S.164(2) Of Companies Act 2013 Has No Retrospective Application Before 2014-15 FY : Supreme Court's Prima Facie View

The Supreme Court has expressed prima facie agreement with a judgment of the Allahabad High Court that Section 164(2) of the Companies Act 2013, which provides for the disqualification of directors (for five years) due to non-filing of balance sheets and annual returns for any continuous period of three financial years, has no retrospective application to the periods preceding Financial Year 2014-15.A bench comprising Justices Sanjiv Khanna and Sanjiv Kumar posted the matter for further consideration in the week commencing from December 12, 2024.The operation of the provision was notified on April 1, 2014, and several High Courts have given different views on whether it will apply retrospectively or prospectively. While the High Courts of Allahabad, Gujarat, Kerala and Karnataka, which had held section 164(2), will have prospective applicability, the High Court of Delhi held that the said section can apply prior to 2014. The judgment passed by the Allahabad High Court (which is the judgment that has been challenged before the Top Court), had held that the provision, which is adverse and penal in nature, cannot be made applicable to a Financial Year when there was no such condition attracting any disqualification as given under Section 164(2). “A provision which has been enforced w.e.f. 01.04.2014 and talks of three Financial years, if read with Section 2 (41) of Act, 2013 clearly shows that such 'Financial Year' must commence from 1st April of the concerned year and Financial Year which has ended on 31st March, will not be covered.,' the High Court reasoned.Apart from this, the Court also upheld the validity of the provision, saying that it rightly distinguished between tainted and untainted Directors on the basis of an intelligible classification, which was not violative of Article 14 of the Constitution. On the contrary, the Delhi High Court had held that the said section could apply to failure in filing returns for financial years prior to 2014, the year in which the said section came into force. The Delhi High Court opined that non-filing of financial returns was already prohibited under the Companies Act. Therefore, when the same prohibition was envisaged under section 164, the retrospective application of the same had no significant adverse effect on the rights of the defaulting companies. Therefore, the court held that Section 164(2) of the Act operates prospectively. However, such a prospective operation would entail taking into account the failure to file the financial statements pertaining to the financial year ending 31.03.2014 on or before 30.10.2014. Case details: UNION OF INDIA VS. JAI SHANKAR AGRAHARI., DIARY NO. - 10488/2021 Click here to read the order

S.164(2) Of Companies Act 2013 Has No Retrospective Application Before 2014-15 FY : Supreme Court's Prima Facie View

Gyanvi Khanna

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