Supreme Court Opinion on Retrospective Application of Companies Act 2013
The Supreme Court has recently expressed prima facie agreement with a judgment of the Allahabad High Court pertaining to the retrospective application of Section 164(2) of the Companies Act 2013. This specific section mandates the disqualification of directors for a period of five years due to non-filing of balance sheets and annual returns for any continuous three-year financial period.
A bench comprising Justices Sanjiv Khanna and Sanjiv Kumar has deferred further consideration of the matter to the week commencing from December 12, 2024. The operation of this provision was initially notified on April 1, 2014, leading to varying interpretations across different High Courts in terms of its retrospective or prospective application.
The Allahabad, Gujarat, Kerala, and Karnataka High Courts have held that section 164(2) is to be applied prospectively, whereas the Delhi High Court has opined that it can apply to the period before 2014 when the provision came into force.
The Allahabad High Court, in the judgment challenged before the Supreme Court, emphasized that the provision, being adverse and penal in nature, should not be made applicable to a financial year in the absence of any disqualifying condition as per Section 164(2). This judgment underlines that the provision, in conjunction with Section 2(41) of the Act, indicates that the financial year must commence from the 1st of April of the relevant year, and does not cover a financial year ending on 31st March.
Additionally, the Allahabad High Court upheld the validity of the provision, citing an intelligible classification between tainted and untainted Directors, deemed constitutional under Article 14 of the Constitution.
Conversely, the Delhi High Court held that the section could apply to the failure in filing returns for financial years preceding 2014, affirming that the retrospective application of the same would not significantly affect the rights of the defaulting companies. The court concluded that Section 164(2) only operates prospectively, encompassing the failure to file financial statements for the year ending on 31st March 2014 on or before 30th October 2014.
The case at hand, Union of India vs. Jai Shankar Agrahari, Diary No. – 10488/2021, brings attention to the conflicting interpretations and the need for the Supreme Court to provide clarity on the retrospective or prospective application of Section 164(2) of the Companies Act 2013.
For detailed insights into the Supreme Court’s opinion, refer to the original order here.
