TaxTMI 
TaxTMI 
2018 (8) TMI 436
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....1013 to 31015, 31019, 31059, 31060, 31092 to 31094, 31122, 31123, 31124, 31153, 31190 to 31192, 31211, 31291, 31331, 31333, 31334, 31367 to 31371, 31372 to 31374, 31501 to 31509, 31522, 31543, 31560, 31561, 31582 to 31584, 31592 to 31595, 31606, 31607, 31707, 31708, 31723, 31724, 31740, 31772 to 31774, 31793, 31797, 31800, 31802, 31805, 31806, 31850, 31884 to 31887, 31916 to 31918, 31965 to 31967, 32080, 32081, 32192, 32202 to 32206, 32310 to 32312, 32340, 32373, 32427, 32441 to 32444, 32450, 32462 to 32465, 32484, 32485, 32513 to 32517, 32587, 32604, 32611, 32612, 32656 to 32658, 32664 to 32666, 32721 to 32726, 32732 to 32734, 32735 to 32738, 32804, 32805 to 32807, 32813, 32814, 32848, 32849, 32864, 32872, 32882, 32901, 32904 to 32907, 32950 to 32953, 32968, 33031, 33038, 33047, 33050, 33051, 33052, 33095 to 33097, 33128, 33156 to 33160, 33195, 33196, 33197, 33198, 33247 to 33254, 33260 to 32364, 33287, 33300 to 33303, 33311, 33370 to 33373, 33378, 33379, 33425, 33460 to 33464, 33473 to 33476, 33501, 33502, 33523 to 33528, 33531, 33532, 33554, 33555, 33564, 33579, 33584, 33596, 33597, 33623 to 33627, 33660 to 33665, 33772, 33773, 33774, 33795 to 33797, 33801 to 33804, 33805 to 338....
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....8, 14734 of 2018, 32167 to 32174, 32331 to 32334, 33622, 33778 of 2017, 4282, 4284, 4292, 4314, 4322 to 4326, 4354, 4443, 4444, 4460, 4461, 4462, 4463, 4464, 4490, 4504 to 4507, 4511, 4512, 4553 to 4556, 4634, 4635, 4648, 4687, 4688, 4691, 4693, 4705, 4706, 4714, 4715, 4812, 4837, 4928 to 4931, 4959, 4976, 4980, 4988, 5058, 5059, 5066, 5067, 5068 to 5071, 5094, 5095, 5115, 5120, 5161, 5193, 5208 to 5210, 5244, 5245, 5248, 5257, 5268, 5282, 5283, 5326, 5373, 5374, 5399, 5426 to 5428, 5433, 5453 to 5456, 5457, 5460, 5461, 5472, 5480, 5481, 5508, 5521, 5522, 5537, 5540, 5541, 5542, 5543, 5545, 5547, 5588, 5589, 5634, 6605, 6617, 6660, 6712, 6781, 6782, 6791, 6816, 6878, 6879, 15163, 15241, 15269 to 15273, 15427, 13586, 3928, 7318 of 2018, 33019, 28607 of 2017, 3053, 3070, 4233, 5852, 5861, 5881, 5889, 5989, 6004, 6005, 6008, 6016, 6019, 7129 to 7131, 7458, 7459, 7460, 7461, 7462, 7463, 7464 to 7466, 7467, 7468, 7469 to 7471, 7522, 7523, 7539, 7541, 7545, 7546, 7547, 7548, 7553, 7554, 7556, 7559 to 7562, 7563, 7564, 7565, 7566, 15688, 15689, 15745, 15838, 15848, 16043, 16044, 16458 of 2018, 26351, 26352, 26357 to 26363, 26420, 26432, 26433, 26470 to 26473 of 2017, 2727, 5798, 5974, 611....
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....ers to get reappointed as Director(s) of any company or appointed as Director(s) in any other company without any hindrance. 2. Since the raised raised in all the writ petitions is common, for convenience, the facts as pleaded in W.P.No.25455 of 2017 are alone referred to in this order. 3. Mr.P.H.Aravind Pandian, learned senior counsel appearing for the petitioner in W.P.No.25455 of 2017, leading the arguments, assailing the impugned order as arbitrary, unreasonable and unconstitutional, submitted that the petitioner being the Director in Birdies and Eagles Sports Technology Private Limited, a private limited company incorporated under the Companies Act, 1956 on 19.7.2006 with a share capital of Rs. 1,00,000/-, initially under the name of Birdies and Eagles Resorts Private Limited and then renamed as Birdies and Eagles Sports Technology Private Limited in September 2012, occupied the position as Director in another company viz., Senhati Events Private Limited, a private limited company incorporated under the Companies Act, 1956 on 28.1.2011 with a share capital of Rs. 1,00,000/-. Since the original promoters of Birdies and Eagles Sports Technology Private Limited were Mr.Jayanan ....
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.... second respondent on 8.9.2017 disqualifying the directors under Section 164(2)(a) of the Companies Act with effect from 1.11.2016. To the shock of the petitioner, his name along with other directors were also found disqualified in the said list in item no.44650 under Section 164(2)(a) of the Companies Act, 2013. In view of the consequential disqualification resulting from the striking off the Birdies and Eagles Sports Technology Private Limited, the petitioner as Director is also prohibited from being appointed or reappointed as Director in any other company for a period of five years until 31.10.2021. 4. Mr.P.H.Aravind Pandian emphatically submitted that when Section 164(2)(a) of the Companies Act, 2013 came to be notified on 1.4.2014 stating that no person who is or has been a director of a company which has not filed financial statements or annual returns for any continuous period of three financial years, shall be eligible to be reappointed as a director of that company or appointed in other company for a period of five years from the date on which the said company fails to do so, the corresponding Section 274(1)(g) of the Companies Act, 1956 was repealed. In view of the new ....
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....Act, 2013, the disqualification of a director could be done only in cases where the company has not filed the financial statements or annual returns for a continuous period of three years. The three year period is the minimum requirement and a sine quo non for disqualifying the director of a company under the above section. Making a comparison with the old 1956 Act, it is further pleaded that under the old Act, non-filing of the financial statement of a private company for three consecutive years or more was neither an offence nor a cause for disqualification on the part of the director, unless the financial year period 1.4.2013 to 31.3.2014 is covered by the old Act of 1956. Hence, the disqualification of a director under Section 164(2)(a) under the new Act is not applicable to the present scenario, for the simple reason that the non-filing of the financial statements for the financial years 2013-14, 2014-15, 2015-16 does not disqualify the petitioner to hold the office of directorship. Moreover, there is no provision at all in the new Act to disqualify the petitioner for the financial year 2013-14, a period covered by the old Act of 1956. This vital aspect ought to have been cons....
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....hip in the same company or any other company is concerned, no remedy is available to them. Hence, Article 226 being extraordinary jurisdiction, they are entitled to invoke the power of this Court under this provision. Again comparing both the old Act and the new Act, Mr.Aravind Pandian submitted that although Section 274(1)(g) of the old Act was brought into the statute with effect from 13.12.2000, that section had clearly stated that three financial years commencing on and after the first day of April 1999 , whereas the new Section 164(2)(a) of the new Act uses the words for any continuous period of three financial years . Therefore, if the definition of financial year is looked into, the financial year as defined in Section 2(41) of the Act, 2013 shows that the financial year in relation to any company or body corporate means the period ending on the 31st day of March of every year. Where it has been incorporated on or after the first day of January of the year, the period ending on the 31st day of March of the following year in respect whereof the financial statement of the company or body corporate is made up. In this context, if we look into Section 164, the same was made effe....
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....s 22 & 23 of the counter affidavit that the directors who are going to be disqualified by operation of law also is equally bad, on the premise that even before the third financial year ending on 31.3.2017 and the last date for holding the annual general meeting viz., 30.9.2017 and the last date for filing the annual return viz., 29.11.2017 and the balance sheet on 30.10.2017, the respondents cannot even declare the petitioners to be disqualified as directors on the web portal of the respondents. This apart, even the second respondent issuing a notice under Section 248(1) of the new Act for striking off the name of the company from the Register of Companies stating that the company has not been carrying on any business or operation for a period of two financial years, has got nothing to do with the disqualification under Section 164(2)(a), for the foremost reason that a company can be struck off when it has not been carrying on any business for a period of two financial years, whereas for disqualification, the criteria is three financial years. Quoting an example, it is pleaded that if the company has not been carrying on business for two financial years ending 31.3.2015 and 31.3.20....
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.... Companies Act, 2013 has not filed the financial statements or annual returns for any continuous period of three financial years shall not be eligible to be appointed as director of that company or appointed in any other company for a period of five years. When the new Act has obviously come into force with effect from 1.4.2014, making it clear to all that if a director of a company has not filed any financial statement for any continuous period of three financial years shall not be eligible to be reappointed as director of that company or in any other company for a period of five years, the second respondent, on a wrong interpretation of Section 164(2)(a), has disqualified the petitioners even before the provision came into force. 9. Continuing his arguments, he further submitted that when a statutory body like the Registrar of Companies misconstrues the provisions of a statute infringing the fundamental rights of the petitioners, the same can be challenged under Article 226 of the Constitution of India before this Court, which is the only remedy available to the petitioners. Again assailing the approach adopted by the second respondent in calculating the first, second and third ....
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....g the applicability of Section 171(6) of the Income Tax Act 1961, for assessment of Hindu Undivided Family under the old Act, wherein it is ruled that retrospective operation should not be given to a statute so as to affect, alter or destroy an existing right or create a new liability or obligation unless that term of the statute expressly so provide or necessarily require it. 10. Explaining further, he has contended that the action of the second respondent is not only erroneous, but also amounts to violation of the principles of natural justice, because the second respondent ought to have sent show cause notice, as it affects their right to continue as directors with other companies which are filing the accounts with the second respondent. The reason being, he pleaded, that the purpose of giving an opportunity is to prevent injustice. Therefore, the principles of natural justice should be observed. Explaining further that the petitioners have been greatly prejudiced by the erroneous action of the second respondent, he has submitted that the petitioners, in view of facing disqualification, can not only function as directors in the company from which they were disqualified and in a....
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.... effect only prospectively from 1.4.2014, the judments relied upon by the respondents cannot be applied to the case of the petitioners. Finally, referring to the provisions of Section 210 dealing with failure for not filling the annual return or balance sheet, Section 160 dealing with failure to file annual return, Section 621A(4) dealing with the composition of certain offences, of the old Act, he has contended that when the regulatory offences like the default in filing the accounts or returns are compoundable in nature, whereas Section 164(2)(a) provides for disqualification of directors of private companies not only in the defaulting company, but also from the other company in which he is a director. Therefore, the action of the second respondent in reaching a conclusion on the past financial year even before the new provision came into effect for disqualifying the petitioner, is wholly arbitrary and also in violation of the principles of natural justice. Hence the impugned order is liable to be quashed. 11. Heard Mr.A.M.Sridharan, Mr.G.Ramanujam, Mr.J.Vinoth, Mr.P.J.Rishikesh, Mr.K.Sakthivel, Mr.P.Mahadevan, Mr.B.Raviraja, Mr.K.S.Elangovan, Mr.S.Sathish, Mr.S.Sathyanarayanan,....
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....that on conclusion of the scheme, the Registrar would initiate necessary action under the Companies Act, 2013 against the companies who have not availed the same. Again on 15.10.2014, the first respondent issued another circular No.41/14 extending the CLSS-2014 till 15.11.2014. Starting from 5.7.2017, on various dates, the second respondent under Section 248(1)(4) of the Companies Act read with Rule 7 of the Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016 issued Form No.STK-5 Public Notice proposing to remove/strike off the names of the companies viz., list of 22,954 companies falling within the jurisdiction of the second respondent. Under the said notice, objections to the proposed removal were also invited within thirty days from the date of publication of the notice. Again the Registrar of Companies, the second respondent herein also released a list of 20,747 companies on 8.11.2017 that were struck off from the register of companies including the companies in which the petitioners were directors. Again on 8.9.2017 and 1.11.2017, the Registrar of Companies, the second respondent herein released another list of disqualified directors, wherein t....
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....ection 252 of the Companies Act, 2013 and among them, around 370 companies got their status as active in the said register. Adding further, the learned Additional Solicitor General submitted that as on the date of filing of the counter affidavit, around 1223 erstwhile directors whose names were found in the list of disqualified directors released by the second respondent on 1.11.2017 approached this Court for remedy and around 1141 DIN numbers were reactivated by virtue of the interim orders passed by this Court. 14. Under this background, the learned Additional Solicitor General submitted that the disqualification for appointment of directors contemplated under Section 164(2)(a) is necessarily to be read along with Section 167. A conjoined reading of both sections, the post of director shall become vacant in case he incurs any of the disqualification defined under Section 164. Therefore, if a director of a company has not filed the financial statement or annual return for a continuous period of three financial years, he/she shall not be eligible to be reappointed as director of a company, as a result, the office of directorship shall become vacant, because of incurring the disqua....
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....on verification of the statutory returns for the financial years 2013-14, 2014-15 and 2015-16, it was found that the defaulting companies in which the petitioners are directors, failed to file the statutory returns for the financial years 2013-14, 2014-15, 2015-16, hence, they would stand disqualified due to the operation of law under Section 164(2)(a) of the Companies Act, 2013. 15. Again referring to paragraph-23 of the counter affidavit, the learned Additional Solicitor General submitted that the respondents have not passed any order disqualifying the petitioner-directors and they have only identified their disqualification which had occurred by operation of law and only that information had been made public on the web portal of the answering respondent. Therefore, the provision of Section 164(2)(a) read with Section 167(1)(a) having not envisaged any opportunity of hearing to the errant companies and the actions taken thereunder are by operation of the relevant mandate of the Companies Act, 2013, the question of applying the principles of natural justice in that situation does not arise to anyone of them. The reason being the petitioners themselves are aware of the factor that....
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....)(a) uses the word company as against public company that was used under Section 274(1)(g) of the 1956 Act. It is also relevant to see that Section 274(1)(g) of the 1956 Act dealt with the disqualification of directors and the comparison of both the sections spell out the following:- Section 274(1)(g) of the 1956 Act w.e.f.13.12.2000 Section 164(2)(a) of the 2013 Act w.e.f.01.04.2014 (1) A person shall not be capable of being appointed director of a company, if- (g) such person is already a director of a public company which,- (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 (B) has failed to repay its deposit or interest thereon on due date or redeem its debentures on due date or pay dividend and such failure continues for one year or more: Provided that such person 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 under sub-clause (A) or has failed to repay its deposit or interest or redee....
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....e it has been incorporated on or after the 1st day of January of a year, the period ending on the 31st day of March of the following year, in respect whereof financial statement of the company or body corporate is made up: Provided that on an application made by a company or body corporate, which is a holding company or a subsidiary or associate company of a company incorporated outside India and is required to follow a different financial year for consolidation of its accounts outside India, the Tribunal may, if it is satisfied, allow any period as its financial year, whether or not that period is a year: Provided further that a company or body corporate, existing on the commencement of this Act, shall, within a period of two years from such commencement, align its financial year as per the provisions of this clause.", the first financial year commences only from 1.4.2014 to 31.3.2015. Therefore, the first and second respondents have wrongly taken the previous financial year i.e., 1.4.2013 that is not contemplated in Section 164(2)(a) of the 2013 Act either expressly or by implication that the financial year would be from 1.4.2013. The Registrar of Companies being a statutor....
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....nd from 1.4.2016 to 31.3.2017 respectively. As Section 164(2)(a) also refers to the annual return or financial statement, Section 92(4) of the new Act has given sixty days time limit to file the annual return from the annual general meeting or the last date on which the annual general meeting to be held viz., on or before 29.11.2017. For ready reference, Section 92(4) is extracted hereunder:- "92.Annual return.--(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 annual general meeting should have been held together with the statement specifying the reasons for not holding the annual general meeting, with such fees or additional fees as may be prescribed. 23. In the light of the above section, when the annual general meeting for the year ending 31.3.2017 can be conducted within six months from the closing date of financial year i.e., 30.9.2017 for private companies, the third financial year would be ending on 31.3.2017 and the last date for convening the annual general meeting is ....
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....ial statement, auditor's report and board's report in respect of financial years that commenced earlier than 1st April, 2014 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. This general circular issued after the amendment Act came into effect from 1.4.2014 has clarified the position beyond any pale of doubt as to the applicability of the relevant financial year. Inasmuch as the first respondent also has issued a General Circular No.08/14 stating that in respect of the financial year commencing on or after 1st April 2014, the provisions of the new Act shall apply, it is not known how the second respondent has applied the wrong financial year with effect from 1.4.2013, in a way to give retrospective effect. In this context, it is more relevant to refer to the ratio laid down by the Constitution Bench of the Apex Court in Commissioner of Income Tax (Central)-I, New Delhi v. Vatika Township Private Limited, (2015) 1 SCC 1, wherein it has been observed as follows:- "General Principles concerning retrospectivity 27. A....
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....ties 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 legislation. We need not note the cornucopia of case law available 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. 30. 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 persons but without inflicting 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 a....
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....ents is made clarificatory and would take effect retrospectively from 1st day of July, 1995. When it comes to amendment to Section 113 of the Act, this very circular provides that the said amendment along with amendments in Section 158-BE, would be prospective i.e. it will take effect from 1.6.2002." 26. A perusal of the above observations also would show that if an authority has issued any clarificatory circular clarifying the position beyond any pale of doubt after the passing of the relevant Act, such circular issued after the passing of the Act has to be construed as an interesting piece of evidence that clarifies the position beyond pale of doubt. Therefore, when the General Circular No.08/14 dated 4.4.2014 issued by the first respondent also has made it clear that in respect of the financial year commencing on or after 1st April 2014, the provisions of the new Act shall apply, the first financial year for the purpose of Section 164(2)(a) shall be 1.4.2014 to 31.3.2015 and the second and third financial years would be from 1.4.2015 to 31.3.2016 and from 1.4.2016 to 31.3.2017 respectively. Moreover, the submission made by Mr.T.K.Bhaskar that the petitioner-directors cannot be ....
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....ion dated 5.7.2017. The notice dated 18.3.2017 in W.P.No.25455 of 2017 is under Section 248(1) of the 2013 Act for striking off the name of the company from the register of companies stating that the company has not been carrying on any business or operation for a period of two financial years. The notice purported to be sent by the second respondent on 24.8.2017 is only for the purpose of calling for explanation as to why the company should not be struck off from the register of members, since the company has not been carrying on any business or operation for a period of two financial years, whereas Section 164(2)(a) deals with the disqualification of the directors of that company or in any other company for a period of five years for not filing the financial statement and annual return for a continuous period of three financial years. The purpose of giving an opportunity of hearing is to prevent injustice. In the cases on hand, the petitioners have been greatly prejudiced by the action of the second respondent, as they cannot function as directors not only in the company from which they are disqualified, but also in any other company which is in compliance of the provisions of th....
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.... more subsidiary rules came to be added to the rules of natural justice. Till very recently it was the opinion of the courts that unless the authority concerned was required by the law under which it functioned to act judicially there was no room for the application of the rules of natural justice. The validity of that limitation is not questioned. If the purpose of the rules of natural justice is to prevent miscarriage of justice one fails to see why those rules should be made inapplicable to administrative enquiries. Often times it is not easy to draw the line that demarcates administrative enquiries from quasi-judicial enquiries. Enquiries which were considered administrative at one time are now being considered as quasi-judicial in character. Arriving at a just decision is the aim of both quasi-judicial enquiries as well as administrative enquiries. An unjust decision in an administrative enquiry may have more far reaching effect than a decision in a quasi-judicial enquiry. As observed by this Court in Suresh Koshy George v. University of Kerala, [1969] 1 SCR 317, the rules of natural justice are not embodied rules. What particular rule of natural justice should apply to a give....
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....uences, a hearing before taking a decision is necessary. It was, thus, observed in A.K.Kraipak case (1969) 2 SCC 262 that if the purpose of rules of natural justice is to prevent miscarriage of justice, one fails to see how these rules should not be made available to administrative inquiries. In Maneka Gandhi v. Union of India, (1978) 1 SCC 248 also the application of principle of natural justice was extended to the administrative action of the State and its authorities. It is, thus, clear that before taking an action, service of notice and giving of hearing to the noticee is required..." 29. In fine, (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 1.11.2016 itself before the deadline commenced wrongly fixing the first financial year from 1.4.2013 to 31.3.2014. (b) By virtue of the new Section 164(2)(a) of the 2013 Act using the expression for any continuous period of three financial years and in the light 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 fr....
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....g it clear that every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees, or with both. Again under Section 137, the failure to file the financial statement visits punishment 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. Further, under Section 441(4), the default in filing returns or accounts compoundable by Tribunal or Regional Director or by any officer authorized by the Central Government. (f) In view of the above legal position, when the default in filing the accounts or returns are made as compoundable offence, Section 164(2)(a) providing the disqualification of director of private company not only in the defaulting company, but also from other company in which the petitioner is a director, diligently and meticulously following every provision of law, is certainly disproportionate to the lapse, as it is only regulatory in nature, because, notice to be sent under Section 248(1) o....