A company has two pillars which are shareholders and the company’s board of directors, wherein the shareholders appoint the director to manage the day to day operations of the company. Directors have a very important role to manage the functioning of the company. The most essential duties of directors include managing of the business, developing and forming strategies and take day to day operational decisions. On the other hand, a director also has to make sure that the company fulfills its statutory responsibilities, compliances, and obligations on time. Unfortunately, if the directors do not fulfill such legal responsibilities, then they have to face repercussions of disqualification as per Companies Act, 2013. There can be multiple genuine and non-genuine reasons for the disqualification of directors. In this article, we will unveil such disqualification reasons and procedures to remove such disqualifications and filing an appeal against it.
What is the Director’s Disqualification?
Director’s disqualification is a way through which a director is restrained from becoming a director or determining certain conditions through which a person is not eligible to be appointed as a director of a company. Moreover, being disqualified means that he/she cannot be appointed as a director of any company within such a time period in which he/she is disqualified by the tribunal or the court.
Reasons for Disqualification of Directors
Section 164 of Companies Act, 2013 provides the conditions under which a person can be disqualified to be a director of a company. Generally, a director is disqualified when the company is unable to file its balance sheet and annual returns which are required to be filed with ROC every year. However, there can be other reasons as well. Let’s have a look at the conditions of the disqualification of directors as per Section 164 of Companies Act, 2013.
If the person is of unsound mind and is declared such by a competent court
He/she is insolvent or is in the process of declaring insolvency and the application is pending
He/she has been convicted by any court for any offence (whether or not involving moral turpitude) and has been imprisoned for at least six months. On the other hand, if a person has been convicted of any offence and has served a period of seven years or more, he shall not be eligible to be appointed as a director in any company.
If an order has been passed disqualifying him of being appointed as a director by a court or Tribunal.
He is unable to pay any calls with regard to any shares of the company which were held by him, whether alone or jointly with others, and a period of six months has already passed from the last day fixed for the payment of the call.
He has been convicted of offences dealing with related party transactions at any time during the last preceding five years.
He doesn’t acquire Director Identification Number.
Effect of Disqualification of Director
As soon as the personal gets disqualified, then he/she cannot be appointed as a director of any company for a period of 5 years from the date of disqualification, or for any other time period as prescribed by the tribunal.
Ministry of Corporate Affairs (MCA) from last three years, is strictly enforcing these provisions as provided under the Companies Act, 2013 and has disqualified around three lakh directors. It further blocked DIN and published the list of all the disqualified director’s on its official website.
Any relief for Disqualified Directors?
The harsh decision of disqualification of directors by the Ministry has left a number of companies without board of directors. Hence, many aggrieved directors and companies desperately started looking for quick solution.
To provide relief to such directors and companies, MCA came out with “Condonation of Delay Scheme (CODS)” to reactivate the Director Identification Number (DIN) of disqualified directors after filing of necessary documents by them. This scheme was active from 1st January, 2018 to 1st May, 2018.
Latest Provisions for Removal of Director Disqualification
Now since CODS is no more applicable, hence disqualified directors can now appeal to the High Court and National Company Law Tribunal (NCLT) for the reactivation of its DIN. Through this latest provision, MCA has simplified the procedure of removal of Director Disqualification
Procedure of Removal of Director Disqualification
The procedure for removal of disqualification of director will be as follows:
Step 1 : File a Writ Petition: The first step to be taken by a disqualified director is to file a writ petition with the high court under Article 226 of the Indian Constitution. It is highly advisable to appoint an advocate to appear for the pleadings. You can contact the team of professional advocates at Legal Window to file an appeal on your behalf to make the process simple. In correspondence to the writ petition, the following set of information must also be accompanied by the appellant.
Parties memo to the petition mentioning the name, address and the designation
An application of urgent nature along with a notice of motion
Explanation of factors leading to the non-compliance of filing of statutory obligations/documents.
Synopsis of the list of date and events
Present status of the company and list of directors seeking restoration
List of all the companies in which the appellant is the director
Copy of Impugned Notice or Press Release issued by ROC listing all disqualified directors
Application for stay under Section 151 of CPC along with a prayer clause to discard the publication issued by the ROC.
Step 2: Filing a petition under Section 252 of the Companies Act, 2013: After filing a writ petition to the High Court, the next step is to file a petition under Section 252 of the Companies Act, 2013. This petition needs to be filed by companies whose name might got struck off due to director’s disqualification. Such petition/appeal has to be made before the National Company Law Tribunal (NCLT) which will help in recovering the name of the company. After filing of the above, High Court and NCLT will grant an interim order for reactivation of DIN and revival of struck off company.
Step 3: File Statutory Documents with the ROC and Income Tax Department: Post receiving an interim order from the regulatory bodies of High Court and NCLT, the appellant have to file statutory documents with the ROC along with the annual returns of the last three years with the Income Tax Department.
Step 4: Reactivation of DIN and removal of disqualification of Director: As soon as the appellant completes all the statutory requirements and pays off any penalty imposed during the time, the ROC will take charge and raise a ticket on the portal of MCA though Change Requirement Form (CRF) and will upload a copy of the order on the portal. After validation of CRF, DIN will be reactivated again and disqualification of director will get removed.
Reappointment of Disqualified Directors
Till date there is no specific provision for the reappointment of a disqualified directors. However, it is to be noted that a disqualified director can only be reappointed if a period of 5 years has been passed since the date of his/her disqualification. But, if the director rectifies his/her mistake and complies with the prescribed provisions, they are eligible to be appointed as a director again
In our opinion, an exceptional move has been taken by the Ministry of Corporate Affairs (MCA) to render a remedy for the removal of disqualification of directors. Recent circulars for filing writ petition and appeal with High Court and NCLT has been a saviour for disqualified directors and companies.
For more information related to any kind of legal Compliance, contact Legal Window now.
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LegalWindow.in is a professional technology driven platform of multidisciplined experts like CA/CS/Lawyers spanning with an aim to provide concrete solution to individuals, start-ups and other business organisation by maximising their growth at an affordable cost.