, events occurring prior to April 1, 2014 can be taken into consideration for the purpose of considering whether a person suffered disqualification under section 164 of the Act of 2013 need not detain the Court in considering the reliefs to be granted to the petitioner - In the facts of the present case, since, the given period for which the defaults committed by the defaulting company is under consideration for the petitioner to suffer a disqualification under section 164 of the Act of 2013, is subsequent to Section 164 of the Act of 2013 coming into force, the action of the respondent authorities in treating the petitioner to be disqualified under section 164 of the Act of 2013 cannot be faulted. The petitioner is therefore not entitled to any relief on such score. The Government Circular No. 8/2014 dated April 14, 2014 has clarified the position that, financial statements and documents required to be attached thereto, auditor's reports and board's report in respect of financial years commencing earlier than April 1, 2014 shall be governed by the relevant provisions/schedules/rules of the Act of 1956 and that in respect of the financial years commencing on or after April 1, 2014 the provisions of the Act of 2013 shall apply. Such Government Circular has to be read in the context in which it was issued. The relevant all provisions of the Act of 2013, including those relating to the maintenance of books of accounts, preparation, detention and filing of financial statements and documents required to be attached thereto, auditor's reports and board director's report came into effect from April 1, 2014. Provisions of Schedule II and Schedule III of the Act of 2013 also came into effect from April 1, 2014 - Such a Government circular cannot be construed and read to mean that, defaults committed by a company or an individual in filing financial statements and annual returns for the period prior to April 1, 2014 stood condoned or that, such legal entity or the individual should not be prosecuted for non-filing of financial statements and annual returns for the period prior to April 1, 2014. All that the Circular did was to clarify that the financial statements and annual returns were required to be filed in the new format from April 1, 2014. Principles of natural justice should not be applied mechanically in facts and circumstances of every case. Although, every action taken by an authority which entails civil consequences to the party affected, should adhere to the principles of natural justice, and where a statute does not bar the application of principles of natural justice or is silent as to its application, the principles of natural justice can be read into such statute, one of the principles thereof, namely, audi alterm partem, is not to be mechanically applied. A decision of an authority, need not be struck down mechanically on the sole ground that, such authority did not hear the affected party prior to taking the decision. In a given case, the number of parties may be such that, it may not be possible for the decision-making authority to hear each and every party affected by the decision - In the present case, the fact that, the defaulting company was in default in filing annual returns for continuous three financial years commencing from April 1, 2014 till March 31, 2017 has not been disputed. The decision of the Registrar of Companies is of November 2017 that is subsequent to the period of continuous three financial years having elapsed from April 1, 2014. In such factual matrix, no other inference than as expressed by the Registrar of Companies impugned herein can be legitimately drawn. The petitioner had suffered the disqualification as prescribed under section 164 (2) of the Act of 2013 by the time the Registrar of Companies intimated its decision - the contention that the decision of the Registrar of Companies stand vitiated by breach of the principles of natural justice cannot be accepted. In the facts of the present case, the petitioner is not entitled to any relief as he has failed to explain the delay in approaching the Court, he has not explained as to why the defaulting company did not avail of the condonation of delay schemes in vogue from time to time, he stood disqualified to be a director by operation of provisions of Section 164(2)(a) of the Act of 2013 for the failure of the defaulting company to file financial statements and annual returns for the period from April 1, 2014 to March 31, 2017, his DIN stood cancelled immediately upon the defaulting company failing to comply with Section 164(2)(a) of the Act of 2013 and the decision of the Registrar of Companies in placing the petitioner in the list of disqualified directors does not suffer from the vice of breach of principles of natural justice. The views expressed are in conflict with Chetan Chokhani 2019 (11) TMI 1388 - CALCUTTA HIGH COURT and Subhas Kumar Biswas 2020 (3) TMI 806 - CALCUTTA HIGH COURT but in consonance with MUKUL SOMANY ANR. VERSUS REGISTRAR OF COMPANIES, WEST BENGAL ANR. 2018 (5) TMI 2032 - CALCUTTA HIGH COURT and Sourajit Ghosh 2020 (8) TMI 432 - CALCUTTA HIGH COURT - there are therefore, conflicting views of this Court on the same issue. It would therefore be appropriate to invoke the provisions of Rule 26 of the writ rules of the High Court and refer the present writ petition to the Division Bench. Matter referred to Division Bench.
Issues Involved:
1. Disqualification of the petitioner under Sections 164 and 167 of the Companies Act, 2013. 2. Retrospective application of Sections 164 and 167. 3. Principles of natural justice. 4. Validity of Director Identification Number (DIN) cancellation or deactivation. 5. Applicability of condonation of delay schemes. Detailed Analysis: 1. Disqualification of the Petitioner under Sections 164 and 167 of the Companies Act, 2013: The petitioner challenged the inclusion of his name in the list of disqualified directors for non-filing of annual returns from 2014 to 2017. The court noted that Sections 164 and 167 of the Companies Act, 2013, which came into effect on April 1, 2014, govern the disqualification for non-filing of financial statements or annual returns for three consecutive years. The petitioner was a director during the default period, thereby fulfilling the conditions for disqualification under Section 164(2)(a). 2. Retrospective Application of Sections 164 and 167: The court examined whether defaults occurring before April 1, 2014, could be considered under the 2013 Act. It concluded that the Act of 2013 allows for the consideration of events prior to its commencement for determining disqualification. The court referred to precedents, including the Supreme Court's rulings in Vijay v. State of Maharashtra and Vishnu Ramchandra, which support the retrospective application of disqualifying provisions if the legislative intent is clear. 3. Principles of Natural Justice: The petitioner argued that the Registrar of Companies' action was in breach of natural justice as no prior notice was given. The court held that principles of natural justice are not rigid and must be applied contextually. Given the admitted defaults and the statutory consequences, the court found no prejudice against the petitioner due to the lack of a prior hearing, thus dismissing the argument of natural justice violation. 4. Validity of Director Identification Number (DIN) Cancellation or Deactivation: The court addressed whether the DIN of a disqualified director stands cancelled. It ruled that upon disqualification under Section 164(2), the DIN is automatically cancelled by operation of law, despite the Rules of 2014 not explicitly providing for such cancellation. This interpretation aligns with the statutory framework and the purpose of maintaining corporate governance standards. 5. Applicability of Condonation of Delay Schemes: The petitioner did not avail of the condonation of delay schemes introduced by the government. The court noted that these schemes provided opportunities to rectify defaults, and the petitioner's failure to utilize them further weakened his case. The court emphasized that the petitioner did not explain why these schemes were not availed, contributing to the decision to deny relief. Conclusion: The court concluded that the petitioner was disqualified under Section 164(2)(a) for non-filing of returns from 2014 to 2017. The retrospective application of the disqualification provisions was upheld, and the automatic cancellation of the DIN was affirmed. The court found no breach of natural justice and noted the petitioner's failure to utilize condonation schemes. Consequently, the petitioner's request for relief was denied, and the matter was referred to a Division Bench due to conflicting views in previous judgments.
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