Director Disqualification Under Section 164 of Companies Act, 2013

Director Disqualification Under Section 164 of Companies Act, 2013. A firm's organizational structure is significantly dependent on the honesty and skill of its board of directors. In order to protect the interests of stakeholders and uphold good governance, the Companies Act of 2013 establishes a legal framework for removing individuals from serving as directors under specific circumstances. The main provisions regulating this are found in Section 164 of the Companies Act, 2013, which specifies the precise reasons and conditions under which a director may be disqualified. A director's disqualification acts as a regulatory measure to prevent people who are financially irresponsible, have been found guilty in court, or have violated company regulations from holding or assuming directorial posts. It is applicable to current directors as well as those seeking a new appointment or reappointment. Section 164 has grown over time to be a crucial instrument for regulators like the Ministry of Corporate Affairs (MCA) in promoting compliance and corporate responsibility, particularly in situations where directors commit unethical or fraudulent behaviour or businesses neglect to submit statutory returns. This guide will cover every aspect of Section 164, including its subsections, ramifications, cures, and recent judicial interpretations, making it a complete resource for legal professionals, compliance experts, and business executives.
What is section 164 of the Companies Act, 2013?
The legal basis for barring people from being elected or re-elected as directors in any business is established by Section 164 of the Companies Act, 2013. This is a vital clause that aims to uphold the integrity and accountability of corporate governance by preventing those who have defaulted in particular statutory obligations or committed certain offenses from serving as directors. Divided into two sections, Section 164(1) and Section 164(2), each of which addresses distinct types of disqualification, the law applies to both public and private businesses.  Personal disqualifications to the person are covered under Section 164(1). These include failing to pay calls on shares, having been found to be of unsound mind by a competent court, being an undischarged insolvent, or having been found guilty of a crime involving moral turpitude. This subsection also excludes those who have been deemed ineligible by a court or tribunal, or who have not acquired a Director Identification Number (DIN). In contrast, Section 164(2) focuses on the directors of firms that have failed to submit their financial statements or yearly returns for three years in a row, or have failed to reimburse deposits, redeem debentures, or pay declared dividends. In these instances, all directors of the defaulting firm are prohibited for five years from being reappointed to the same company or appointed to any other company.  The Companies (Appointment and Qualification of Directors) Rules, 2014, regulate the practical enforcement of Section 164. Rule 14 is especially important because it outlines the steps for informing the Registrar of Companies (ROC) about the disqualification of directors. The disqualified director must submit Form DIR-10 to apply for the revocation of such disqualification, and businesses are obliged to submit Form DIR-9 if a director is disqualified. The Ministry of Corporate Affairs (MCA) portal is kept up to date with a public list of banned people thanks to these regulations, which also guarantee process clarity and compliance.  As a result, Section 164 functions as a deterrent against corporate wrongdoing as well as a preventative measure to safeguard the interests of shareholders, creditors, and the public. It makes certain that directors who are dishonest, non-compliant, or otherwise unqualified are not retained in key management positions. The foundation of director responsibility under Indian company law is found in Section 164, which includes comprehensive clauses and related regulations.
Grounds for director disqualification under Section 164
Through Section 164, the Companies Act, 2013, establishes a number of criteria for disqualification that prevent a person from being nominated or re-nominated to serve on a company's board of directors. These reasons are divided into two categories:

Individual disqualifications under Section 164(1) and business-related disqualifications under Section 164(2). These are all intended to guarantee that in Indian firms, the directorial duties are entrusted only to those with integrity, financial discipline, and legal compliance. The grounds for disqualification are unique to the individual, regardless of the firm in issue, according to Section 164(1).

If a person meets the following criteria, they are not eligible to be chosen as a director:

He has been declared to be of unsound mind by a court of competent jurisdiction;

He is an undischarged insolvent, which means that he is still unable to pay his debts.

He has submitted an application to be judged as insolvent, and it is currently awaiting judgment;

He has been found guilty by a court of any crime that involves moral turpitude or anything else, and he has been given a jail sentence of at least six months (such disqualification remains in effect for five years after the date of the sentence's expiration);

He has received a prison sentence of seven years or more after being found guilty, which results in irreversible disqualification;

A tribunal or court has issued an order disqualifying him;

Six months have gone by since the last day that payment was due, and

he has not made any calls on the shares that he owns, either alone or in partnership with others.

Under Section 152(3) of the Act, he has not been able to get a Director Identification Number (DIN).  By prohibiting people with a history of financial default, criminal conviction, or regulatory non-compliance from serving on company boards, these measures safeguard the interests of stakeholders and the general public. 
On the other hand, Section 164(2) deals with disqualification that results from a company's defaults in which the individual holds a board position, rather than from their own behavior. According to this regulation, no one who is or has been a director of a firm that:

Has not submitted annual returns or financial reports for three consecutive financial years, or

For more than a year, has not made any payments on deposits, interest, redeemed bonds, or paid out announced dividends. for five years after the day on which the aforementioned firm fails to comply, shall be eligible for reappointment as a director in that company or for appointment in any other company.

This disqualification is significant because it applies to all directors of the failing firm, regardless of their level of involvement in the default. The board of directors is subject to a high degree of accountability in order to guarantee that statutory responsibilities are met on time. Furthermore, there are real-world repercussions when a director is deemed ineligible. The disqualification is documented in the Ministry of Corporate Affairs (MCA) registry, and the concerned individual's DIN is deactivated, preventing them from holding any directorial position during the disqualification term. The MCA site also makes this information available to the public, which promotes openness and public knowledge.  Directors are forced to be vigilant and proactive in their responsibilities by these grounds for disqualification, which act as both a deterrent and an enforcement mechanism. Because they make certain that only individuals who are legally qualified, financially secure, and morally responsible are in charge of business management, they are crucial to the health of the corporate ecosystem.
Section 164(1) vs Section 164(2) Key differences explained
The Companies Act of 2013, Section 164, is broken down into two significant subcategories: Sections 164(1) and 164(2), which each cover different sorts of disqualification. It's critical for business executives, compliance officers, and directors to be able to distinguish between these two, since the reasons, scope, and repercussions of disqualification differ under each rule. 
The individual's personal ability is the subject of section 164(1). It lists certain reasons why someone cannot be chosen as a director of any business. These include disqualifications for reasons such as insolvency, mental incompetence, criminal conviction, or failure to pay calls on shares. These criteria are entirely dependent on the individual's financial or legal situation and have nothing to do with the firm's actions or performance. For example, under Section 164(1), a person who has been found guilty of a crime involving moral turpitude and given a jail sentence of more than six months is prohibited for five years following the conclusion of the sentence. The disqualification is permanent if the jail term is longer than seven years. 
On the other hand, Section 164(2) addresses instances in which a person is deemed ineligible as a result of breaches made by the firm for which they work as a director. These include failing to submit financial statements or annual returns for three consecutive fiscal years, or defaulting in the repayment of deposits, debentures, or declared dividends for more than a year. The grounds for disqualification under Section 164(2) are firm-centric, unlike Section 164(1), which deals with the director's personal behaviour. Even if they were not directly accountable for the default, all of the failing company's directors are held liable and prohibited from being re-appointed in the same or any other company for five years. The purpose of this clause is to promote shared responsibility and make sure that directors take positive measures to uphold legal compliance.
The timing and applicability of the various methods is another significant difference. Generally speaking, disqualification under Section 164(1) is known at the time of appointment a person cannot be appointed at all if any of the listed personal disqualifications apply. In contrast, if the corporation fails to comply with its legal reporting or repayment requirements, disqualification under Section 164(2) may occur throughout a director's term, thereby impacting even current directors. 
Additionally, the effects of each section vary. Anyone who is disqualified by Section 164(1) is not permitted to hold any position in any business. The disqualification, however, is brought about by one company's noncompliance, yet it also has an impact on the director's eligibility in all other firms, making the provision's effect and scope more severe, as stated in Section 164(2). In particular, the disqualification under Section 164(2) results in the automatic vacation of office in all companies, according to Section 167(1)(a), unless a court or tribunal grants a stay.  In conclusion, Section 164(1) addresses the individual disqualification of a director, while Section 164(2) addresses the group accountability for a company's defaults, even though both provisions are intended to further the overall goal of fostering responsible and compliant leadership. Their combined impact highlights the significance of sound governance, adherence to the law, and due diligence in business operations.
Disqualification due to non-filling of Financial Statement or Annual Filling
The failure of a firm to file financial statements or yearly returns is one of the most prevalent and important reasons for a director to be disqualified under Section 164 of the Companies Act, 2013.This particular topic, which has significant ramifications for company directors, is covered by Section 164(2)(a).This clause stipulates that any person who is or has been a director of a company that has not submitted its financial statements or annual returns to the Registrar of Companies (ROC) for three consecutive financial years is disqualified. For a period of five years from the date of default, these people are prohibited from being reappointed to the same firm or from being hired by any other business.
Although this reason for disqualification is unique to each firm, its consequences apply to every business where the person is serving as a director. It implies that a person is disqualified from membership, even if they are not personally at fault, because of their connection to a failing firm, which supports the idea of the board's collective responsibility. The goal of the clause is to guarantee that directors continue to exercise supervision and accountability over required statutory filings, which are crucial for regulatory compliance and corporate transparency.
When the Ministry of Corporate Affairs (MCA) discovers non-compliant businesses, it immediately flags and disqualifies all of their directors, labeling their Director Identification Numbers (DINs) as "Disqualified" in the MCA's database. More than 300,000 directors were banned as a result of a significant enforcement push in 2017, which highlighted the gravity of this regulatory requirement and raised alarm in the corporate sector.
This regulation is based on sound governance principles. The annual returns (MGT-7) and financial statements (AOC-4) are required submissions that include crucial information regarding the company's operations, shareholding structure, financial situation, and governance framework. Failing to submit these papers is seen as an effort to hide data and avoid regulatory monitoring. Therefore, a default like this not only affects the firm but also has repercussions for the directors, who are tasked with ensuring timely compliance and maintaining corporate discipline.
Significantly, if a person is banned under Section 164(2), they are also subject to penalties under Section 167(1)(a), which stipulates that in all firms where they have a directorship, the office of director must be vacated unless a court or tribunal issues a stay. For this reason, directors are responsible for making sure that all required returns are submitted by the deadlines set by law and that any delay is immediately corrected before the three-year period expires.
Disqualification for Conviction, Fraud, or Related offences
A further significant reason why a director may be disqualified under Section 164(1) of the 2013 Companies Act is conviction for an offense, particularly one involving moral turpitude, fraud, or criminal behaviour. This provision prevents those who have engaged in unlawful, unethical, or dishonest behaviour from holding positions of authority in commercial enterprises.
A person will be disqualified if, in accordance with Section 164(1)(d), a court has found him guilty of any crime regardless of whether it includes moral turpitude and given him a term of imprisonment for at least six months. The ban continues for five years from the day the punishment ends. Additionally, the disqualification becomes permanent if the individual has been found guilty of an offense and given a jail sentence of seven years or more. This demonstrates the legislature's explicit goal of excluding people with significant criminal histories from the corporate governance system.
In general, the phrase "moral turpitude" refers to behaviour that violates societal norms of justice, honesty, or morality. Crimes such as bribery, fraud, counterfeiting, insider trading, and misappropriation of money are all possible instances. A conviction for such crimes speaks squarely to a person's honesty and integrity, rendering them unqualified to run a business.
Regardless of whether the individual's conduct was connected to their role as a director, this clause still applies. The conviction and punishment are enough to disqualify, even if the crime was committed outside the purview of their professional responsibilities. For instance, under section 164(1), a person would still be prohibited from serving as a director if they were found guilty and given a sentence of more than six months in jail for a personal financial fraud case not connected to the company's business.
Businesses are required to do a complete background check before hiring someone as a director, particularly in light of prior convictions or ongoing criminal procedures, from a regulatory standpoint. Furthermore, before being appointed or reappointed, directors are required by Form DIR-8 to state if they are disqualified under Section 164.
Impact of director disqualification on company and board
The disqualification of a director under Section 164 of the Companies Act, 2013, has a broader effect on the overall operation, structure, and administration of the firm, not just on the individual. An unqualified director cannot remain in their post, which has a number of legal and operational repercussions for the organization, its board, and its stakeholders. 
Section 167(1)(a) of the Act, which requires a director who becomes disqualified under Section 164 to resign from their position as director in every business they are currently serving, controls the most immediate impact. A sudden vacancy in the boardroom may result from this automatic vacation of office, which could leave the company with fewer directors than the legal minimum necessary under Section 149. The company is required by corporate law to fill the position as soon as possible in order to avoid penalties in such situations.
Additionally, if the disqualified person is a key managerial person (KMP), a managing director, or a full-time director, the firm may experience strategic delays, leadership interruptions, and may need to restructure or re-delegate authority. Such disqualifications may need to be revealed as significant occurrences in listed companies or firms subject to SEBI regulation, which could have an impact on the company's market reputation and investor trust. 
The MCA's deactivation of the Director Identification Number (DIN) for all disqualified directors has another significant effect. An individual cannot be chosen as a director in any other firm once the DIN has been declared disqualified until the disqualification period expires or is overturned by a legitimate authority. This limits the individual's professional prospects inside the business world by impeding future appointments as well as current positions.  The firm must, from a compliance standpoint, notify the departure from office via Form DIR-12 and keep the Registrar of Companies informed of any changes. Under Section 172 of the Act, the business and its officials may face penalties if they do not do so. Furthermore, the firm may face legal dangers if it persists in allowing a disqualified director to represent it or sign papers, since such actions may be considered null and void.
There may be no legitimate board left to make choices or hold legally required meetings when numerous directors are disqualified at once, as occurs in inactive or non-compliant organizations. In these circumstances, stakeholders may need to turn to alternative methods to petition the National Company Law Tribunal (NCLT) for instructions, rehabilitation plans, or the appointment of additional directors.
To sum up, a director's disqualification not only serves as a regulatory instrument to penalize those who make mistakes, but it also places a legal, strategic, and reputational strain on the business. It emphasizes the need for ongoing compliance, proactive management, and frequent board-level evaluations in order to avoid defaults that might have such devastating repercussions.
Remedies available against director disqualification
Although being disqualified under Section 164 of the Companies Act, 2013, is a severe legal repercussion, the Act also outlines specific legal remedies and recourse that are accessible to directors who have been disqualified. These remedies are especially crucial in situations where the director thinks the disqualification was wrongly imposed or where the company has rectified the default. In order to restore eligibility and prevent negative consequences in one's career, it is imperative to seek prompt relief. 
A disqualified director may appeal to the National Company Law Tribunal (NCLT) or the High Court by submitting a petition in accordance with Article 226 of the Constitution or an application for relief in accordance with the relevant company law provisions, depending on the jurisdiction and the type of relief sought. In a number of cases, courts and tribunals have granted relief when the business has been restored, the default has been remedied, or there has been a real mistake or lapse in filing. The judiciary has struck a balance by making sure that unintentional or little non-compliances do not have a lasting impact on a person's career as a director.
Additionally, the Ministry of Corporate Affairs (MCA) sometimes offers settlement plans or schemes for condonation of delay (like the CFS and CFSS) that enable businesses that have defaulted to file past due returns and make amends for their defaults, which may result in the reinstatement of DINs and the termination of disqualifications. These programs are usually available for a limited period of time and are intended to improve compliance and revitalize businesses, particularly smaller and inactive ones. 
Under Rule 14 of the Companies (Appointment and Qualification of Directors) Rules, 2014, a disqualified director may also submit Form DIR-10 to request that their disqualification be lifted. However, judicial approval is usually necessary for such a request, which must be supported by a solid legal basis and, in most cases, a rectification of default. The director's Director Identification Number (DIN) is reinstated if relief is granted, enabling them to resume or take on managerial positions in organizations. 
The best course of action when a corporation is disqualified under Section 164(2) for failing to file returns or financial statements is to bring it back into compliance by submitting the outstanding paperwork and completing any necessary payments. The directors may petition the NCLT or High Court to have the disqualification lifted once the firm is once more in compliance, particularly if they can prove that they were not to blame or that they had taken prompt actions to address the problem. 
But it's worth mentioning that courts are typically less willing to give remedies in situations involving severe fraud, intentional default, or offenses punishable by jail unless there are unusual circumstances. Only those directors who can demonstrate their good faith intention and adherence to the law are likely to be granted redress under the legislation, which is intended to promote integrity and accountability at the board level. 
In summary, remedial measures do exist, even if disqualifying a director has significant repercussions. A person who has been disqualified must immediately take action, get legal counsel, and consider any available statutory or judicial remedies. If the intent and behaviour are still consistent with the law, it is possible to restore eligibility and continue to hold corporate leadership roles with timely correction and adherence.
Procedure to Check the Disqualification of director
The Ministry of Corporate Affairs (MCA) has made it simple for stakeholders to check a director's disqualification status online in today's digital compliance environment. During the appointment or reappointment of directors, this facility is essential for organizations, and it is also helpful for directors who want to verify their position or see whether they have been disqualified.
Users may visit the official MCA21 portal www.mca.gov.in and follow a few easy steps to see if a director is ineligible. By mistakenly hiring someone who is ineligible, this encourages transparency and aids businesses in avoiding noncompliance.
A step-by-step guide to determining the status is provided below:

Go to the MCA Portal: Visit https://www.mca.gov.in

Choose "Master Data" from the dropdown after clicking the "MCA Services" tab on the homepage.
Choose 'View Director Master Data'. Click on "View Director Master Data" under "Master Data".
Please provide the director's full name or DIN. Enter the director's full name or DIN that you want to confirm. Additionally, you might need to provide the captcha code for confirmation. 
Status Submission and Viewing: The portal will provide comprehensive details, such as the director's current status (Active/Disqualified), the date of disqualification (if any), and connected businesses, when you submit it.
Important judgement related to section 164 disqualification
Case Title: Yatin Narendra Oza v. Union of India & Others
Court: High Court of Gujarat 
Citation: Special Civil Application No. 22435 of 2017 
Date of Judgment: 23rd February 2018
The Facts of the Case: 
The Ministry of Corporate Affairs (MCA) barred Yatin Narendra Oza, the petitioner, from holding the position of director in a company that had neglected to submit financial statements and yearly returns for a three-year financial year in accordance with Section 164(2)(a) of the Companies Act, 2013. The MCA issued a list of disqualified directors under Section 164(2) in a public notice dated September 12, 2017, and revoked their Director Identification Numbers (DINs), preventing them from being re-appointed to any firm for a period of five years.  This ban was disputed by Mr. Oza because the purported non-compliance (failure to file returns) occurred before April 1, 2014, when Section 164(2) came into force. As a result, he maintained that retrospectively enforcing this clause would breach constitutional principles of fairness and lawfulness.
Issue raised
Whether Section 164(2) of the Companies Act, 2013, can be applied retrospectively to disqualify directors for non-filing of financial statements or annual returns that occurred prior to the commencement of the said section?
Judgment: 
The Gujarat High Court held that the retrospective application of Section 164(2) is unconstitutional. The Court stated that penal consequences arising from a statutory provision cannot be applied to past conduct unless explicitly provided for by the law, which was not the case here.  It observed that the defaults attributed to the company occurred during the applicability of the Companies Act, 1956, and Section 164(2) came into force only on 1st April 2014. Therefore, applying the 2013 Act’s disqualification provision to violations under the 1956 Act was unfair and arbitrary, and violated Article 14 of the Constitution of India, which guarantees equality before the law.  Accordingly, the Court quashed the disqualification of the petitioner and others similarly placed, restoring their DINs and directorship rights.
Significance
In terms of the prospective character of director disqualification legislation under the Companies Act, 2013, this judgment is a key precedent. It has served as the judicial basis for numerous reliefs given to disqualified directors throughout India, particularly to those who were impacted by the mass disqualification campaign carried out by the MCA in 2017.
Can a disqualified director be appointed in another company?
According to the terms of Section 164(2) of the Companies Act, 2013, a banned director cannot be hired or rehired in any other firm throughout the duration of the ban. According to the law, a person is ineligible for re-appointment in that company or for appointment in any other company for a period of five years from the date of default if they have been a director in a company that has failed to file financial statements or annual returns for a continuous period of three financial years, or if they have defaulted in repaying deposits, debentures, or declared dividends for more than a year.
In addition, according to Section 167(1)(a), a director is automatically considered to have left the position of director in any other business where they were working once they are disqualified under Section 164(2). In other words, being banned from one defaulting firm has a domino effect on a person's whole portfolio of directors. The disqualified status of such directors is updated on the portal of the Ministry of Corporate Affairs (MCA), and their Director Identification Number (DIN) is marked accordingly, making them ineligible for any new appointment throughout the disqualification term.
Nonetheless, a director who is disqualified is not without recourse. They may petition the High Court or the National Company Law Tribunal (NCLT) for redress or a stay on the disqualification order. Courts have given relief in situations where disqualification was applied retrospectively or without proper procedure in a number of court rulings, including Yatin Narendra Oza v. Union of India. The prohibition against being hired by other businesses will continue in effect until such remedy is given.
To sum up, the Companies Act upholds the concept of accountability by severely restricting the hiring of disqualified directors in other firms and by making sure that only law-abiding people are given the duty of managing corporations.
Facts of the Case: The petitioner, Yatin Narendra Oza, was disqualified by the Ministry of Corporate Affairs (MCA) under Section 164(2)(a) of the Companies Act, 2013, for having served as a director in a company that had failed to file financial statements and annual returns for a continuous period of three financial years. The MCA, through a public notice dated 12th September 2017, published a list of disqualified directors under Section 164(2) and deactivated their Director Identification Numbers (DINs), barring them from being re-appointed in any company for five years.  Mr. Oza challenged this disqualification on the ground that the alleged non-compliance (failure to file returns) took place before Section 164(2) came into effect (i.e., before April 1, 2014). Therefore, he argued that applying this provision retrospectively violated constitutional principles of fairness and legality.
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FAQ’s
Q1. How can I find out if my DIN has been disqualified?
Ans. To check your disqualification status, log in to the MCA V3 portal, navigate to MCA Services → Company/LLP Master Data → View Director Master Data, and enter your DIN. It will display whether your DIN is active or disqualified, along with the effective date.
Q2. Can a company still function if all its directors are disqualified?
Ans. No, if all directors of a company are disqualified, it cannot file documents or conduct board meetings legally. The company must appoint new directors by approaching the NCLT under Section 167(3) to prevent paralysis of operations.
Q3. Is DIN automatically reactivated after the 5-year disqualification period?
Ans. Yes, in most cases, the DIN is reactivated automatically after the expiry of the disqualification period. However, it's advisable to verify DIN status on the MCA portal and file pending forms or KYC to ensure full reactivation.
Q4. Is there a government fee to apply for removal of disqualification?
Ans. Yes. When applying through Form DIR-10 to the Regional Director, a prescribed fee applies. If the director seeks relief via NCLT or High Court, legal and court fees also apply, depending on the route chosen.
Q5. Can disqualification be shown wrongly on the MCA portal?
Ans. In rare cases, disqualification status may appear incorrectly due to technical errors or delayed updates. In such cases, a representation can be made to the concerned Registrar of Companies (ROC) along with supporting documents to seek correction.

A firm's organizational structure is significantly dependent on the honesty and skill of its board of directors. In order to protect the interests of stakeholders and uphold good governance, the Companies Act of 2013 establishes a legal framework for removing individuals from serving as directors under specific circumstances. The main provisions regulating this are found in Section 164 of the Companies Act, 2013, which specifies the precise reasons and conditions under which a director may be disqualified. A director's disqualification acts as a regulatory measure to prevent people who are financially irresponsible, have been found guilty in court, or have violated company regulations from holding or assuming directorial posts. It is applicable to current directors as well as those seeking a new appointment or reappointment. Section 164 has grown over time to be a crucial instrument for regulators like the Ministry of Corporate Affairs (MCA) in promoting compliance and corporate responsibility, particularly in situations where directors commit unethical or fraudulent behaviour or businesses neglect to submit statutory returns. This guide will cover every aspect of Section 164, including its subsections, ramifications, cures, and recent judicial interpretations, making it a complete resource for legal professionals, compliance experts, and business executives.

What is section 164 of the Companies Act, 2013?

The legal basis for barring people from being elected or re-elected as directors in any business is established by Section 164 of the Companies Act, 2013. This is a vital clause that aims to uphold the integrity and accountability of corporate governance by preventing those who have defaulted in particular statutory obligations or committed certain offenses from serving as directors. Divided into two sections, Section 164(1) and Section 164(2), each of which addresses distinct types of disqualification, the law applies to both public and private businesses. Personal disqualifications to the person are covered under Section 164(1). These include failing to pay calls on shares, having been found to be of unsound mind by a competent court, being an undischarged insolvent, or having been found guilty of a crime involving moral turpitude. This subsection also excludes those who have been deemed ineligible by a court or tribunal, or who have not acquired a Director Identification Number (DIN). In contrast, Section 164(2) focuses on the directors of firms that have failed to submit their financial statements or yearly returns for three years in a row, or have failed to reimburse deposits, redeem debentures, or pay declared dividends. In these instances, all directors of the defaulting firm are prohibited for five years from being reappointed to the same company or appointed to any other company. The Companies (Appointment and Qualification of Directors) Rules, 2014, regulate the practical enforcement of Section 164. Rule 14 is especially important because it outlines the steps for informing the Registrar of Companies (ROC) about the disqualification of directors. The disqualified director must submit Form DIR-10 to apply for the revocation of such disqualification, and businesses are obliged to submit Form DIR-9 if a director is disqualified. The Ministry of Corporate Affairs (MCA) portal is kept up to date with a public list of banned people thanks to these regulations, which also guarantee process clarity and compliance. As a result, Section 164 functions as a deterrent against corporate wrongdoing as well as a preventative measure to safeguard the interests of shareholders, creditors, and the public. It makes certain that directors who are dishonest, non-compliant, or otherwise unqualified are not retained in key management positions. The foundation of director responsibility under Indian company law is found in Section 164, which includes comprehensive clauses and related regulations.

Grounds for director disqualification under Section 164

Through Section 164, the Companies Act, 2013, establishes a number of criteria for disqualification that prevent a person from being nominated or re-nominated to serve on a company's board of directors. These reasons are divided into two categories:

Individual disqualifications under Section 164(1) and business-related disqualifications under Section 164(2). These are all intended to guarantee that in Indian firms, the directorial duties are entrusted only to those with integrity, financial discipline, and legal compliance. The grounds for disqualification are unique to the individual, regardless of the firm in issue, according to Section 164(1).

If a person meets the following criteria, they are not eligible to be chosen as a director:

He has been declared to be of unsound mind by a court of competent jurisdiction;
He is an undischarged insolvent, which means that he is still unable to pay his debts.
He has submitted an application to be judged as insolvent, and it is currently awaiting judgment;
He has been found guilty by a court of any crime that involves moral turpitude or anything else, and he has been given a jail sentence of at least six months (such disqualification remains in effect for five years after the date of the sentence's expiration);
He has received a prison sentence of seven years or more after being found guilty, which results in irreversible disqualification;
A tribunal or court has issued an order disqualifying him;
Six months have gone by since the last day that payment was due, and
he has not made any calls on the shares that he owns, either alone or in partnership with others.

On the other hand, Section 164(2) deals with disqualification that results from a company's defaults in which the individual holds a board position, rather than from their own behavior. According to this regulation, no one who is or has been a director of a firm that:

Has not submitted annual returns or financial reports for three consecutive financial years, or
For more than a year, has not made any payments on deposits, interest, redeemed bonds, or paid out announced dividends. for five years after the day on which the aforementioned firm fails to comply, shall be eligible for reappointment as a director in that company or for appointment in any other company.

Section 164(1) vs Section 164(2) Key differences explained

The Companies Act of 2013, Section 164, is broken down into two significant subcategories: Sections 164(1) and 164(2), which each cover different sorts of disqualification. It's critical for business executives, compliance officers, and directors to be able to distinguish between these two, since the reasons, scope, and repercussions of disqualification differ under each rule.

The individual's personal ability is the subject of section 164(1). It lists certain reasons why someone cannot be chosen as a director of any business. These include disqualifications for reasons such as insolvency, mental incompetence, criminal conviction, or failure to pay calls on shares. These criteria are entirely dependent on the individual's financial or legal situation and have nothing to do with the firm's actions or performance. For example, under Section 164(1), a person who has been found guilty of a crime involving moral turpitude and given a jail sentence of more than six months is prohibited for five years following the conclusion of the sentence. The disqualification is permanent if the jail term is longer than seven years.

On the other hand, Section 164(2) addresses instances in which a person is deemed ineligible as a result of breaches made by the firm for which they work as a director. These include failing to submit financial statements or annual returns for three consecutive fiscal years, or defaulting in the repayment of deposits, debentures, or declared dividends for more than a year. The grounds for disqualification under Section 164(2) are firm-centric, unlike Section 164(1), which deals with the director's personal behaviour. Even if they were not directly accountable for the default, all of the failing company's directors are held liable and prohibited from being re-appointed in the same or any other company for five years. The purpose of this clause is to promote shared responsibility and make sure that directors take positive measures to uphold legal compliance.

The timing and applicability of the various methods is another significant difference. Generally speaking, disqualification under Section 164(1) is known at the time of appointment a person cannot be appointed at all if any of the listed personal disqualifications apply. In contrast, if the corporation fails to comply with its legal reporting or repayment requirements, disqualification under Section 164(2) may occur throughout a director's term, thereby impacting even current directors.

Additionally, the effects of each section vary. Anyone who is disqualified by Section 164(1) is not permitted to hold any position in any business. The disqualification, however, is brought about by one company's noncompliance, yet it also has an impact on the director's eligibility in all other firms, making the provision's effect and scope more severe, as stated in Section 164(2). In particular, the disqualification under Section 164(2) results in the automatic vacation of office in all companies, according to Section 167(1)(a), unless a court or tribunal grants a stay. In conclusion, Section 164(1) addresses the individual disqualification of a director, while Section 164(2) addresses the group accountability for a company's defaults, even though both provisions are intended to further the overall goal of fostering responsible and compliant leadership. Their combined impact highlights the significance of sound governance, adherence to the law, and due diligence in business operations.

Disqualification due to non-filling of Financial Statement or Annual Filling

The failure of a firm to file financial statements or yearly returns is one of the most prevalent and important reasons for a director to be disqualified under Section 164 of the Companies Act, 2013.This particular topic, which has significant ramifications for company directors, is covered by Section 164(2)(a).This clause stipulates that any person who is or has been a director of a company that has not submitted its financial statements or annual returns to the Registrar of Companies (ROC) for three consecutive financial years is disqualified. For a period of five years from the date of default, these people are prohibited from being reappointed to the same firm or from being hired by any other business.

Although this reason for disqualification is unique to each firm, its consequences apply to every business where the person is serving as a director. It implies that a person is disqualified from membership, even if they are not personally at fault, because of their connection to a failing firm, which supports the idea of the board's collective responsibility. The goal of the clause is to guarantee that directors continue to exercise supervision and accountability over required statutory filings, which are crucial for regulatory compliance and corporate transparency.

When the Ministry of Corporate Affairs (MCA) discovers non-compliant businesses, it immediately flags and disqualifies all of their directors, labeling their Director Identification Numbers (DINs) as "Disqualified" in the MCA's database. More than 300,000 directors were banned as a result of a significant enforcement push in 2017, which highlighted the gravity of this regulatory requirement and raised alarm in the corporate sector.

This regulation is based on sound governance principles. The annual returns (MGT-7) and financial statements (AOC-4) are required submissions that include crucial information regarding the company's operations, shareholding structure, financial situation, and governance framework. Failing to submit these papers is seen as an effort to hide data and avoid regulatory monitoring. Therefore, a default like this not only affects the firm but also has repercussions for the directors, who are tasked with ensuring timely compliance and maintaining corporate discipline.

Significantly, if a person is banned under Section 164(2), they are also subject to penalties under Section 167(1)(a), which stipulates that in all firms where they have a directorship, the office of director must be vacated unless a court or tribunal issues a stay. For this reason, directors are responsible for making sure that all required returns are submitted by the deadlines set by law and that any delay is immediately corrected before the three-year period expires.

Disqualification for Conviction, Fraud, or Related offences

A further significant reason why a director may be disqualified under Section 164(1) of the 2013 Companies Act is conviction for an offense, particularly one involving moral turpitude, fraud, or criminal behaviour. This provision prevents those who have engaged in unlawful, unethical, or dishonest behaviour from holding positions of authority in commercial enterprises.

A person will be disqualified if, in accordance with Section 164(1)(d), a court has found him guilty of any crime regardless of whether it includes moral turpitude and given him a term of imprisonment for at least six months. The ban continues for five years from the day the punishment ends. Additionally, the disqualification becomes permanent if the individual has been found guilty of an offense and given a jail sentence of seven years or more. This demonstrates the legislature's explicit goal of excluding people with significant criminal histories from the corporate governance system.

In general, the phrase "moral turpitude" refers to behaviour that violates societal norms of justice, honesty, or morality. Crimes such as bribery, fraud, counterfeiting, insider trading, and misappropriation of money are all possible instances. A conviction for such crimes speaks squarely to a person's honesty and integrity, rendering them unqualified to run a business.

Regardless of whether the individual's conduct was connected to their role as a director, this clause still applies. The conviction and punishment are enough to disqualify, even if the crime was committed outside the purview of their professional responsibilities. For instance, under section 164(1), a person would still be prohibited from serving as a director if they were found guilty and given a sentence of more than six months in jail for a personal financial fraud case not connected to the company's business.

Businesses are required to do a complete background check before hiring someone as a director, particularly in light of prior convictions or ongoing criminal procedures, from a regulatory standpoint. Furthermore, before being appointed or reappointed, directors are required by Form DIR-8 to state if they are disqualified under Section 164.

Impact of director disqualification on company and board

The disqualification of a director under Section 164 of the Companies Act, 2013, has a broader effect on the overall operation, structure, and administration of the firm, not just on the individual. An unqualified director cannot remain in their post, which has a number of legal and operational repercussions for the organization, its board, and its stakeholders.

Section 167(1)(a) of the Act, which requires a director who becomes disqualified under Section 164 to resign from their position as director in every business they are currently serving, controls the most immediate impact. A sudden vacancy in the boardroom may result from this automatic vacation of office, which could leave the company with fewer directors than the legal minimum necessary under Section 149. The company is required by corporate law to fill the position as soon as possible in order to avoid penalties in such situations.

Additionally, if the disqualified person is a key managerial person (KMP), a managing director, or a full-time director, the firm may experience strategic delays, leadership interruptions, and may need to restructure or re-delegate authority. Such disqualifications may need to be revealed as significant occurrences in listed companies or firms subject to SEBI regulation, which could have an impact on the company's market reputation and investor trust.

The MCA's deactivation of the Director Identification Number (DIN) for all disqualified directors has another significant effect. An individual cannot be chosen as a director in any other firm once the DIN has been declared disqualified until the disqualification period expires or is overturned by a legitimate authority. This limits the individual's professional prospects inside the business world by impeding future appointments as well as current positions. The firm must, from a compliance standpoint, notify the departure from office via Form DIR-12 and keep the Registrar of Companies informed of any changes. Under Section 172 of the Act, the business and its officials may face penalties if they do not do so. Furthermore, the firm may face legal dangers if it persists in allowing a disqualified director to represent it or sign papers, since such actions may be considered null and void.

There may be no legitimate board left to make choices or hold legally required meetings when numerous directors are disqualified at once, as occurs in inactive or non-compliant organizations. In these circumstances, stakeholders may need to turn to alternative methods to petition the National Company Law Tribunal (NCLT) for instructions, rehabilitation plans, or the appointment of additional directors.

To sum up, a director's disqualification not only serves as a regulatory instrument to penalize those who make mistakes, but it also places a legal, strategic, and reputational strain on the business. It emphasizes the need for ongoing compliance, proactive management, and frequent board-level evaluations in order to avoid defaults that might have such devastating repercussions.

Remedies available against director disqualification

Although being disqualified under Section 164 of the Companies Act, 2013, is a severe legal repercussion, the Act also outlines specific legal remedies and recourse that are accessible to directors who have been disqualified. These remedies are especially crucial in situations where the director thinks the disqualification was wrongly imposed or where the company has rectified the default. In order to restore eligibility and prevent negative consequences in one's career, it is imperative to seek prompt relief.

A disqualified director may appeal to the National Company Law Tribunal (NCLT) or the High Court by submitting a petition in accordance with Article 226 of the Constitution or an application for relief in accordance with the relevant company law provisions, depending on the jurisdiction and the type of relief sought. In a number of cases, courts and tribunals have granted relief when the business has been restored, the default has been remedied, or there has been a real mistake or lapse in filing. The judiciary has struck a balance by making sure that unintentional or little non-compliances do not have a lasting impact on a person's career as a director.

Additionally, the Ministry of Corporate Affairs (MCA) sometimes offers settlement plans or schemes for condonation of delay (like the CFS and CFSS) that enable businesses that have defaulted to file past due returns and make amends for their defaults, which may result in the reinstatement of DINs and the termination of disqualifications. These programs are usually available for a limited period of time and are intended to improve compliance and revitalize businesses, particularly smaller and inactive ones.

Under Rule 14 of the Companies (Appointment and Qualification of Directors) Rules, 2014, a disqualified director may also submit Form DIR-10 to request that their disqualification be lifted. However, judicial approval is usually necessary for such a request, which must be supported by a solid legal basis and, in most cases, a rectification of default. The director's Director Identification Number (DIN) is reinstated if relief is granted, enabling them to resume or take on managerial positions in organizations.

The best course of action when a corporation is disqualified under Section 164(2) for failing to file returns or financial statements is to bring it back into compliance by submitting the outstanding paperwork and completing any necessary payments. The directors may petition the NCLT or High Court to have the disqualification lifted once the firm is once more in compliance, particularly if they can prove that they were not to blame or that they had taken prompt actions to address the problem.

But it's worth mentioning that courts are typically less willing to give remedies in situations involving severe fraud, intentional default, or offenses punishable by jail unless there are unusual circumstances. Only those directors who can demonstrate their good faith intention and adherence to the law are likely to be granted redress under the legislation, which is intended to promote integrity and accountability at the board level.

In summary, remedial measures do exist, even if disqualifying a director has significant repercussions. A person who has been disqualified must immediately take action, get legal counsel, and consider any available statutory or judicial remedies. If the intent and behaviour are still consistent with the law, it is possible to restore eligibility and continue to hold corporate leadership roles with timely correction and adherence.

Procedure to Check the Disqualification of director

The Ministry of Corporate Affairs (MCA) has made it simple for stakeholders to check a director's disqualification status online in today's digital compliance environment. During the appointment or reappointment of directors, this facility is essential for organizations, and it is also helpful for directors who want to verify their position or see whether they have been disqualified.

Users may visit the official MCA21 portal www.mca.gov.in and follow a few easy steps to see if a director is ineligible. By mistakenly hiring someone who is ineligible, this encourages transparency and aids businesses in avoiding noncompliance.

A step-by-step guide to determining the status is provided below:

Go to the MCA Portal: Visit https://www.mca.gov.in

Choose "Master Data" from the dropdown after clicking the "MCA Services" tab on the homepage.

Choose 'View Director Master Data'. Click on "View Director Master Data" under "Master Data".

Please provide the director's full name or DIN. Enter the director's full name or DIN that you want to confirm. Additionally, you might need to provide the captcha code for confirmation.

Status Submission and Viewing: The portal will provide comprehensive details, such as the director's current status (Active/Disqualified), the date of disqualification (if any), and connected businesses, when you submit it.

Important judgement related to section 164 disqualification

Case Title: Yatin Narendra Oza v. Union of India & Others

Court: High Court of Gujarat

Citation: Special Civil Application No. 22435 of 2017

Date of Judgment: 23rd February 2018

The Facts of the Case:

The Ministry of Corporate Affairs (MCA) barred Yatin Narendra Oza, the petitioner, from holding the position of director in a company that had neglected to submit financial statements and yearly returns for a three-year financial year in accordance with Section 164(2)(a) of the Companies Act, 2013. The MCA issued a list of disqualified directors under Section 164(2) in a public notice dated September 12, 2017, and revoked their Director Identification Numbers (DINs), preventing them from being re-appointed to any firm for a period of five years. This ban was disputed by Mr. Oza because the purported non-compliance (failure to file returns) occurred before April 1, 2014, when Section 164(2) came into force. As a result, he maintained that retrospectively enforcing this clause would breach constitutional principles of fairness and lawfulness.

Issue raised

Whether Section 164(2) of the Companies Act, 2013, can be applied retrospectively to disqualify directors for non-filing of financial statements or annual returns that occurred prior to the commencement of the said section?

Judgment:

The Gujarat High Court held that the retrospective application of Section 164(2) is unconstitutional. The Court stated that penal consequences arising from a statutory provision cannot be applied to past conduct unless explicitly provided for by the law, which was not the case here. It observed that the defaults attributed to the company occurred during the applicability of the Companies Act, 1956, and Section 164(2) came into force only on 1st April 2014. Therefore, applying the 2013 Act’s disqualification provision to violations under the 1956 Act was unfair and arbitrary, and violated Article 14 of the Constitution of India, which guarantees equality before the law. Accordingly, the Court quashed the disqualification of the petitioner and others similarly placed, restoring their DINs and directorship rights.

Significance

In terms of the prospective character of director disqualification legislation under the Companies Act, 2013, this judgment is a key precedent. It has served as the judicial basis for numerous reliefs given to disqualified directors throughout India, particularly to those who were impacted by the mass disqualification campaign carried out by the MCA in 2017.

Can a disqualified director be appointed in another company?

According to the terms of Section 164(2) of the Companies Act, 2013, a banned director cannot be hired or rehired in any other firm throughout the duration of the ban. According to the law, a person is ineligible for re-appointment in that company or for appointment in any other company for a period of five years from the date of default if they have been a director in a company that has failed to file financial statements or annual returns for a continuous period of three financial years, or if they have defaulted in repaying deposits, debentures, or declared dividends for more than a year.

In addition, according to Section 167(1)(a), a director is automatically considered to have left the position of director in any other business where they were working once they are disqualified under Section 164(2). In other words, being banned from one defaulting firm has a domino effect on a person's whole portfolio of directors. The disqualified status of such directors is updated on the portal of the Ministry of Corporate Affairs (MCA), and their Director Identification Number (DIN) is marked accordingly, making them ineligible for any new appointment throughout the disqualification term.

Nonetheless, a director who is disqualified is not without recourse. They may petition the High Court or the National Company Law Tribunal (NCLT) for redress or a stay on the disqualification order. Courts have given relief in situations where disqualification was applied retrospectively or without proper procedure in a number of court rulings, including Yatin Narendra Oza v. Union of India. The prohibition against being hired by other businesses will continue in effect until such remedy is given.

To sum up, the Companies Act upholds the concept of accountability by severely restricting the hiring of disqualified directors in other firms and by making sure that only law-abiding people are given the duty of managing corporations.

Facts of the Case: The petitioner, Yatin Narendra Oza, was disqualified by the Ministry of Corporate Affairs (MCA) under Section 164(2)(a) of the Companies Act, 2013, for having served as a director in a company that had failed to file financial statements and annual returns for a continuous period of three financial years. The MCA, through a public notice dated 12th September 2017, published a list of disqualified directors under Section 164(2) and deactivated their Director Identification Numbers (DINs), barring them from being re-appointed in any company for five years. Mr. Oza challenged this disqualification on the ground that the alleged non-compliance (failure to file returns) took place before Section 164(2) came into effect (i.e., before April 1, 2014). Therefore, he argued that applying this provision retrospectively violated constitutional principles of fairness and legality.

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FAQ’s

Q1. How can I find out if my DIN has been disqualified?

Ans. To check your disqualification status, log in to the MCA V3 portal, navigate to MCA Services → Company/LLP Master Data → View Director Master Data, and enter your DIN. It will display whether your DIN is active or disqualified, along with the effective date.

Q2. Can a company still function if all its directors are disqualified?

Ans. No, if all directors of a company are disqualified, it cannot file documents or conduct board meetings legally. The company must appoint new directors by approaching the NCLT under Section 167(3) to prevent paralysis of operations.

Q3. Is DIN automatically reactivated after the 5-year disqualification period?

Ans. Yes, in most cases, the DIN is reactivated automatically after the expiry of the disqualification period. However, it's advisable to verify DIN status on the MCA portal and file pending forms or KYC to ensure full reactivation.

Q4. Is there a government fee to apply for removal of disqualification?

Ans. Yes. When applying through Form DIR-10 to the Regional Director, a prescribed fee applies. If the director seeks relief via NCLT or High Court, legal and court fees also apply, depending on the route chosen.

Q5. Can disqualification be shown wrongly on the MCA portal?

Ans. In rare cases, disqualification status may appear incorrectly due to technical errors or delayed updates. In such cases, a representation can be made to the concerned Registrar of Companies (ROC) along with supporting documents to seek correction.