Karnataka High Court
Pushpalatha Gopalakrishnan vs Union Of India on 31 January, 2023
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WP No. 25587 of 2022
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 31ST DAY OF JANUARY, 2023
BEFORE
THE HON'BLE MR JUSTICE ASHOK S.KINAGI
WRIT PETITION NO. 25587 OF 2022 (GM-RES)
BETWEEN:
PUSHPALATHA GOPALAKRISHNAN
W/O GOPALAKRISHNAN
AGED 50 YEARS
NO 99A, SUNNY BROOKS LAYOUT
KIND FISHER LANE
NEAR WIPRO CORPORATE OFFICE
SARJAPUR ROAD
BANGALORE 560 035.
KARNATAKA
...PETITIONER
(BY SRI. ASHWIN.K., ADVOCATE FOR
SRI. A MURALI.,ADVOCATE)
AND:
1. UNION OF INDIA
Digitally
REPRESENTED BY ITS
signed by R MINISTRY OF CORPORATE AFFAIRS
DEEPA
Location: SHASTRI BHAWAN
High Court
of Karnataka DR RAJENDRA PRASAD ROAD
NEW DELHI 110 001.
2. REGISTRAR OF COMPANIES,BENGALURU
'E ' WING 2ND FLOOR,
KENDRIYA SADANA, KORAMANGALA
BANGALORE 560 034
KARNATAKA
...RESPONDENTS
(BY SRI. ANUPAMA HEGDE.,ADVOCATE FOR R-1 & R-2
ASG SERVED)
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WP No. 25587 of 2022
THIS WRIT PETITION IS FILED UNDER ARTICLE 226
AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO
THE IMPUGNED ANNEXURE-A UPLOADED ON THE WEBSITE OF
THE R1 IN SO FAR AS THE PETITIONERS HEREIN CONCERNED
AND QUASHING THE SAME AS ILLEGAL , ARBITRARY AND
DEVOID OF MERIT.
THIS WRIT PETITION COMING ON FOR ORDERS THIS
DAY, THE COURT MADE THE FOLLOWING:
ORDER
The petitioner filed this writ petition seeking for quashing Annexure-A and also sought for mandamus directing the respondents to remit the petitioner to get reappointed as directors of any company or appointed as director in any company without any hindrance.
2. Brief facts leading rise to filing of this petition are as under:
The M/s Livastar Fashions Private Limited was incorporated on 23.12.2015 under the provisions of the Companies Act, 2013 (for short 'the Act'). Sri Venkateswar Rao Yaddanapudi who was one of the first directors of the Company resigned from the Office of the Board of Directors of the Company on 22.12.2016. Due to resignation of Sri Venkateswara Rao, the Company could -3- WP No. 25587 of 2022 not file its annual returns or its financial statements as the said reasons beyond the control of the petitioner.
Respondent No.2 without giving an opportunity of being heard suo moto disqualified the petitioner as Director.
Hence, this writ petition.
3. Heard learned counsel for petitioner and learned counsel for respondent Nos.1 and 2.
4. Learned counsel for the petitioner submits that the reason for not filing the returns is that one Sri Venkateswara Rao, who was the first director of the Company resigned from the Office of the Board of Directors and for the said reason he was not able to file the returns for the financial year 2015-16, 2016-17 and 2017-18. He further submits that respondent No.2 without providing an opportunity has disqualified the petitioner. He further submits that the impugned order passed by respondent No.2 is in violation of the principles of nature justice. Hence, on these grounds, he prayed to allow the writ petition.
-4- WP No. 25587 of 20225. Per contra, learned counsel for the respondents submits that the petitioner is disqualified to the post of the Director as per Section 164 (2)(a) read with Section 167 (1) (a) of the Act. She further submits that admittedly, the petitioner being the Director of the Company has not submitted a returns for the financial year 2015-16, 2016-17 and 2017-18. Respondent No.2 considering the above said provision has rightly passed the impugned order. In order to buttress her arguments, she placed reliance on the judgment passed by the Co-
ordinate Bench of this Court in the case of YASHODHARA SHROFF VS. UNION OF INDIA, REPRESENTED BY ITS SECRETARY, MINISTRY OF CORPORATE AFFAIRS, NEW DELIHI AND ANOTHER reported in ILR 2019 KAR 3768 and she further submits that Section 164(2)(a) came into effect from 01.04.2014 and Section 164(2)(a) applies to the present case. She further submits that the order passed by respondent No.2 is in accordance with law.
-5- WP No. 25587 of 2022Hence, on these grounds, she prayed to dismiss the writ petition.
6. Perused the records and considered the submissions made by learned counsel for the parties.
7. In order to consider the case in hand, it is necessary to consider Sections 94, 96, 129, 164 and 167 of the Act, which are extracted below:
"94. Place of keeping and inspection of registers, returns, etc.-(1) The registers required to be kept and maintained by a company under section 88 and copies of the annual return filed under section 92 shall be kept at the registered office of the company.
Provided that such registers or copies of return may also be kept at any other place in India in which more than one-tenth of the total number of members entered in the register of members reside, if approved by a special resolution passed at a general meeting of the company.
Provided further that the period for which the registers, returns and records are required to be kept shall be such as may be prescribed. (2) The registers and their indices, except when they are closed under the provisions of this Act, and the copies of all the returns shall be open for inspection by any member, debenture-holder, other security holder or beneficial owner, during business hours without payment of any fees and by any other person on payment of such fees as may be prescribed.
(3) Any such member, debenture-holder, other security holder or beneficial owner or any other person may--
(a) take extracts from any register, or index or return without payment of any fee; or -6- WP No. 25587 of 2022
(b) require a copy of any such register or entries therein or return on payment of such fees as may be prescribed.
Provided that such particulars of the register or index or return as may be prescribed shall not be available for inspection under sub-section (2) or for taking extracts or copies under this sub-section. (4) If any inspection or the making of any extract or copy required under this section is refused, the company and every officer of the company who is in default shall be liable, for each such default, to a penalty of one thousand rupees for every day subject to a maximum of one lakh rupees during which the refusal or default continues. (5) The Central Government may also, by order, direct an immediate inspection of the document, or direct that the extract required shall forthwith be allowed to be taken by the person requiring it.
96. Annual general meeting.- (1) Every company other than a One Person Company shall in each year hold in addition to any other meetings, a general meeting as its annual general meeting and shall specify the meeting as such in the notices calling it, and not more than fifteen months shall elapse between the date of one annual general meeting of a company and that of the next:
Provided that in case of the first annual general meeting, it shall be held within a period of nine months from the date of closing of the first financial year of the company and in any other case, within a period of six months, from the date of closing of the financial year:
Provided further that if a company holds its first annual general meeting as aforesaid, it shall not be necessary for the company to hold any annual general meeting 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, -7- WP No. 25587 of 2022 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.
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 sub-section shall apply to any insurance or banking company or any company engaged in the generation or supply of electricity, or to any other class of company for which a form of financial statement has been specified in or under the Act governing such class of company:
Provided also that the financial statements shall not be treated as not disclosing a true and fair view of the state of affairs of the company, merely by reason of the fact that they do not disclose--
(a) in the case of an insurance company, any matters which are not required to be disclosed by the Insurance Act, 1938, or the Insurance Regulatory and Development Authority Act, 1999;
(b) in the case of a banking company, any matters which are not required to be disclosed by the Banking Regulation Act, 1949;
(c) in the case of a company engaged in the generation or supply of electricity, any matters which are not required to be disclosed by the Electricity Act, 2003;-8- WP No. 25587 of 2022
(d) in the case of a company governed by any other law for the time being in force, any matters which are not required to be disclosed by that law. (2) At every annual general meeting of a company, the Board of Directors of the company shall lay before such meeting financial statements for the financial year.
(3) Where a company has one or more subsidiaries or associate companies, it shall, in addition to financial statements provided under sub-
section (2), prepare a consolidated financial statement of the company and of all the subsidiaries and associate companies in the same form and manner as that of its own and in accordance with applicable accounting standards, which shall also be laid before the annual general meeting of the company along with the laying of its financial statement under sub-section (2):
Provided that the company shall also attach along with its financial statement, a separate statement containing the salient features of the financial statement of its subsidiary or subsidiaries and associate company or companies in such form as may be prescribed:
Provided further that the Central Government may provide for the consolidation of accounts of companies in such manner as may be prescribed. (4) The provisions of this Act applicable to the preparation, adoption and audit of the financial statements of a holding company shall, mutatis mutandis, apply to the consolidated financial statements referred to in sub-section (3). (5) Without prejudice to sub-section (1), where the financial statements 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, exempt any class or 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 -9- WP No. 25587 of 2022 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 less than fifty thousand rupees but which may extend to five lakh rupees, or with both.
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 shall not be eligible to 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 months have elapsed from the last day fixed for the payment of the call;
(g) he has been convicted of the offence dealing with related party transactions under section 188 at any time during the last preceding five years; or
(h) he has not complied with sub-section (3) of section 152.
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WP No. 25587 of 2022(i) he has not complied with the provisions of sub-section (1) of section 165 (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 debenture 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-appointed 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. Provided that where a person is appointed as a director of a company which is in default of clause
(a) or clause (b), he shall not incur the disqualification for a period of six months from the date of his appointment.
(3) A private company may by its articles provide for any disqualifications for appointment as a director in addition to those specified in sub- sections (1) and (2):
Provided that the disqualifications referred to in clauses (d), (e) and (g) of sub-section (1) shall continue to apply even if the appeal or petition has been filed against the order of conviction or disqualification.
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 sub-section.
(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 in contravention of the provisions of section 184 relating to entering into contracts or
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WP No. 25587 of 2022arrangements 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 Tribunal ;
(f) he is 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:
Provided that the office shall not be vacated by the director in case of orders referred to in clauses
(e) and (f)--
(i) for thirty days from the date of conviction or order of disqualification;
(ii) where an appeal or petition is preferred within thirty days as aforesaid against the conviction resulting in sentence or order, until expiry of seven days from the date on which such appeal or petition is disposed of; or
(iii) where any further appeal or petition is preferred against order or sentence within seven days, until such further appeal or petition is disposed of.
(g) he is removed in pursuance of the provisions of this Act;
(h) he, having been appointed a director by virtue of his holding any office or other employment in the holding, subsidiary company , associate company , ceases to hold such office or other employment in that company.
(2) If a person, functions as a director even when he knows that the office of director held by him has become vacant on account of any of the disqualifications specified in subsection (1), he shall be punishable r or with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.
(3) Where all the directors of a company vacate their offices under any of the disqualifications specified in sub-section (1), the promoter or, in his absence, the Central Government shall appoint the required number of directors who shall hold office till the directors are appointed by the company in the general meeting.
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WP No. 25587 of 2022(4) A private company may, by its articles , provide any other ground for the vacation of the office of a director in addition to those specified in sub-section (1).
Section 92 of the Act deals with every company shall prepare annual return in such a prescribed form and shall file with the Registrar a copy of the annual return, within 60 days from the date on which annual general meeting is held and if the company fails to file the annual report within period specified under Section 403 with additional fees, the company shall be liable with a fine.
Section 96 of the Act deals with annual general meeting that every company other than a One Person Company shall in each year hold in addition to any other meetings, a general meeting as its annual general meeting and shall specify the meeting as such in the notices calling it, and not more than 15 months shall lapse between the date of one annual general meeting of a company and that of the next.
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WP No. 25587 of 2022Section 164 of the Act provides for disqualification for appointment of directors that a person shall not be eligible for appointment as a director of company, if he is of unsound mind, undischarged insolvent, convicted by any Court of any offence, order of disqualifying not paid any calls in respect of any shares of the company and further, has not filed financial statements or annual returns for any continuous period of three financial years.
Section 167 of the Act deals with vacation of office of director. If the office of director shall become vacant in the case if he incurs any of the disqualification specified in Sub-Section (2) of Section 164.
Considering the above said provision, this Court deals with the present case. The petitioner is the director of M/s Livastar Fashions Private Limited and supposed to file annual returns as per Section 92 of the Act for every financial year ending on 31st day of March every year.
The petitioner has admitted in the writ petition that the petitioner has not submitted the annual returns of the
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WP No. 25587 of 2022company for the financial year 2015-16, 2016-17 and 2017-18 respectively ending on 31st March of every financial year.
8. The second respondent web hosted on the website of respondent No.1 disclosing that the petitioner has incurred disqualification under clause (a) sub-Section (2) of section 164 of the Act. The grievance of the petitioner is that before web hosting, no opportunity was provided to the petitioner. Thus, the impugned order is in violation of principles of natural justice. An identical issue was the subject matter in the case of YASHODHARA SHROFF (SUPRA), wherein the Co-ordinate Bench held in para Nos.130 and 131 reads thus:
"130. However, one significant aspect noted is that a post-decisional hearing is envisaged when a decision making authority in the first instance makes a decision which is tentative and after giving an affected person a right of hearing, makes a final decision. In other words, a post- decisional hearing is normally envisaged in the exercise of administrative power. But, the question is as to whether a post- disqualification hearing is envisaged when a consequence occurs on account of an operation of law as in Section 164(2) of the Act. Having regard to the object and reasons of having a provision in the nature of Section 164(2) of the Act, in my view, even a post- decisional hearing, is not contemplated.
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Hence, in my view, the need to provide or read the requirement of a post-disqualification hearing under Section 164(2) of the Act also does not arise.
131. The reasons for the same are not far to see. In the circumstances, it is held that Section 164 of the Act applies by operation of law on the basis of circumstances stated therein. The said provision does not contemplate any hearing, either pre or post- disqualification hearing. In fact, no decision in the nature of administrative or quasi- judicial decision is envisaged. It is by operation of law on the occurrence of the circumstances mentioned in Section 164(2) of the Act. The publication of the list of disqualified directors is only a ministerial Act and not by an administrative process involving the making of a decision on the facts, by application of law or by exercise of discretion; it is neither an adjudicatory process. The disqualification is by operation of law on an emerging and coming into existence of a set of facts. There is no legal infirmity in the said provision as there is no violation of principles of natural justice and Article 14 of the Constitution is not violated. Accordingly, point No.2 is answered against the petitioners."
(Emphasis supplied) From the perusal of the judgment, the disqualification occurs by operation of law on an emerging and coming into existence into existence of a set of facts. Hence, the contention of the learned counsel for the petitioner is that no opportunity was provided before publication of list of disqualified director. The issue involved in the present writ petition is squarely covered
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WP No. 25587 of 2022by the order of the Co-ordinate Bench in the case of YASHODHARA SHROFF (SUPRA). I concur with the order passed in the aforesaid case. Hence, respondent No.2 was justified in publishing the name of the petitioner in the list of disqualified directors. Hence, I do not find any grounds to interfere with the impugned order.
ORDER The writ petition is dismissed.
Sd/-
JUDGE SSB