Understand Director Disqualification and ways To Become A Director Again Before You Regret.

Guess how many Companies were struck off by RoC (Registrar of Companies) and how many director disqualification actions were taken

Any ideas?

Well, Ministry of Corporate Affairs has disqualified more than 3 lakh directors from acting as directors in a company and has struck off more than 2 lack companies in the process many director disqualification actions were taken

Now, why does MCA disqualify director and deactivate your DIN? (Director Disqualification)

Well, as per section 92 Companies Act 2013, mandates companies to file their Annual Returns to RoC, many companies have failed in the filing of annual returns

Now let’s understand why MCA disqualifies directors and how director disqualification action is taken

RoC derives its power to disqualify directors form Section 164 of the Companies Act 2013, which they exercise to disqualify the directors and issue director disqualification order

Reason for Director Disqualification is clearly laid down in Section 164(2)(a) of the Companies Act 2013, let’s review it

Director Disqualification

Section 164 (1) A person shall not be eligible for appointment as a director of a company (director disqualification ), if

(a) he is of unsound mind and stands so declared by a competent court;

(b) he is an undischarged insolvent;

(c) he has applied to be adjudicated as an insolvent and his application is pending;

(d) he has been convicted by a court of any offense, whether involving moral turpitude or otherwise, and sentenced in respect thereof to imprisonment for not less than six months and a period of five years has not elapsed from the date of expiry of the sentence:

(e) an order disqualifying him for appointment as a director has been passed by a court or Tribunal and the order is in force;

(f) he has not paid any calls in respect of any shares of the company held by him,

whether alone or jointly with others, and six months have elapsed from the last day

fixed for the payment of the call;

(g) he has been convicted of the offence dealing with related party transactions under section 188 at any time during the last preceding five years; or

(h) he has not complied with sub-section (3) of section 152.

 

(2) No person who is or has been a director of a company which—

(a) has not filed financial statements or annual returns for any continuous period of three financial years; or

(b) has failed to repay the deposits accepted by it or pay interest thereon or to redeem any debentures on the due date or pay interest due thereon or pay any dividend declared and such failure to pay or redeem continues for one year or more, shall be eligible to be re-appointed as a director of that company or appointed in other company for a period of five years from the date on which the said company fails to do so.

 

ANALYSIS OF DISQUALIFICATION OF DIRECTOR

The Law relating to disqualification is very clear if you do not file your annual returns (MGT – 7, AOC -4 ) for a continuous period of 3 years you will be disqualified and you will vacate your office as director

Now there is a confusion, Section does not talk about disqualification for 5 years and how can RoC Disqualify if there are no powers to do so?

The answer lies in Section 167 which states that when a director stand disqualified and when he has re-appointed

Remedies for Directors Disqualification 

Legally when all the directors of the company disqualified, technically there no board of directors, in such a case Section 167 comes into play, Section 167(3) states that “where all directors’ stands disqualified and need to vacate their place of directorship, new board of directors will be appointed by the promoters of company “

MCA vide office note number F. No.03/73/2017/CL-II has introduced a system where new directors can be inserted and keep the company from being struck off

STEPS TO BE FOLLOWED IN CASE COMPANY IS NOT STRUCK-OFF

• ADDITION OF MINIMUM 2 NEW DIRECTORS AS PER SECTION 167(3) and authorized vide F. No.03/73/2017/CL-II

 

• SUBMIT THE REQUIRED FORMS FOR ADDITION OF DIRECTOR TO JURISTRICAL ROC

 

• JURISTRICAL ROC WILL INDUCT THE NEW DIRECTOR VIA BACKEND SYSTEM INSERTATION

 

• ONCE THE ABOVE IS COMPLETED THEN PROCEED WITH FILING OF ANNUAL RETURNS (MGT 7 & AOC 4) FOR ALL THE YEARS FOR WHICH IT HAS MISSED OUT

  

 STEPS TO BE FOLLOWED IN CASE COMPANY IS STRUCK-OFF

• File a petition to NCLT( National Company Law Tribunal) for the reveal of the company by filing requisite forms (OR)
• Approach to Juristically High for granting a stay on Director Disqualification

 Can Director be reappointed Again After Disqualification?

There is no direct provision in the companies act 2013 to revoke the stay or reappoint the directors, MCA has not issued any notification on revocation of stay the process is in final stages and may be issued shortly

The Only way to reactive the DIN is by getting a stay order form Jurisdictional High Court, there have been cases where the High court has accepted the PIL ( Public interest litigations )

CONCLUSION 

If you are a director and have failed in filing your annual returns mentioned above, you are risking your DIN being deactivated, the process of remedies explained are long drawn and cumbersome, you should hire good CA/ Advocate to represent,

There is an age-old saying ” Make hay when the sun shines”, do not delay your annual filing, keep the company compliant and healthy

In case you need assistance with filing an annual return for your company or removal of Director Disqualification, contact our Chartered Accountant / our representative on +91 9962230333 or 044 48560333 email us @ [email protected]