TaxTMI 
TaxTMI 
2020 (1) TMI 1212
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...., 4553, 4555, 4559, 4564, 4581, 4611, 4613, 4651, 4662, 4665, 4669, 4666, 4672, 4674, 4703, 4763, 4768, 4798, 4802, 4805, 4852, 4853, 4854, 4859, 4947, 4950, 4953, 4971, 5169, 5351, 5371, 5380, 5406, 5433, 5442, 5450, 5453, 5464, 5466, 5472, 5477, 5570, 5595, 5695, 5725, 5765, 5766, 5783, 5787, 5791, 5806, 5813, 5815, 5843, 5915, 5917, 5924, 5930, 5928, 6016, 6104, 6156, 6183, 6196, 6200, 6229, 6236, 6282, 6313, 6365, 6367, 6414, 6424, 6459, 6465, 6466, 6502, 6508, 6529, 6537, 6535, 6541, 6546, 6568, 6581, 6643, 6654, 6772, 6933, 6947, 7023, 7072, 7122, 7152, 7157, 7160, 7340, 7511, 7512, 7589, 7610, 7701, 7704, 7706, 7710, 7712, 7718, 7749, 7809, 7814, 7817, 7818, 7861, 7939, 7947, 7941, 7951, 7981, 7995, 8001, 8003, 8005, 8009, 8062, 8013, 8109, 8225, 8234, 8263, 8283, 8292, 8314, 8323, 8329, 8338, 8349, 8437, 8454, 8457, 8465, 8553, 8580, 8586, 8554, 8621, 8661, 8664, 8667, 8670, 8676, 8680, 8679, 8683, 8715, 8717, 8723, 8752, 8783, 8788, 8795, 8848, 8989, 9032, 9034, 9043, 9046, 9162, 9186, 9193, 9197, 9251, 9262, 9266, 9282, 9308, 9361, 9367, 9370, 9364, 9368, 9434, 9621, 9629, 9639, 9646, 9677, 9704, 9714, 9751, 9757, 9777, 9786, 9901, 9919, 9975, 9990, 9992, 10021, 10042, 10....
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....2118, 22214, 22255, 22262, 22306, 22315, 22375, 22743, 22747, 22751, 22748, 22753, 22756, 22790, 22961, 23022, 23144, 23137, 23349, 23353, 23357, 23426, 23429, 23456, 23551, 24461, 24597, 24610, 24621, 24644, 24649, 24743, 24746, 24776, 24797, 24809, 24440, 24990, 24993, 25002, 25004, 25058, 25918, 25925, 25940, 26142, 26252, 26254, 26261, 26302, 26319, 26337, 26340, 26404, 26411, 26413, 26423, 26433, 26441, 26526, 26538, 26556, 26565, 26567, 26619, 26624, 26691, 26796, 26810, 26845, 26847, 26849, 26932, 27045, 27179, 27180, 27181, 27308, 27442, 27463, 27467, 27590, 27625, 27627, 27628, 27631, 27632, 27702, 27706, 27771, 27935, 27938, 27995, 28050, 28069, 28075, 28078, 28083, 28157, 28159, 28167, 28252, 28414, 28454, 28455, 28459, 28463, 28651, 28656, 28660, 28881, 28912, 28914, 28975, 29054, 29418, 29464, 29467, 29470, 29673, 29677, 30035, 30037, 30250, 30393, 30394, 30644, 30646, 30732, 30736, 30752, 30757, 30761, 30766, 30770, 30938, 30948, 31294, 31296, 32403, 32409, 10757, 12167, 12173, 17532, 18249, 32589, 32594, 32614, 32720, 32764, 32947, 32949, 33057, 34001, 34004, 34010, 34354, 34358, 34396, 18877, 18878, 33513, 33807, 33829, 33880, 34030, 34157, 34814, 35384, 35388, 3561....
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.... the petitioner was prohibited from being appointed or reappointed as a Director in any other Company. The petitioner claimed that he had not been given notice prior to such disqualification. Moreover, the Director Identification Number of the petitioner was also deactivated. It is under these circumstances that the Writ Petition had been filed. 6. The writ petitioners in all the other writ petitions also suffered the same fate. They all stood disqualified from the Company in which they were Directors wherein annual returns had not been filed for a continuous period of three years and as a consequence thereof, they had to vacate office in all the other companies where they held the office of Directorship. Their Director Identification numbers were also deactivated. 7. Heard extensive arguments advanced on behalf of the petitioners. 8. Mr.Aravind Pandian, learned Senior Counsel who led the arguments, questioned the act of the respondents on the following grounds:- (1) Lack of Jurisdiction; (2) Failure to issue notice before disqualification; (3) Impermissibility to deactivate the Director Identification Number; and (4) Sustainability of the order to vacate office of Direc....
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....12498 of 2019 batch Jai Shankar Agrahari and others Vs. Union of India and Other. 13. All the learned counsels, who advanced arguments substantially supported the stand taken by Mr.P.H.Aravind Pandian. In addition, referrence was drawn to Section 92 which relates to Annual Returns, Section 137 which relates to Financial Statements and also to Section 403 of the Act. The learned counsels also pointed out the provisions of Section 248 and Section 252 of the Act. They stated that the Registrar of Companies has no jurisdiction to either pass the orders of disqualification or to deactivate the Director Identification Number and also primarily holding out that notice should have been given prior to such steps being taken urged the Court allow the Writ Petitions. Reference was also drawn to Rule 11 and Rule 14 of the Companies (Appointment and Qualification of Directors) Rules 2014 and to Rule 5 of the Company (Registration Offices and Fees) Rules 2014. 14. Mr.G.Rajagopalan, learned Additional Solicitor General, refuted the arguments put forth on behalf of the petitioners. The learned Solicitor General stated that the disqualification of the Directors was automatically attracted when th....
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....one level below the directors who is in whole-time employment, designated as key managerial personnel by the Board; and (vi) such other officer as may be prescribed." Section 2(59): "Officer" includes any director, manager or key managerial personnel or any person in accordance with whose directions or instructions the Board of Directors or any one or more of the directors is or are accustomed to act; Section 2(75): "Registrar" means a Registrar, an Additional Registrar, a Joint Registrar, a Deputy Registrar or an Assistant Registrar, having the duty of registering companies and discharging various functions under this Act. Section 92: "Annual Return". It is as follows:- "92. Annual return.-(1) Every company shall prepare a return (hereinafter referred to as the annual return) in the prescribed form containing the particulars as they stood on the close of the financial year regarding- (a) its registered office, principal business activities, particulars of its holding, subsidiary and associate companies; (b)its shares, debentures and other securities and shareholding pattern; (c) its indebtedness; (d) its members and debentureholders along with changes therein s....
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.... shall not be less than fifty thousand rupees but which may extend to five lakhs rupees and every officer of the company who is in default shall be punishable with imprisonment for a term whichmay extend to sixmonths or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees, or with both. (6) If a company secretary in practice certifies the annual return otherwise than in conformity with the requirements of this section or the rules made thereunder, he shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees. " Section 129 of the Act relates to Financial Statement. It is as follows:- "129. Financial statement.- (1) The financial statements shall give a true and fair view of the state of affairs of the company or companies, comply with the accounting standards notified under section 133 and shall be in the form or forms as may be provided for different class or classes of companies in Schedule III: Provided that the items contained in such financial statements shall be in accordance with the accounting standards: Provided further that nothing contained in this su....
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....ents of a company do not comply with the accounting standards referred to in sub-section (1), the company shall disclose in its financial statements, the deviation from the accounting standards, the reasons for such deviation and the financial effects, if any, arising out of such deviation. (6) The Central Government may, on its own or on an application by a class or classes of companies, by notification,exemptany classor classes of companies from complying with any of the requirements of this section or the rules made thereunder, if it is considered necessary to grant such exemption in the public interest and any such exemption may be granted either unconditionally or subject to such conditions as may be specified in the notification. (7) If a company contravenes the provisions of this section, the managing director, the whole-time director in charge of finance, the Chief Financial Officer or any other person charged by the Board with the duty of complying with the requirements of this section and in the absence of any of the officers mentioned above, all the directors shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be....
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....otherwise expressly provided in this Act, be appointed by the company in general meeting. (b) The remaining directors in the case of any such company shall, in default of, and subject to any regulations in the articles of the company, also be appointed by the company in general meeting. (c) At the first annual general meeting of a public company held next after the date of the general meeting at which the first directors are appointed in accordance with clauses (a) and (b) and at every subsequent annual general meeting, one-third of such of the directors for the time being as are liable 101 to retire by rotation, or if their number is neither three nor a multiple of three, then, the number nearest to one-third, shall retire from office. (d) Thedirectors to retire by rotation at every annual general meeting shall be those who have been longest in office since their last appointment, but as between persons who became directors on the same day, those who are to retire shall, in default of and subject to any agreement among themselves, be determined by lot. (e) At the annual general meeting at which a director retires as aforesaid, the company may fill up the vacancy by appoint....
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....er section 153, allot a Director Identification Number to an applicant in such manner as may be prescribed. Section 164: Disqualifications for appointment of director.- (1) A person shall not be eligible for appointment as a director of a company, if - (a) he is of unsound mind and stands so declared by a competent court; (b) he is an undischarged insolvent; (c) he has applied to be adjudicated as an insolvent and his application is pending; (d) he has been convicted by a court of any offence, whether involving moral turpitude or otherwise, and sentenced in respect thereof to imprisonment for not less than six months and a period of five years has not elapsed from the date of expiry of the sentence: Provided that if a person has been convicted of any offence and sentenced in respect thereof to imprisonment for a period of seven years or more, he shallnotbe eligibleto be appointed as a director in any company; (e) an order disqualifying him for appointment as a director has been passed by a court or Tribunal and the order is in force; (f) he has not paid any calls in respect of any shares of the company held by him, whether alone or jointly with others, and six mon....
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....nt so made shall be void. (7) If a director of the company contravenes the provisions of this section such director shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees. Section 167: Vacation of office of director.- (1) The office of a director shall become vacant in case- (a) he incurs any of the disqualifications specified in section 164; [Provided that where he incurs disqualification under sub-section (2) of Section 164, the office of the director shall become vacant in all the companies, other than the company which is in default under that subsection;] (b) he absents himself from all the meetings of the Board of Directors held during a period of twelve months with or without seeking leave of absence of the Board; (c) he acts incontraventionof the provisions of section 184 relating to entering into contracts or arrangements in which he is directly or indirectly interested; (d) he fails to disclose his interest in any contract or arrangement in which he is directly or indirectly interested, in contravention of the provisions of section 184; (e) he becomes disqualified by an order of a court or the ....
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....under section 455, he shall send a notice to the company and all the directors of the company, of his intention to remove the name of the company from the register of companies and requesting them to send their representations along with copies of the relevant documents, if any, within a period of thirty days from the date of the notice. (2) Without prejudice to the provisions of sub-section (1), a company may, after extinguishing all its liabilities, by a special resolution or consent of seventy-five per cent. members in terms of paid-up share capital, file an application in the prescribed manner to the Registrar for removing the name of the company from the register of companies on all or any of the grounds specified in sub-section (1) and the Registrar shall, on receipt of such application, cause a public notice to be issued in the prescribed manner: Provided that in the case of a company regulated under a special Act, approval of the regulatory body constituted or established under that Act shall also be obtained and enclosed with the application. (3) Nothing in sub-section (2) shall apply to a company registered under section 8. (4) A notice issued under subsection (....
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....er that any such document, fact or information may, without prejudice to any other legal action or liability under the Act, be also submitted, filed, registered or recorded, after the first time specified in first proviso onpayment of fee andadditional fee specified under this section. (2) Where a company fails or commits any default to submit, file, register or record any document, fact or information under sub-section (1) before the expiry of the period specified in the first proviso to that sub-section with additional fee, the company and the officers of the company who are in default, shall, without prejudice to the liability for payment of fee and additional fee, be liable for the penalty or punishment provided under this Act for such failure or default. " Section 455: Dormant Companies. It provides as follows:- "455. Dormant company.- (1) Where a company is formed and registered under this Act for a future project or to hold an asset or intellectual property and has no significant accounting transaction, such a company or an inactive company may make an application to the Registrar in such manner as may be prescribed for obtaining the status of a dormant company. 224 Ex....
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....umber; (b) the DIN was obtained in a wrongful manner or by fraudulent means; (c) of the death of the concerned individual; (d) the concerned individual has been declared as a person of unsound mind by a competent Court; (e) if the concerned individual has been adjudicated an insolvent: Provided that before cancellation or deactivation of DIN pursuant to clause (b), an opportunity of being heard shall be given to the concerned individual; (f) 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: Provided that before deactivation of any DIN in such case, the Central Government shall verify e-records. Explanation.- For the purposes of clause (b) - (i) the term "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 onthe basis of wrong certification or by making misleading or false information or by misrepresenta....
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....ring the constitution of the existing registry offices or any of them, any such function or duty shall be discharged by such officer and at such place, with reference to the local situation of the registered offices of the companies concerned, as the Central Government may appoint." 21. Even before entering into any discussion, it must be mentioned that the vires of the proviso under Section 167(2)(a) of the Act which was inserted to the Companies (Amendment Act 2017) had been challenged and a Division Bench of this Court in W.P.No. 32763 of 2019 G.Vasudevan Vs. Union of India had upheld the vires of the said provision. 22. The Companies Act 2013 had come into effect from 12.09.2013. It had brought about sweeping changes with respect to the filing of Annual Returns and Financial Status, brining strict compliance thereof. The equivalent provision to Section 164 of the 2013 Act was Section 274 of the Companies Act 1956. One important change which had been brought about was that under Section 274 of http://www.judis.nic.inthe Company Act 1956, it was provided that there would be disqualification with respect to Directorship of 'Public' companies and it would be attracted whe....
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....ns, the Court thus holds that the proviso to Section 167(1)(a) is neither manifestly arbitrary nor does it offend any of them in W.P.No.32763 of 2019 fundamental rights guaranteed under Part III of the Constitution of India. 29. We are persuaded to agree with the views of the Hon'ble Single Judge of the Karnataka High Court that present an accurate interpretation of the impugned law. The impugned provisions are intravires for all the reasons herein above. The writ petition is accordingly dismissed. No Costs." 26. After the arguments had concluded, the learned Senior counsel for the petitioners drew attention of this Court to the Division Bench Judgement of the Allahabad High Court dated 16.01.2020 in Jaishankar Agrahari Vs. Union of India and other, Writ-C.No. 12498 of 2019 (batch); wherein also the very same issue had been agitated. The Allahabad High Court by order dated 16.01.2020 had struck down disqualification as Directors of the petitioners. A careful reading of the Judgement of the Allahabad High Court shows that as in the previous Judgement Bhagavan Das Dhananjaya Das (supra) of this Court with relation to the similar notification issued in the year 2017, they were ....
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....f 30 days/60days had also been completed and when annual returns or financial statements have not been filed, a plain reading of the provision of law would indicate that disqualification automatically follows. There cannot be any alternate interpretation of the said provision. It is clear - crystal clear. Issuance of notice would be of no avail since only one conclusion is possible. 28. The principle of natural justice cannot be stretched to extreme limits when issue of notice would be an empty formality. The law is clear. The three financial years are 2014-2015; 2015-2016 and 2016-2017. If annual returns are not filed for the said three consecutive years, then disqualification is the only option available. The other provisions relating to penalty /punishment relied on by the petitioners would be attracted when for a single year annual returns/financial statements are not filed. But when they are not filed for three consecutive years then the Directors are automatically disqualified. 29. In (2000) 7 SCC 529 { Aligarh Muslim University and Others Vs. Mansoor Ali Khan}, the Hon'ble Supreme Court had an ocassion to consider the effect of a " useless formalities" - a theory which....
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....mere violation of natural justice but de facto prejudice (other than non-issue of notice) had to be proved. It was observed: quoting Wade AdministrativeLaw, (5th Ed.PP.472-475) as follows: ( para 31) "....it is not possible to lay down rigid rules as to when principles of natural justice are to apply, nor as their scope and extent ....There must have been some real prejudice to the complainant; there is no such thing as a merely technical infringement of natural justice. The requirements of natural justice must depend on the facts and circumstances of the case, the nature of the inquiry, the rules under which the tribunal is acting, the subject matter to be dealt with and so forth". Since then, this Court has consistently applied the principle of prejudice in several cases. The above ruling and various other rulings taking the same view have been exhaustively referred to in State Bank of Patiala Vs. S.K. Sharma ( 1996(3) SCC 364). In that case, the principle of 'prejudice' has been further elaborated. The same principle has been reiterated again in Rajendra Singh Vs. State of M.P. ( 1996(5) SCC 460). 25. The 'useless formality' theory, it must be noted, is a....
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....his Court in a Judgement reported in 2006 4 LLN 358 [Dr.C.Chendroyaperumal Vs. National Institute of Port Management] had also expressed their views on this aspect. "9. Coming to the legal aspects canvassed by the learned counsel for the appellant, it is seen that they revolve around violation of the principles of natural justice. Even at the outset, we are not impressed with the said argument, since in our opinion, "Principles of natural justice is for thoroughbred horses and not wild horses." Wild horses understand only the language of the whip and hence there is no use trying to tame them with persuasion. The principles of natural justice themselves have traversed a long way from the stage at which they were treated as a "tharaka manthra" or panacea for all diseases, to the present stage where the Courts have started looking at the credentials of the person using them as a shield or sword and accepting the fact that they are not indispensable." 32. The march of law expanding the interpretation of the principles of natural justice and examining exceptions to the same shows that where the issuance of notice is a futile exercise since only one conclusion can be reached, then the....