TaxTMI 
TaxTMI 
2021 (1) TMI 350
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....being published. The second and the third list were set aside. The petitioner being similarly situated and circumstanced as that of the Directors involved in the second and third list set aside in Mukut Pathak & Ors. (supra), the petitioner is entitled to similar relief. He has submitted that, although an appeal is pending against Mukut Pathak & Ors. (supra), there is no stay granted by the Appeal Court. 3. Learned Advocate appearing for the petitioner has drawn the attention of the Court to the provisions of Section 164 (2)(a) and Section 167(1) of the Act of 2013. He has submitted that the vires of the provisions of Section 164 and 167 of the Act of 2013 were upheld by the Karnataka High Court in ILR 2019 Karnataka 3768 (Yashodhara Shroof & Ors. v. Union of India & Ors.), the Bombay High Court in 124 Company Cases 161 (Bom.) (Snowcem India Ltd. & Ors. v. Union of India & Ors.) and the Madras High Court in 2020 (2) Madras Law Journal 129 (G. Vasudevan v. Union of India & Ors.). He has pointed out that, the provisions of Section 164(2) and Section 167(1) of the Act of 2013 were made operative by a notification dated April 4, 2014 from April 1, 2014. The provisos to the two secti....
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....rder dated January 30, 2020 of the Madras High Court in WP No. 35737 of 2019 (Hastimal Surana v. Union of India & Ors.), 2014 Company Cases 199 (Guj.) (Gourang Balvantlal Shah v. Union of India) and 2020 SCC Online DS 600 (Basireddy Balwant Reddy v. Ministry of Corporate Affairs). 6. Continuing with his submissions, learned Advocate appearing for the petitioner has contended that if the petitioner defaulted from April 1, 2014, the disqualification would be for reappointment in the company in default or fresh appointment in other companies. According to him, the proviso to Section 167(1) came into the statute book on May 7, 2018. Such proviso cannot be considered to be clarificatory. It creates a new imposition in respect of reappointment in companies other than the companies in default. This is a new penalty which has come into effect from May 7, 2018. Such proviso does not apply to the petitioner as the name of the petitioner was published in the year 2017. 7. Learned Advocate appearing for the petitioner has relied upon a judgment and order dated January 22, 2020 passed by the High Court in W.P. No. 700(W) of 2020 (Subhas Kumar Biswas v. Union of India & Ors.) and the Order....
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....on and that, such person will escape the rigours of the defaults committed in the Act of 1956. According to him, the Act of 2013 incorporates and permits a look back into the period of time governed by the Act of 1956. In other words, the provisions of the Act of 2013 are attracted for defaults committed during the period when the Act of 1956 was in operation. 11. Learned Advocate appearing for the respondents has referred to Section 164 of the Act of 2013 and submitted that, the words 'has been' indicates that such section is retrospective in operation. According to him, since the provisions of Sections 164 and 167 of the Act of 2013 do not expressly state that the enactment was prospective in operation, it should not be construed to be prospective in operation. He has submitted that, ordinarily a statute should be construed to have prospective effect. However, the same rule does not apply to a disqualifying provision. In support of such contention, he has relied upon 2006 Volume 6 Supreme Court Cases 289 (Vijay v. State of Maharashtra & Ors.), and All India Reporter 1961 Supreme Court 307 (State of Bombay v. Vishnu Ramchandra). 12. Relying upon 2005 Volume 1 Supreme....
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....ecember 29, 2017 as well as the fact that, as on the date of hearing of the writ petition, there was a 2020 scheme in operation permitting defaulters to avail of such schemes in order to remedy the defaults, learned Advocate appearing for the respondents has submitted that, the petitioner did not avail of any of such schemes. There is no explanation in the writ petition as to why the petitioner did not avail of the benefits of such schemes. He has submitted that, the petitioner is not entitled to any relief. 16. Learned Advocate appearing for the respondents has relied upon an Order dated August 31, 2018 passed in W.P. No. 4282 (W) of 2018 C.A.N. 6710 of 2018 (Mukul Somany & Anr. v. Registrar of Companies & Anr.) and submitted that, the Court refused to extend the interim order. He has submitted that, in a writ petition, where the issue of disqualification of Director was involved and where there subsisted an interim Order, the Court, upon finding that the issue of this qualification of Director was pending before the Supreme Court from a judgment of the Bombay High Court, refused to extend the interim Order. He has submitted that Mukul Somany & Anr. (supra) was not cited in Che....
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....allowed maintenance and inspection of documents by companies in electronic form. It has introduced the concept of Corporate Social Responsibility and One Man Company amongst others. It has provided for enhanced accountability on the part of the companies. It has sought to invoke a process to encourage ethical corporate behaviour. It has provisions for additional disclosure norms, facilitating the raising of capital by companies and enhanced accountability amongst others. It has sought to protect minority shareholders and make provisions for investor protection. The Act of 2013 has sought to achieve greater transparency in the functioning of a company. In striving to achieve its objects, the Act of 2013 has provided for enhanced consequences in relation to the Act of 1956, for breach of compliances of the statutory requirements. 23. Accelerated growth and expansion of the economy will require a robust mechanism which ensures fair play and transparency in the functioning of a legal entity such as a company. The Act of 2013 has sought to achieve such an objective. The provisions of the Act of 2013 have to be interpreted in the light of the objects that it has sought to achieve. Gre....
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....018. 29. Section 164 of the Act of 2013 has dealt with disqualification for appointment of Director. The Act of 1956 had similar provisions for disqualifications for appointment of Director enshrined in Section 274 of the Act of 1956. 30. Section 167 of the Act of 2013 has tabulated the instances where a Director of a Company vacates his office. Section 283 of the Act of 1956 had similar provisions as to when a director of a Company vacates his office. 31. Sections 164 (2) and Section 167 (1)(a) of the Act of 2013 prior to the introduction of the amendments with effect from May 7, 2018 had been as follows:- "164. Disqualifications for appointment of director ** ** ** (2) No person who is or has been a director of a company which- (a) has not filed financial statements or annual returns for any continuous period of three financial years; or (b) has failed to repay the deposits accepted by it or pay interest thereon or to redeem any debentures on the due date or pay interest due thereon or pay any dividend declared and such failure to pay or redeem continues for one year or more, shall be eligible to be re-app....
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....ts of the present case, the defaults of not filing of the annual returns of the defaulting company are for the period on and from the commencement of the unamended provisions of Sections 164 and 167 of the Act of 2013. Both Sections 164 and 167 of the Act of 2013 have come into effect on and from April 1, 2014. The period of default taken into consideration by the Registrar of Companies, in the facts of the present case, had commenced from April 1, 2014. Therefore, the Registrar of Companies has taken into consideration defaults in respect of a company governed by the provisions of the Act of 2013 and in respect of a period which is also governed by the Act of 2013. At the hearing of the writ petition, none of the appearing parties have disputed that, the defaults of non-filing of returns for the period from April 1, 2014 till March 31, 2017 in respect of the defaulting company were not there. The parties have accepted the fact that, the defaulting company had made the defaults in filing the annual returns for the period commencing from April 1, 2014 till March 31, 2017. 35. Various conditions have to be fulfilled for a person to be disqualified for appointment as a director of ....
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.... the provisions of the Act of 2013. 37. In the facts of the present case, as on the date of Section 164 of the Act of 2013 having come into effect, the petitioner was a director of the defaulting company. The petitioner had continued to remain as a director of the defaulting company till the cessation of his directorship on June 27, 2016. The petitioner did not continue to remain as a director of the defaulting company for a continuous period of three financial years for which the defaulting company was in default in filing the annual returns. 38. Under Section 164 (2)(a) of the Act of 2013, of which this case is primarily concerned with certain events must connect with each other for a person to suffer the disqualification prescribed therein. There must be a natural person appointed as a director of a company governed by the Act of 2013; such company must be in default of non-filing of financial statements or annual returns and the default must be for any continuous period of three financial years. In other words, for a person to suffer a disqualification for non-filing of financial statements or annual returns, under section 164 of the Act of 2013, the following requirement....
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....f the gram panchayat on December 27, 2000. He had contended in that case that, as he was elected as a member of the Gram Panchayat on December 27, 2000 he had derived a vested right to continue in such post and that, since, the amendment came into force with effect from August 8, 2003, he could not have been held to be disqualified by reason of such amendment. 42. The Supreme Court in Vijay (supra) has held that, the amendment introduced was a disqualifying statute. It has read such amendment to be the intention of the legislature to have retrospective effect. It has held as follows : "8. The general rule that a statute shall be construed to be prospective has two exceptions: it should be expressly so stated in the enactment or inference in relation thereto becomes evident by necessary implication. ** ** ** 10. It may be true the amendment came into effect on 8-8-2003. The legislative policy emanating from the aforesaid provision, in our opinion, is absolutely clear and unambiguous. By introducing the said provision, the legislature, inter alia, intended that for the purpose of bringing grassroot democracy, a person should not be permitted to hold two posts ....
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....ce must be after the coming into force of the new Code of Criminal Procedure. The language of the clause is neutral. It does not refer to any particular point of time when the accused person should have been convicted and sentenced. It merely indicates a fact situation which must exist in order to attract the applicability of the section and this fact situation would be satisfied equally whether an accused person has been convicted and sentenced before or after the coming into force of the new Code of Criminal Procedure. Even where an accused person has been convicted prior to the coming into force of the new Code of Criminal Procedure but his sentence is still running, it would not be inappropriate to say that the "accused person has, on conviction, been sentenced to imprisonment for a term". Therefore, where an accused person has been convicted and he is still serving his sentence at the date when the new Code of Criminal Procedure came into force, Section 428 would apply and he would be entitled to claim that the period of detention undergone by him during the investigation, inquiry or trial of the case should be set off against the term of imprisonment imposed on him and he sho....
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....as considered the provisions of Section 8 of the Representation of the People Act, 1951 and held that, a provision for disqualification cannot be termed a penal provision and certainly not be equated with a penal provision contained in a criminal law. It has relied upon 2003 volume 6 Supreme Court Cases page 107 (Lolita Jalan v. Bombay Gas Co. Ltd.) in that regard. It has noted the principle that, a statute enacting an offence for imposing a penalty is to be strictly construed is not of universal application which must necessarily be observed in every case. 46. Section 164 of Act of 2013 has enumerated various events, the happening of any of which, disqualifies a person from being appointed as a director of a company. The events may happen in conjunction to one another or alone. Happening of any one event is sufficient to attract the prescribed disqualification. 47. Section 164 (2)(a) of the act of 2013 should not be read in isolation. It is a part of section that has provided for the events that disqualifies a person from being a director. It should be read in the context of the entirety of Section 164 of the Act of 2013. It must be so read since, an event of disqualificatio....
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.... as a director of a company. If the proposition of strict compartmentalisation is to be applied, then it would allow a person who was declared as an insolvent prior to March 31, 2014 and remained an un-discharged insolvent on April 1, 2014 to successfully contend that, since he was not declared an insolvent after April 1, 2014, being the date when section 164 of the Act of 2013 came into effect, he did not attract the disqualification prescribed under section 164 (1)(b) of the Act of 2013. Respectfully, that would give rise to anamolous situation. The person concerned would remain as an undischarged insolvent and yet not suffer the disqualification under section 164(1)(b) as the declaration of insolvency was made prior to April 1, 2014. 50. Section 164 of the Act of 2013 must and can be construed to allow events occurring prior to April 1, 2014 to be taken into account. Therefore, an event of declaration of insolvency happening prior to April 1, 2014 can be taken into consideration for the purpose of deciding as to whether, the person concerned, stands disqualified under section 164 of the Act of 2013 after April 1, 2014 or not. 51. The Act of 1956 had provisions for disquali....
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....f person enjoys extra period for non-compliances of the statutory requirements under the Act of 1956 and 2013. Non-filing of annual returns must be visited with consequences is provided. By dint of the Section 164 of the Act of 2013 coming into effect on April 1, 2014, the person concerned cannot have an enlarged time period for filing of annual returns to suffer the consequences of non-filing of the same. In such perspective, in my view, the act of 2013 allows events happening prior to April 1, 2014 to be taken into account for the purpose of deciding the consequences befalling a person on the basis of such prior events. 53. On the strength of K. Prabhakaran (supra) and Lolita Jalan (supra) Section 164 of the Act of 2013 cannot be termed as a penal provision and equated with the penal provision contained in a criminal law. The words "has been" in the context of Section 57 of the Bombay Police Act has been interpreted by the Supreme Court in Vishnu Ramchandra (supra) to be a past participle. In a given context therefore, the words "has been" used in a section of a statute can be a past participle. In other words, the section would be of retrospective effect, that is to say that,....
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...., the defaults should continue for a continuous period of three financial years. A period less than three continuous financial years will not attract the disqualification specified under section 164 (2)(a) of the Act of 2013. It has also qualified the words "continuous period of three financial years" by the word "any". Applying the principle that, no word of a statute is to be construed as a surplusage, then, the word "any" used before the words "continuous period of three financial years" brings within its ambit the consideration of past events while deciding whether a person stands disqualified for appointment as a director of the defaulting company or in any other company. Moreover, the words "has been" used in the same sub-section is a past participle. By virtue of the words "has been" used in the sub-section, it can be construed that the sub-section is capable of taking into consideration events happening prior to April 11, 2014. The word "any" used in the sub-section is another pointer to the fact that, the sub-section is capable of taking into consideration events occurring prior to April 11, 2014. The sub-section has not specified any date of commencement of the three year....
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....uties to the company without any consequence. On the other hand, if the Act of 2013 is allowed to take into considerations events occurring prior to April 1, 2014 then, in a given situation, a director would suffer the stipulated consequences for breach of his fiduciary duty in ensuring the company files the annual returns with the Registrar of Companies. 58. Would the look back period under the Act of 2013 for a disqualification of a director under section 164 (2) (a) be for an unlimited period ? The answer to such question lies in section 274 (1) (g) of the Act of 1956. Section 274 (1)(g) of the Act of 1956 was introduced by the Companies (Amendment) Act, 2000 with effect from December 13, 2000. Section 274 (1) (g) of the Act of 1956 had provided that the non-filing of the annual accounts and annual returns for any continuous three financial years must commence on and after April 1, 1999. Therefore, today the look back period, subject to the laws of limitation, will have a terminus on April 1, 1999. The look-back period under the Act of 2013 for Section 164 (2) (a) is not ad infinitum and is limited by the laws of limitation and Section 274 (1) (g) of the Act of 1956. 59. T....
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....ing company. By virtue of the proviso to section 164 (2) of the Act of 2013, a new person who is appointed as a director of the defaulting company, will not incur the disqualification prescribed under section 164 (2) of the Act of 2013 for a period of six months from the date of his appointment. This proviso allows a window of opportunity to the defaulting company to comply with the provisions of the Act of 2013 and cure the defects of non-filing of the returns or the defaults for which the disqualification has been attracted. The proviso to sub-section (1) of Section 167 clarifies that, a director incurring the disqualification under sub-section (2) of Section 164 will vacate the office of director in all companies, other than the defaulting company. The proviso to sub-section (1) of Section 167 of the Act of 2013 clarifies sub-section (1)(a) of Section 167 of the Act of 2013 to the effect that, the office of the director shall become vacant in case the director incurs any disqualification specified in Section 164. By virtue of the proviso to sub-section (1)(a) of the Act of 2013, a person incurring the disqualification under sub-section (2) of Section 164 continues to remain as a....
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....2) of the Act of 2013 must be a director for the relevant three years which has been taken into account for the purpose of calculating "any continuous period of three financial years" as stipulated therein. In a given case, a person can be a director for the entirety of the relevant continuous period of three financial years or he may be a director for a limited period of time within the relevant continuous period of three financial years. It is not necessary, as the provisions of Section 164(2) of the Act of 2013 stands, for a person to be a director of the defaulting company for the entirety of the relevant continuous period of three financial years that the company is in default of not filing the financial statements or annual returns with the Registrar of companies. It will suffice for a person to incur the disqualification under section 164 (2) of the Act of 2013 to be a director for any period of time, within the relevant continuous period of three financial years for which the company is in default. For example, a person who had been a director of the defaulting company even for a period of a day during the relevant continuous period of three financial years incurs the disqu....
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....s the case may be. It will also put a premium on a director failing to discharge his fiduciary duties vis-à-vis the company in default. 68. Although the Delhi High Court in Mukut Pathak & Ors. (supra) has considered the factual situation where, the petitioner before it was disqualified for defaults and events which occurred after coming into effect of Section 164 of the Act of 2019, it proceeded to set aside two lists which contained names of persons disqualified under section 164 as such persons were directors of companies which were in default of complying with statutory requirements for periods prior to Section 164 of the Act of 2013 coming into force. It has however held that the list of directors published in respect of companies in default for the period subsequent to April 1, 2014 that is, the date on which the provisions of Section 164 of the Act of 2013 came into force, was valid. 69. In the facts of the present case, as noted above, the defaults are for periods from April 1, 2014 till March 31, 2017. Therefore, the defaults are for a period subsequent to Section 164 of the Act of 2013 coming into force. The decision on the topic as to why, events occurring pr....
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....ing in the same field. The petitioner has not pleaded anything as to why the petitioner or the defaulting company did not avail of such schemes. 73. The Delhi High Court in Sandeep Agarwal & Anr. (supra) while following Mukut Pathak & Ors. (supra), has taken notice of an Order of the Division Bench dated July 20, 2020 passed in Anamika v. Union of India & Anr. (WPC 4356/2020) and Gouranga v. Union of India & Anr. (WPC 4357/2020). In Anamika (supra) and Gouranga (supra), the Division Bench of the Delhi High Court had dismissed the writ petitions challenging the disqualification of directors on the ground that the list of disqualified directors were published in September 2017 and that, the explanation that the petitioners were ignorant of such publication was unacceptable since ignorance cannot bestow any benefit on a litigant nor can it be a ground to condone the delay of almost three years in approaching the Court. In the facts of the present case also, the petitioner is guilty of inordinate delay and cannot be allowed to take up the plea of ignorance as an explanation to such delay. 74. The principal notification governing Directors Identification Number under the Act of 19....
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....data related to both the DIN shall be merged with the validly retained number; (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 suppres....
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....gnation* Dated this ................ day of ................ *State whether Director, Managing Director, Manager or Secretary 80. One of the issues that has fallen for consideration is whether, the Director Identification Number stands cancelled or surrendered or deactivated upon the director suffering a disqualification under section 164 (2) of the Act of 2013 on not. 81. The Rules of 2014 governing Director Identification Number defines a Director Identification Number as an identification number allotted to a person who is intending to become a director or an existing director of a company. Therefore, a natural person can possess a Director Identification Number only if he intends to become a director or is an existing director of a company. When a natural person suffers a disqualification under section 164 of the Act of 2013, then, such a natural person cannot be considered as a person who is an existing director of a company. He cannot also be considered as a person who intends to become a director of a company within the meaning of the Rules of 2014 so long he suffers the stipulated period of disqualification, as he is disqualified by statute to become....
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....ely contend that, the Rules of 2014 can be reworked to make it more robust and in sync with the provisions of the Act of 2013. For example, Rule 11 of the Rules of 2014 can specifically provide for cessation of DIN of a person who suffers a disqualification under section 164 of the Act of 2013. However, absence of such a specific provision in the Rules of 2014, cannot be used as a shield or a tool by a person who stands disqualified under section 164 of the Act of 2013 to contend that, his DIN continues to remain active or that the same does not stand cancelled by reason of Rule 11 of the Rules of 2014 not expressly providing for such a scenario. 84. As noted above, Rule 11 of the Rules of 2014, do not expressly provide for all scenarios of disqualification under section 164 of the Act of 2013. If a person suffers an order disqualifying him from being appointed as a director by a Court or a Tribunal, and such order being still in force, such a person, should not be allowed to contend that, since, Rule 11 of the Rules of 2014 do not expressly provide for the cancellation of DIN, his DIN cannot be cancelled at all. Such a contention, will militate against the concept of DIN and th....
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....the Rules of 2014 would be an application for allotment of a DIN in favour of a person whose disqualification under section 164(2) stands removed. 87. The petitioner has contended that, the decision of the Registrar of Companies in placing the petitioner in the list of directors disqualified under section 164 of the Act of 2013 stands vitiated by reason of breach of principles of natural justice. According to the petitioner, the Registrar of Companies ought to have given prior notice to the petitioner. The Registrar of Companies ought to have afforded the petitioner an opportunity to respond to such notice and should have heard the petitioner before taking the decision to place the petitioner in the list of disqualified directors. Not having done so, the decision of the Registrar of Companies stands vitiated on the anvil of principles of natural justice. 88. The Supreme Court in Manjeet Singh & Ors. (supra) has dealt with the situation of principles of natural justice and its applicability when a statute is silent. It has noticed that the principles of natural justice is no unruly horse. When facts are admitted, an enquiry will be an empty formality. Even the principle of est....
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....a company or an individual in filing financial statements and annual returns for the period prior to April 1, 2014 stood condoned or that, such legal entity or the individual should not be prosecuted for non-filing of financial statements and annual returns for the period prior to April 1, 2014. All that the Circular did was to clarify that the financial statements and annual returns were required to be filed in the new format from April 1, 2014. 91. If the statute itself permits consideration of periods of time anterior to the statute coming into effect, a Government circular cannot override such statutory provisions in as much as the Government circular is subordinate to the statute itself. The Government circular should not be used as a tool to understand whether the statute permits periods anterior to it coming into effect to be taken into consideration for deciding the effect of the statute on an individual or an event. 92. Principles of natural justice should not be applied mechanically in facts and circumstances of every case. Although, every action taken by an authority which entails civil consequences to the party affected, should adhere to the principles of natural ....
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....th Section 167 of the Act of 2013 and the effect on the Directors Identification Number by reason thereof, has come up for consideration before this High Court in Mukul Somany & Anr. (supra), Chetan Chokhani (supra), Subhas Kumar Biswas (supra) and Sourajit Ghosh (supra). In the writ petition of Mukul Somany & Anr. (supra), an interim order was granted on May 18, 2018 which was vacated on August 31, 2018. Such orders of Mukul Somany & Anr. (supra) were not placed before the Court dealing with Chetan Chokhani (supra) and Subhas Kumar Biswas (supra). Chetan Chokhani (supra) and Subhas Kumar Biswas (supra) are later in point of time than Mukul Somany & Anr. (supra). In Chetan Chokhani (supra) the Court had granted a stay of operation of the activation of the DIN of the petitioner in respect of companies other than the defaulting company. In Subhas Kumar Biswas (supra) which has followed in Chetan Chokhani (supra) the Court disposed of the writ petition finally. It had set aside the disqualification in respect of companies other than the defaulting company. It had however directed that, the disqualification shall continue to operate in respect of the defaulting company. Attention of th....