DISQUALIFICATION OF DIRECTOR

Introduction

Disqualification of Directors refers to Conditions because of which a person becomes ineligible to become a Director / appointed as a director of the Company within the time period specified;

Section 164 of Companies Act, 2013 provides the circumstances and situations under which a person shall not be eligible for appointment as a Director of the Company, it also provides for the situation in which a Director shall not be eligible to be re-appointed as director of that Company or appointed in any other Company for period of 5 years;

A Private Company may by its Articles provide for other disqualifications in addition to those specified in Section 164 of the Companies Act 2013.

Governing Laws

Section 164 of Companies Act 2013 read with Companies (Appointment and Qualification of Directors) Rules, 2014

Analysis of Provision's

Section 164 lays down the grounds of disqualification for appointment of Director:

Sub-Section 1 of Section 164 of Companies Act, 2013

A person shall be ineligible to be appointed as a director of the company, if he falls under any one of the below mentioned grounds:

Sub-Section 2 of Section 164 of Companies Act, 2013

(a) A person who is or has been a director of a Company which has not filed financial statements or annual returns for a continuous period of three financial years

(b) If the Company fails to: -

• pay interest on deposits or repay the deposits;

• redeem any debentures on due date or pay interest on it;

• to pay declared dividend and continuing so for one year or more.

Consequences of Disqualification under Section 164 (2) of Companies Act, 2013

• The person shall be ineligible to be reappointed as a director of that Company or appointed in other Company for a period of 5 years from the date on which the said Company fails to do so;

• Such Director shall be required to vacate office of a Director in all the Companies other than the Company which is in default as per provisions of Section 167 of Companies Act, 2013;

• If a person acts as a director even when he is aware that the office of director held by him has become vacant on account of disqualification, he shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.

Orders of High Court on Directors Disqualification:

Ministry of Corporate Affairs had issued Notices for Strike off of Companies which also resulted in Disqualification of Directors. Many of the Directors availed the remedy of filing Writ Petition before the Hon’ble High Court for removal of Disqualification of Directors and Activation of DIN. Below are some of the judgements of High Court with respect to Disqualification of Directors:

Delhi High Court: -

# Sandeep Ahuja Vs Union of India & Ors.

Registrar of Companies was directed by Hon’ble High Court for removal of disqualification of Director for Active Companies & reactivate his DINs/DSCs.

# Anjali Bhargava And Anr Vs Union of India And Anr.

Order of Director’s disqualification was set aside by Hon’ble High Court and ordered for reactivation of Director Identification Number (DIN) and Digital Signature Certificate (DSC).

Compliance Checklist & Procedural Aspects w.r.t Removal of Disqualification of Director of the Company

The following remedies are available for Removal of Disqualification of Director of the Company:

A) If the Disqualified Director is associated with the Struck – Off Company and the Director wishes the Revive the Company and activate the DIN:

Application to National Company Law Tribunal (NCLT)

Steps Involved:

• Drafting NCLT Petition for Revival of Company and removal of disqualification of Director

• Filing Petition with NCLT along with requisite documents

• Fixing of hearing date by NCLT

• Order from Tribunal

• Compliance with Directions issued by Tribunal

• Intimation and filing of Order with ROC within 30 days from date of Receipt of Order

• Publication of Order in Official Gazette by ROC

• Restoration of name of Company & Activation of DIN

• Filing of pending Returns with ROC.

Time Limit: -

• Any person aggrieved by an order of the Registrar, notifying a company as dissolved under section 248, may file an appeal to the Tribunal within a period of three years from the date of the order of the Registrar.;

• For Company or any Member or Creditor or Workman – Before expiry of 20 years from the date of Publication of Notice relating to Strike-off of the Company- for restoration of name of the Company;

List of Documents required to be filed along with Petition: -

• Memorandum and Articles of Association;

• Certificate of Incorporation;

• Notice for strike off from ROC;

• Auditor’s Report, Financial Statements, Notes to Accounts along with Notice & Board’s Report w.r.t Financials Years from which the Annual Filing of the Company is pending;

• Board Meeting and General Meeting Minutes;

• ITR Acknowledgements;

• GST Certificate;

• Bank Statements of all Bank accounts;

• ESIC and EPFO payment receipts and Registration certificate/Employees Salary;

• Any Other Statutory registrations such as MSME, Shop Act, Factory License etc;

• Such other documents depending upon the facts and circumstances of each case.

B) If the Disqualified Director is associated with Struck – Off Company and the Directors does not wish to revive the Company but only wishes to activate the DIN:

Filing of Writ Petition before Hon’ble High Court

Steps Involved: -

- Preparation of Writ petition

- Filing of Writ petition with High Court

- Receipt of High Court Order for Activation of DIN

- Filing High Court Order with Registrar of Companies

- Activation of DIN by Registrar of Companies

C) Provisions as per Companies Act, 2013:

• Every Director shall inform to the Company about his disqualification under section 164 (2), if any, in Form DIR-8, before appointment or re-appointment;

On receipt of the same, the Company has to take on record the same in the Board Meeting and file E-Form DIR-12 to Registrar of Companies for Vacation of Office as a Director of the Company, if applicable;

• Whenever a Company fails to file financial statements/ annual returns/ fails to repay any deposit, interest, dividend/ fails to redeem its debentures as specified u/s 164 (2), the Company shall immediately file Form DIR-9 to ROC furnishing the furnishing therein the names and addresses of all the directors of the Company during relevant financial years;

• The Registrar on receipt of Form DIR-9 shall immediately register the document and place the same for public inspection.

• Application for removal of disqualification to be made in Form DIR-10

The procedure for filing Form DIR-10 with respect to removal of disqualification is not specified anywhere. Only format is specified on MCA Portal.

DEACTIVATION OF DIN

• The DIN of the Disqualified Director becomes deactivated and therefore his Digital Signature cannot be affixed for filing any E-Forms on MCA Portal.

HOW CAN COMPLIANCE CALENDAR LLP HELP?

Once the Director becomes disqualified under provisions of Companies Act 2013, he becomes ineligible to act as Director of the Company which affects his professional career and future growth. Also, the business of the Company in which he is a director is affected to certain extent. Further DIN of the disqualified director becomes deactivated. Directors Disqualification can be removed and DIN can be reactivated through the above-mentioned remedies by seeking proper professional guidance. Compliance Calendar LLP has a team of skilled legal professionals who can provide you proper assistance and guidance with respect to Removing Disqualification of Directors and Activate DIN. If you have any queries, email us at info@ccoffice.in or WhatsApp/Call at 9988424211