Companies Act: Director Disqualification Prospective, Deactivation of DIN Deemed Illegal

The court held that the provisions of Section 164(2)(a) and the proviso to Section 167(1)(a) of the Companies Act, 2013 are prospective in nature. The three-year default period under Section 164(2) begins from the financial year 2014-2015, and disqualification extends to other companies only for defaults occurring after May 7, 2018. As a result, the deactivation of the petitioner's Director Identification Number (DIN) was deemed illegal, and the writ petition was allowed with no order as to costs.

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Issues Involved:
1. The retrospective application of Section 164(2) and the proviso to Section 167(1)(a) of the Companies Act, 2013.
2. The necessity of providing an opportunity for representation against disqualification under Section 164, read with Section 167 of the Companies Act, 2013.

Detailed Analysis:

Issue 1: Retrospective Application of Section 164(2) and Proviso to Section 167(1)(a)
The petitioner argued that Section 164(2) of the Companies Act, 2013, which came into force on April 1, 2014, should be applied prospectively. Therefore, the three financial years for which non-filing would make the petitioner liable should commence from April 1, 2014. The relevant financial years would be 2014-2015, 2015-2016, and 2016-2017. Consequently, the deactivation of the Director Identification Number (DIN) on November 1, 2016, was illegal. The petitioner also contended that the last date for filing financial statements for the third financial year was October 30, 2017, and hence, no disqualification should arise before this period.

The respondent countered that the provisions of Section 164(2)(a) and Section 167(1)(a) are disqualifying and not penal, thus retrospective in nature. They argued that the disqualification is automatic and does not require any adjudicatory hearing. The court examined various provisions of the Companies Act, 2013, including Sections 92, 96, 137, and 403, which deal with the filing of annual returns and financial statements. It was noted that non-compliance results in pecuniary penalties.

The court highlighted that the 2014 Amendment to Section 164(2) introduced a new consequence—disqualification for re-appointment as a director for five years, which did not exist in the 2013 Act or the 1956 Act. Similarly, the 2018 Amendment to Section 167(1)(a) introduced automatic vacation of office in all companies other than the defaulting company. The court concluded that these amendments are penal in nature and affect the fundamental right under Article 19(g) of the Constitution of India, making them disproportionate and unreasonable if applied retrospectively.

The court held that the amendments are prospective, with the three-year default period commencing from the financial year 2014-2015 and the disqualification extending to other companies only for defaults post-May 7, 2018.

Issue 2: Opportunity for Representation Against Disqualification
The court examined whether there is any scope for giving an opportunity to the defaulting company or its directors to represent against the disqualification under Section 164, read with Section 167 of the Companies Act, 2013. It was concluded that the disqualification under these sections is automatic upon default, leaving no discretion for the authorities. Therefore, providing an opportunity for representation would be futile. The court emphasized that the rules of natural justice apply only if an opportunity of hearing affects the outcome, which is not the case here.

Conclusion:
The court concluded that Section 164(2)(a) and the proviso to Section 167(1)(a) of the Companies Act, 2013, are prospective in operation. The three-year default period under Section 164(2) starts from the financial year 2014-2015, and the disqualification extends to other companies only for defaults occurring after May 7, 2018. Consequently, the deactivation of the petitioner's DIN by the notice dated April 7, 2017, was set aside. The writ petition was allowed with no order as to costs.

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