TMI Blog2021 (1) TMI 258X X X X Extracts X X X X X X X X Extracts X X X X ..... ortunity of representation/hearing to the defaulter would merely be an exercise in futility. Thus, question (ii) as formulated above, is answered in the negative. 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 - HELD THAT:- The noncompliance of the provisions regarding filing/submission of annual returns and financial statements by a company, as envisaged in Sections 92 and 137 of the 2013 Act, shall result in pecuniary fines as penalty; nothing more, nothing less - However, the scenario has completely changed with the introduction of the 2014 Amendment to Section 164(2), with effect from April 1, 2014. The directors of a defaulting company now become liable, for contravention of Sections 92 and 137, to ineligibility for re-appointment as a director of that company or appointment in any other company for a period of five years from the date of default. This consequence has been newly-introduced and had no parallel in the 2013 Act or, for that matter, in the 1956 Act. Similarly, before the amendment to Section 167(1)(a) by way of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial year 2016-2017 (ending on March 31, 2017). As far as the amended proviso to Section 167(1)(a) of the 2013 Act is concerned, the operation of such proviso has also to be construed prospectively by applying it to companies in default of Sections 92 and 137 of the 2013 Act only after May 7, 2018. On a conjoint reading of the provisions in proper perspective, the distilled effect is that, the DIN of directors of defaulting companies can only be deactivated for violations of Sections 92 and 137 of the 2013 Act commencing from April 1, 2014 and such disqualification shall extend to other companies than the defaulting company, as envisaged in the amended proviso to Section 167(1)(a), only in case the default takes place post-May 7, 2018. Needless to mention, the deactivation of DIN for violation of pre-existing Company Rules, framed under the 2013 Act, can happen within the limited scope of such Rules only, and not on blanket non-compliance of Sections 92 and 137 of the 2013 Act. The question is thus answered to the effect that Section 164(2)(a), as introduced by the 2014 Amendment, and the proviso to Section 167(1)(a), as introduced by the 2018 Amendment, to the 2013 Act are pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 sub-section; .... .... .... .... 6. It is contended that such proviso would be applicable to companies whose names are struck off only after the introduction of the 2018 Amendment, that is, after May 7, 2018 and could not be invoked in the case of the petitioner. 7. The proviso, prior to the 2018 Amendment, read as follows: Provided that the office shall be vacated by the director even if he has filed an appeal against the order of such Court; and did not contemplate the vacancy of the office of the director in respect of companies other than the defaulting company. 8. Learned counsel places reliance on Keshavan Madhava Menon vs. State of Bombay, reported at AIR 1951 SC 128, to submit that every statute is presumed to be prospective, unless the contrary is specifically stipulated. Thus, the operation of the amended Section 164(2) and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is just, fair and sensible should be made and not one which results in drastic consequences. 13. Learned counsel further argues that a DIN, once allotted by the Central Government to a particular director, is valid for her/his lifetime, allowing her/him to become director in other companies as well. There is no provision defining a disqualification of director , at least with regard to Section 154(2) of the 2013 Act, though Rule 11 of the relevant Rules provides for cancellation, surrender or deactivation of DIN under certain circumstances. Since such circumstances do not arise in the present case, the company being struck off could not necessarily imply the cancellation/deactivation of its director, that is, the petitioner. 14. In support of his contentions, counsel for the petitioner cites the following judgments: Sr.No. Name of the parties Case No. Quorum Court 1 Mrs. Sunita Jain Ors. Vs. Union of India Ors. WPC 7367/2018 Dated: 18.03.2018 Hon ble Division Bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here 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. Thus, penal consequences are provided for separately in both the 1956 and 2013 Acts. 18. Section 164 of the 2013 Act, however, is disqualifying in nature and not penal in the sense of criminal law and hence, retrospective in nature. The amended Section 164 merely creates a disability to be appointed or continue as a director in respect of a past event and no new penal provision has been introduced. 19. Section 164, read with Section 167, of the 2013 Act is clearly intended to be retrospective in operation. 20. The original provision, that is, Section 167(1)(a), created a paradoxical situation as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 sake of brevity, the second question posed above is taken up first for resolution. A clear reading of Section 164(2) and Section 167( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 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 return on the website of the company, if any, and the web-link of such annual return shall be disclosed in the Board's report. (4) Every company shall file with the Registrar a copy of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riod 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 Registrar. (1) A copy of the financial statements, including consolidated financial statement, if any, along with all the documents which are required to be or attached to such financial statements under this Act, duly adopted at the annual general meetin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 director and the Chief Financial Officer of the company, if any, and, in the absence of the managing director and the Chief Financial Officer, any other director who is charged by the Board with the responsibility of complying with the provisions of this section, and, in the absenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 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 adjourned AGM, provisional filing of financial statements, subject to filing within 30 days of the date of adjourned AGM in case of financial statements of a company. 29. Section 96 of the 2013 Act provides for AGM, which is to be held not more than 15 months after the date of the previous AGM and within a period of 6 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... airs 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 director had no scope of apprehending the severe penalty to be meted out by a future statutory amendment. Such disqualification would effectively screen off the director from his commercial activity for five crucial years, which may witness an era of difference in technology and finance in the fast-paced modern world. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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, that is, the date of such default. In such a factual scenario, it cannot be argued by reasonable prudence that a retroactive effect ought to be given to the amendment-in-question. This is an irreconcilable anomaly that would befall the directors if retrospective/retroactive effect is given to the amendments-in-quest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 retrospectively, the right guaranteed to directors under the Constitution of India itself would be obliterated for offences committed without having any inkling or premonition of the future introduction of such provision. Thus, Allied Motors (supra) is not helpful for the respondents in the present case. 43. K. Prabhak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 956, 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, while referring the matter to a larger Bench, dealt with the recent development of company law in an erudite manner. However, with utmost humility, there are several other factors which create a relevant backdrop for the development of company law. The evolution of company law jurisprudence cannot be taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SMEs 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 Amendments to the 2013 Act are prospective in nature. 50. To be specific, the amendment to Section 164(2), with effect from April 1, 2014 has to be applied prospectively. The three-year default contemplated therein has to commence from the financial year 2014- 2015 (April 1, 2014 - March 31, 2015) and end ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there were conflicting views of this court on the same issue and it would be appropriate to invoke the provisions of Rule 26 of the Writ Rules of the High Court, thus referring the said writ petition to a Division Bench. 54. As such, there was no specific adjudication in Gautam Mehra (supra) on the question as to whether the operation of the amendments to Sections 164 and 167 of the 2013 Act is retrospective or prospective. Moreover, there was no formulation of any particular question of law for reference, but the writ petition was merely transferred under the general provisions of Rule 26 of the Writ Rules, to be considered by a Division Bench. Hence, there was no reference or adjudication on the questions which are in issue in the present case and, thus, Gautam Mehra (supra) does not operate as a precedent on such questions. In fact, there was no reference on any specifically-formulated question, as contemplated under Chapter II, Rule 1 (Fourth proviso) of the Appellate Side Rules of this court, in Gautam Mehra (supra). 55. Question (i), as formulated above, is, thus, answered to the effect that Section 164(2)(a), as introduced by the 2014 Amendment, and the proviso to Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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