Section 164(2) of Companies Act 2013 Not Retrospective Before FY 2014-15 : Supreme Court
The Supreme Court, in the matter of Union of India vs. Jai Shankar Agrahari, has preliminarily agreed with the Allahabad High Court's ruling that Section 164(2) of the Companies Act 2013, which disqualifies directors for five years for not filing balance sheets and annual returns for three consecutive financial years, does not apply retroactively to periods before the Financial Year 2014-15.
A bench of Justices Sanjiv Khanna and Sanjiv Kumar scheduled the matter for further consideration in the week starting December 12, 2024. This provision, notified on April 1, 2014, has been interpreted differently by various High Courts. The High Courts of Allahabad, Gujarat, Kerala, and Karnataka have held that Section 164(2) applies prospectively, while the Delhi High Court has held that it can apply to periods before 2014.
The Allahabad High Court ruled that the provision, being penal in nature, cannot apply to financial years when there was no such disqualification condition under Section 164(2). It also upheld the validity of the provision, distinguishing between tainted and untainted directors on an intelligible basis, which did not violate Article 14 of the Constitution.
Conversely, the Delhi High Court found that Section 164(2) could apply to failures in filing returns for financial years prior to 2014, stating that since non-filing of returns was already prohibited, the retrospective application of the prohibition under Section 164 did not significantly affect the rights of defaulting companies. The court thus held that Section 164(2) operates prospectively but includes consideration of failures to file financial statements for the financial year ending on March 31, 2014.