How can a Disqualified Director be Eligible Again?

How can a Disqualified Director be Eligible Again?

Director Disqualification – How to Become a Director Again


The Ministry of Corporate Affairs has recently disqualified over 2 lakh Directors of companies that failed to file their MCA annual return. The recent decision by MCA has left many companies without a Board of Directors. Some Directors who hold Directorship in multiple companies have also been disqualified, even if only one of the companies failed to file MCA annual return. In this article, we look at the procedure for becoming a Director again after Director Disqualification.


A director can be disqualified under Section 164 of the Companies Act, 2013 for the following reasons:



  • The Director is of unsound mind and stands so declared by a competent court.
  • The Director is an undischarged insolvent.
  • The Director has applied to be adjudicated as an insolvent and his application is pending.
  • The Director has been convicted by a court of any offence, 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. Also any person who has been convicted of any offence and sentenced to imprisonment for a period of seven years or more, will not be eligible to be appointed as a director in any company.
  • An order disqualifying the Director for appointment as a director has been passed by a court or Tribunal and the order is in force.
  • The Director 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.
  • The Director has been convicted of the offence dealing with related party transactions under section 188 at any time during the last preceding five years.
  • A company in which the Director is a part of the Board has not filed financial statements or annual returns for any continuous period of three financial years.
  • The company 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.

As mentioned in point 8, a person can be disqualified from being a Director, if a company on which the person is a Director has not filed MCA annual return for a continuous period of three years. Under Section 274 of the Companies Act, any person disqualified from being a Director will not be eligible for being appointed as Director in any company for a period of 5 years. Hence, the recent director disqualification has adversely impacted lakhs of promoters.


However, those companies were given a chance by the ROC to reply to the notices issued to them before striking them off. Since no reply was given, the companies ultimately were struck off by the concerned ROCs.

Also, thereafter, Ministry of Corporate Affairs marked a large no. of directors as “DISQUALIFIED” by taking the ambit of Section 164 (2)(a) of the Companies Act, 2013 which states that

 No person who is or has been a director of a company which— has not filed financial statements or annual returns for any continuous period of three financial years; or 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.


Following above provisions, all the directors of the companies which have not filed their returns for the last 3 Financial Years were declared Disqualified by the Ministry. The list of all such director is available at the MCA Site 
The main reason behind issuing Disqualified Director List was also that the Government was of the view that there are a large no. of SHELL Companies which are converting their black money into white whereas they were not complying any law and were not filing their returns. Hence, all the directors of such shell companies were declared Disqualified.

Now, there were three types of companies in which there were DISQUALIFIED DIRECTORS after the clean up mission of the Government.


1. Defaulting Companies: having Active Status but Directors Disqualified because of Non Filing of their return
      2. Genuine Active Companies having genuine business but having disqualified status: Since the directors               of these active companies were also directors of any other struck off or disqualified companies.
      3. Strike Off Companies, the directors of which ultimately got disqualified on getting struck off.


For the First two classes of companies, Government launched the CODS Scheme 2018 whereby such companies were given one time option to file their annual return and balance sheets with ROC and get the status of their Directors APPROVED FROM DISQUALIFIED.


But the problem still persist for the directors who were declared Disqualified on account of STRUCK OFF Companies. Then such Directors moved to the HIGH COURT requesting the court to put STAY on their DISQUALIFICATION since they were facing difficulty in carrying business in their genuine companies.


On the request of Disqualified Directors and the genuine companies, High Court in many cases, pronounced judgements for INTERIM STAY on Disqualification of Directors. However, in no case any order has been passed by the Court for removal of Disqualification since the disqualification can only be removed after the completion of 5 years from the date when the director was disqualified by complying with provisions of the Act.


Conclusion:

So, if any director of any struck off Company want to get interim stay on disqualification can file a writ Petition in Hon’ble High Court. However, it is suggested by the author that it is better to get such directors removed from the companies till the completion of their Disqualified Period. Since, Section 167 (1) (a) is clear that the office of Director shall stands vacant in case, he incurs any disqualification specified in Section 164. 



For more information visit Taxaj

    • Related Articles

    • 📜 Appointment and Removal of a Resident Director in India

      Under the Companies Act, 2013, every company registered in India must meet certain compliance norms — one of which is the appointment of a Resident Director. This article explains who qualifies as a Resident Director, how to appoint or remove them, ...

    • Resident Director Requirement for Joint Ventures and Subsidiaries

      ? Resident Director Requirement for Joint Ventures and Subsidiaries ? Introduction With the rise in globalization, many foreign companies are expanding into new markets through Joint Ventures (JVs) and Subsidiaries. While setting up such entities ...

    • Who Can Be a Resident Director in India? Eligibility Criteria

      Introduction As per the Companies Act, 2013, every company incorporated in India is mandated to have at least one resident director. This requirement is aimed at ensuring legal accountability and ease of compliance with Indian regulatory authorities. ...

    • Removal of Director in Company Law

      It is possible to add or remove a director from the company at any time. There are different reasons why a director is removed and there are three different procedures based on the reason. Reasons to Remove a Director A director can be removed for ...

    • How to Add Director in Private Limited Company

      Provisions and Process of Appointment of Director in a Private Limited Company The company is a legal person that needs a natural person for managing, directing, controlling, and overseeing the affairs of the company. It is a primary requirement for ...