TaxTMI 
TaxTMI 
2021 (1) TMI 258
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.... preferred, challenging such disqualification 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 prov....
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....judice to any other legal action or liability under the 2013 Act. It is submitted that such 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 t....
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.... Act, which cannot be read in isolation. Default, as per the said provisions, is triggered for not filing financial statements for a continuous period of three years and/or balance sheet within 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. T....
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.... Factory vs. Subhash Chandra Yograj Sinha All India Reporter 1961 Supreme Court 1596 6 Allied Motors (P) Limited vs. Commissioner of Income Tax, Delhi (1997) 3 Supreme Court Cases 472 7 Punjab National Bank and Others vs. 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 sa....
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....ors [the words "indicating their names, addresses, countries of incorporation, registration and percentage of shareholding held by them" Omitted by Act 1 of 2018, S. 23(i)(b)]; and (k) such other matters as may be prescribed, and signed by a director and the company secretary, or where there is no company secretary, by a company secretary in practice: 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 r....
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....g in the year of its incorporation: Provided also that the Registrar may, for any special reason, extend the time within which any annual general meeting, other than the first annual general meeting, shall be held, by a period not exceeding three months. (2) Every annual general meeting shall be called during business hours, that is, between 9 a.m. and 6 p.m. on any day that is not a National Holiday and shall be held either at the 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 Re....
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....iles such unaudited financial statement along with a declaration to this effect and where such financial statement is in a language other than English, along with a translated copy of the financial statement in English. (2) Where the annual general meeting of a company for any year has not been held, the financial statements along with the documents required to be attached under sub-section (1), duly signed along with the statement of facts and reasons for not holding the annual general meeting shall be filed with the 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....
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....ed, as the case may be, on payment of a higher additional fee, as may be prescribed and which shall not be lesser than twice the additional fee provided under the first or the second proviso as applicable. (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 relevant section, the company and the officers of the company who are in default, shall, without prejudice to the liability for the payment of fee and additional fee, be liable 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 ad....
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....ht of competition, by hitting at the root of her/his goodwill and integrity. Nature abhors a vacuum, which translates into the functioning of the concerned person in his capacity as director of companies to be replaced by others in the line of competition. The concerned director misses out on participation in company affairs for five crucial years and might lose relevance in the cut-throat rat-race of the corporate world. This directly affects the fundamental right of the director, enshrined in Article 19(g) of the Constitution of India, that is, the right to practice any profession, or to carry 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....
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....ffecting the pocket of the director or the company at best but not visiting them with the grave consequence of depriving the director of her/his livelihood for five crucial years. 36. As on the date when such default for three years ripens and reaches culmination, it would not have been possible for the director to apprehend that the rigours of the 2014 or the 2018 Amendment would be breathing down their neck soon. 37. Now, assuming retroactive effect is given to the 2014 and 2018 Amendments, as on the date on which such amendments come into force, that is, April 1, 2014 and May 7, 2018 respectively, 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,....
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....trol acts, it is well-settled, often afford a cloak of protection to tenants. Such protection is a creature of the statute-in-question and can be taken away, even retrospectively in some cases, by subsequent amendments. Directorship of a company, however, is an existing right guaranteed under the Constitution of India and is not any additional cloak of protection provided by subordinate legislation. In the latter case, a new punishment is created, not merely "some action" based on past conduct, as contemplated in Vishnu Ramchandra (supra). Thus, the ratio of the said reports cannot be applied to the present case 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 retrospecti....
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.... April 14, 2014) could not override such statutory provisions. The premise of the report under consideration was that the cancellation of DIN occurs by virtue of a statute and is imperative to give effect to the disqualification suffered under statute. Justice Basak held that, as was the scheme under the Act of 1956, a company governed by the Act of 2013 cannot have an existence ad infinitum if it continues to remain in default for noncompliance of the statutory provisions, which visits the company with stipulated consequences, which are graded and are nuanced on the gravity of the situation. There are methods for curing 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....
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....able periods of time, having little or no effect on robust or antifragile (Courtesy: Nassim Nicholas Taleb for the terms 'Black Swan' and 'anti-fragile') large operators but ruining the credibility and goodwill of small companies, completely veering them off course. Sops in the form of credit incentives for MSMEs and other medium sector units have been proved to be ineffective to alleviate such large-scale economic disasters. This, coupled with the automatic disqualification envisaged in the 2014 and 2018 amendments to the 2013 Act, is sufficient to ruin the economy as a whole which, somewhat counter-intuitively, is detrimental 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....