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TMI Blog2021 (1) TMI 258X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the petitioner by the impugned notice dated April 7, 2017. 3. Learned counsel for the petitioner argues that sub-section (2) of Section 164 of the 2013 Act came into force from April 1, 2014 and can apply only prospectively. Thus, the three financial years, non-filing of the annual return and financial statement of the company for which would make the petitioner liable for deactivation of his DIN, would commence from April 1, 2014. The relevant three financial years would be 2014- 2015, 2015-2016 and 2016-2017, covering the period from April 1, 2014 to March 31, 2017. Hence, it is argued, the deactivation of the DIN with effect from November 1, 2016 was patently illegal. 4. The petitioner further argues that the last date for filing financial statements for the third financial year was October 30, 2017 (with regular fees) and July 27, 2018 (with additional fees) as per Section 403 of the 2013 Act, which provides for an additional period of 270 days. Thus, in any event, no question of disqualification of the petitioner arose before the expiry of the said period. 5. Learned counsel for the petitioner next submits that the proviso to Section 167(1)(a) was inserted by the Ame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions ought to be construed to the effect that the petitioner's company could have filed its annual returns latest by November 30 and financial statements by October 30 of the relevant financial year ending on March 31, even without availing of the additional period of 270 days. 10. Thus, the director of the company would incur disqualification or be ineligible to be reappointed as director of a company or appointed in any other company for five years, for defaults under Section 164(2)(a), only after October 30 or November 30, as the case may be, of the year 2017. The impugned notice disqualifying the petitioner for five years from November 1, 2016 to October 31, 2021 is premature and untenable at law. 11. Learned counsel for the petitioner reiterates the proposition that no retrospective effect can be given to the amended Section 164(2)(a). 12. By citing Dilip Kumar Sharma and others vs. State of Madhya Pradesh [AIR 1976 SC 133] and Tolaram Relumal and another vs. State of Bombay [AIR 1954 SC 496], it is submitted that when two interpretations are possible, the one favouring the subject ought to be made applicable, especially in case of a penal statute. By relying on Stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithin thirty days of the date of AGM. 16. The said provisions, it is submitted, do not envisage any adjudicatory hearing to be provided to the errant company or concerned directors. The action taken for such default is through operation of the prevalent mandate of the 2013 Act. Disqualification of the petitioner is the consequence of operation of law and there is no scope of following principles of natural justice, as there is no discretion with the authorities to take recourse to any other procedure or to arrive at any other decision/conclusion. 17. Learned counsel for the respondents next contends that the nature of Section 164 of the 2013 Act is 'disqualifying' and not penal. Penal consequence for not filing financial statements is envisaged under Section 137 of the 2013 Act, which corresponds to Section 220 of the Companies Act, 1956. The penal consequence for not filing annual returns is envisaged under Section 92 of the 2013 Act, corresponding to Sections 159 and 162 of the 1956 Act. Thus, penal consequences are provided for separately in both the 1956 and 2013 Acts. 18. Section 164 of the 2013 Act, however, is disqualifying in nature and not penal in the sense of criminal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Manjeet Singh & Another (2006) 8 Supreme Court Cases 647 8 W.P. No. 700(W) of 2020 Subhas Kumar Biswas vs. Union of India & Ors. 9 W.P. No. 268 of 2019 Imraj Ali Molla vs. Union of India and Others 10 W.P. No. 4282(W) of 2018 Mukul Somany & Anr. vs. Registrar of Companies & Anr. 11 W.P. No. 5774(W) of 2020 Sourajit Ghosh vs. Union of India & Ors. 23. The legal questions posed in the present case are: (i) Whether Section 164(2)(a), as introduced by the 2014 Amendment and the proviso to Section 167(1)(a), as introduced by the 2018 Amendment, are prospective, retrospective or retroactive in nature; and (ii) Whether there is any scope for giving opportunity to the defaulting company or its directors to represent against the disqualification under Section 164, read with Section 167 of the 2013 Act. 24. The other questions raised by the parties are corollaries of the above two broad questions. 25. For the sake of brevity, the second question posed above is taken up first for resolution. A clear reading of Section 164(2) and Section 167(1)(a), both with the corresponding provisos (as amended) leaves no scope of any discretion on the part of the authorities in case of a comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Provided that in relation to One Person Company and small company, the annual return shall be signed by the company secretary, or where there is no company secretary, by the director of the company: Provided further that the Central Government may prescribe abridged form of annual return for "One Person Company, small company and such other class or classes of companies as may be prescribed. (2) The annual return, filed by a listed company or, by a company having such paid-up capital and turnover as may be prescribed, shall be certified by a company secretary in practice in the prescribed form, stating that the annual return discloses the facts correctly and adequately and that the company has complied with all the provisions of this Act. (3) Every company shall place a copy of the annual return on the website of the company, if any, and the web-link of such annual return shall be disclosed in the Board's report. (4) Every company shall file with the Registrar a copy of the annual return, within sixty days from the date on which the annual general meeting is held or where no annual general meeting is held in any year within sixty days from the date on which the annua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... registered office of the company or at some other place within the city, town or village in which the registered office of the company is situate: Provided that annual general meeting of an unlisted company may be held at any place in India if consent is given in writing or by electronic mode by all the members in advance: Provided further that the Central Government may exempt any company from the provisions of this sub-section subject to such conditions as it may impose. Explanation.-For the purposes of this sub-section, "National Holiday" means and includes a day declared as National Holiday by the Central Government. .... .... .... .... 137. Copy of financial statement to be filed with Registrar. - (1) A copy of the financial statements, including consolidated financial statement, if any, along with all the documents which are required to be or attached to such financial statements under this Act, duly adopted at the annual general meeting of the company, shall be filed with the Registrar within thirty days of the date of annual general meeting in such manner, with such fees or additional fees as may be prescribed [The words "within the time specified under section 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Registrar within thirty days of the last date before which the annual general meeting should have been held and in such manner, with such fees or additional fees as may be prescribed [The words "within the time specified, under section 403" Omitted by Act 1 of 2018, S. 39(ii) (w.e.f. 7-5-2018)]. (3) If a company fails to file the copy of the financial statements under sub-section (1) or sub-section (2), as the case may be, before the expiry of the period specified therein, the company shall be punishable with fine of one thousand rupees for every day during which the failure continues but which shall not be more than ten lakh rupees, and the managing director and the Chief Financial Officer of the company, if any, and, in the absence of the managing director and the Chief Financial Officer, any other director who is charged by the Board with the responsibility of complying with the provisions of this section, and, in the absence of any such director, all the directors of the company, shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees, or with both. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le for the penalty or punishment provided under this Act for such failure or default. .... .... .... ...." 27. Section 92(4) provides that every company shall file with the Registrar of Companies (ROCs) a copy of its annual return within 60 days from the date on which the AGM is held or should have been held, with consequent compliance of deposit of fees/additional fees as prescribed. Sub-section (5) of Section 92 stipulates the pecuniary penalty visiting non-compliance of sub-section (4). 28. Section 137(1), on the other hand, grants 30 days from the date of AGM or, when not adopted at an AGM or adjourned AGM, provisional filing of financial statements, subject to filing within 30 days of the date of adjourned AGM in case of financial statements of a company. 29. Section 96 of the 2013 Act provides for AGM, which is to be held not more than 15 months after the date of the previous AGM and within a period of 6 months (apart from the first AGM) from the date of closing of the financial year. 30. Section 403 of the 2013 Act stipulates the documents and fees to be filed by a company. The provisos to Section 403 envisage delayed filing of such document, fact or information as req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry on any occupation, trade or business. Although Article 19(6) clarifies that nothing in sub-clause (g) of Article 19(1) shall affect the operation of any existing law insofar as it imposes, or prevent the State from making any law imposing, in the interests of the general public, reasonable restrictions on the exercise of the right conferred by sub-clause (g), the expression "reasonable" is not applicable to the scenario under discussion, since the punishment of disqualification would be rather disproportionate with the offence, more so if operative for a previous period of default, when the director had no scope of apprehending the severe penalty to be meted out by a future statutory amendment. Such disqualification would effectively screen off the director from his commercial activity for five crucial years, which may witness an era of difference in technology and finance in the fast-paced modern world. The specific instances given in Article 19(6) of the Constitution, pertaining to any law relating to the professional or technical qualifications necessary for practicing any profession or carrying on any occupation, trade or business, or the carrying on by the State of any trad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vely, the directors would be removed from office, not only in the defaulting company but in the other companies where they are directors, despite no defaults having been committed by such other companies. In such a case, the previous default would attract operation of the amendments, if retroactive effect is given thereto, and would entail the directors suffering a grievous violation of their fundamental right under Article 19(1)(g) of the Constitution without any possibility of the directors, or anyone for that matter, having been able to predict such consequence on the relevant date, that is, the date of such default. In such a factual scenario, it cannot be argued by reasonable prudence that a retroactive effect ought to be given to the amendment-in-question. This is an irreconcilable anomaly that would befall the directors if retrospective/retroactive effect is given to the amendments-in-question, not justiciable even by applying Article 19(6) of the Constitution. 38. The relevant test here is not a mere lip-service to public good but of the ground-level impact of the amendment. Such an amendment (if retrospective) would, without fail, be anomalous and absurd, outlying the "re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase at all. 42. In Allied Motors (supra), the Supreme Court dealt with curative/declaratory provisos and held that those might have retrospective effect. However, the amended provisions of Section 164 and Section 167 of the 2013 Act are not merely curative provisions. By virtue of the 2018 Amendment to Section 167, for example, vacancy of the director's office is contemplated in all companies other than the defaulting company, which serious consequence cannot be relegated to the toothless domain of a mere curative provision. If effect is given to such a provision retrospectively, the right guaranteed to directors under the Constitution of India itself would be obliterated for 'offences' committed without having any inkling or premonition of the future introduction of such provision. Thus, Allied Motors (supra) is not helpful for the respondents in the present case. 43. K. Prabhakaran (supra) deals with the right to contest an election, which might be nipped in the bud by an amendment to the relevant law. However, in the present case, the existing right of directorship in companies is being considered. There is a sea of difference between the two, inasmuch as an inchoate statutory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring such defaults as well. There being nothing in the amendments to prevent disqualification in case of previous defaults under Sections 92 and 137 of the 2013 Act for three years, the learned Single Judge differed with the ratio of Subhas Kumar Biswas (supra) and Chetan Chokhani vs. Union of India and others [W.P. No. 21504(W) of 2019] but agreed with Mukul Somany (supra) and Sourajit Ghosh (supra). However, the yardsticks and factors which weighs with this court in the present context, were not available and/or considered in Gautam Mehra (supra). 46. Justice Basak, while referring the matter to a larger Bench, dealt with the recent development of company law in an erudite manner. However, with utmost humility, there are several other factors which create a relevant backdrop for the development of company law. The evolution of company law jurisprudence cannot be taken in isolation with the general economic scenario prevalent in the country. Some other factors which are relevant in the context are discussed below in brief. 47. The 'unorganized' or non-corporate sector holds sway over a major chunk of the economy of developing countries, including India, primarily in the manufact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ental to the growth of the economy. Thus, attributing retrospective/retroactive effect to the said amendments would run contradictory to the purpose of public good. The simplistic approach of merely identifying non-performers in an attempt to provide a fillip to commerce, by a pseudo-streamlining of the economy, loses teeth in the broader perspective discussed above. 49. Taking into consideration the above factors and the ground-level impact and practical impossibility of giving retrospective effect, it cannot but be held that the operation of the 2014 and 2018 Amendments to the 2013 Act are prospective in nature. 50. To be specific, the amendment to Section 164(2), with effect from April 1, 2014 has to be applied prospectively. The three-year default contemplated therein has to commence from the financial year 2014- 2015 (April 1, 2014 - March 31, 2015) and end in the financial year 2016-2017 (ending on March 31, 2017). As far as the amended proviso to Section 167(1)(a) of the 2013 Act is concerned, the operation of such proviso has also to be construed prospectively by applying it to companies in default of Sections 92 and 137 of the 2013 Act only after May 7, 2018. 51. On a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peration of the amendments to Sections 164 and 167 of the 2013 Act is retrospective or prospective. Moreover, there was no formulation of any particular question of law for reference, but the writ petition was merely transferred under the general provisions of Rule 26 of the Writ Rules, to be considered by a Division Bench. Hence, there was no reference or adjudication on the questions which are in issue in the present case and, thus, Gautam Mehra (supra) does not operate as a precedent on such questions. In fact, there was no reference on any specifically-formulated question, as contemplated under Chapter II, Rule 1 (Fourth proviso) of the Appellate Side Rules of this court, in Gautam Mehra (supra). 55. Question (i), as formulated above, is, thus, answered to the effect that Section 164(2)(a), as introduced by the 2014 Amendment, and the proviso to Section 167(1)(a), as introduced by the 2018 Amendment, to the 2013 Act are prospective in operation. 56. W.P.O. No.493 of 2019 is thus allowed, thereby setting aside the deactivation of DIN by virtue of the notice dated April 7, 2017. 57. There will be no order as to costs. 58. Urgent certified website copies of this order, if appl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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