Remedies Available To Disqualified Directors under Companies Act, 2013

The Registrar of Companies (ROC) in September, 2017 took an outrageous step and struck off many Companies who had done not their filing for a period of two financial years believing that the Companies are not doing any business in accordance with Section 248 (2) of the Companies Act, 2013 and consequently, disqualified their Directors pursuant to Section 164 (2) (a) of the Companies Act, 2013. Recently as well, ROC, Delhi has struck off 24,280 Companies vide its notice dated 08.08.2018 from the Register of Companies and the said Companies are said to be dissolved now. Accordingly, in this article, we shall discuss about why the Directors are disqualified and the remedies available to them.

DISQUALIFICATION OF DIRECTORS 

In accordance with Section 164 (2) of the Companies Act, 2013, 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.

Now, on interpretation of clause of (a) of Section 164 (2) of the Companies Act, 2013, we can conclude that a person shall be disqualified to be a Director for a period of five years if the Company in which he is or was a Director has not filed financial statement or annual returns for a continuous period of three years.

REMEDY AVAILABLE TO DISQUALIFIED DIRECTORS 

The remedy available to a disqualified Director can be further discussed on the basis of various following situations:

Situation I: When status of the Company is struck off and the Director intends to continue with the Company and consequently, remove his disqualification.

In this situation, an appeal for revival of the Company has to be filed with National Company Law Tribunal (“NCLT”) having jurisdiction over the state in which registered office of the Company is situated. Once the order for revival as aforesaid is received, physical annual filing shall be required to be done with ROC for removal of disqualification. Further, it is important to note that NCLT shall pass an order for revival only if it is in public interest and it is shown that the Company was doing business like, whether there are any employees in the Company, whether any material contract/agreement has been entered into by the Company, ITRs filing, etc.

Situation II: When status of the Company is struck off and the Director doesn’t intend to continue with the Company but want to remove his disqualification.

In this situation, writ petition for removal of disqualification shall be made to the High Court having jurisdiction in which the registered office of the Company is situated. Once stay order against such disqualification is received by the Company, physical annual filing shall require to be done with ROC for removal of director disqualification. In this case, the Company shall not be restored but it shall be struck off under voluntary striking off on filing of physical annual filing and striking off forms.

Situation III: When the status of the Company is active but all the Directors are disqualified and intend to remove disqualification.

In this situation, the status of the Company pursuant to which the Directors are disqualified is required to be obtained and accordingly opt of Situation I and Situation II herein above mentioned.

Sometimes, there can be a situation as well, where the Company pursuant to which the Directors are disqualified is not ready to do annual filing, then it is advisable to appoint to new Directors in the Company the status of which is active. Now the problem arises that a new Director cannot be appointed as there is no quorum for Board Meeting and accordingly, no Director can be authorised to file e-Form DIR-12. In this case, an application to appoint new Director has to be made to ROC and Regional Director.

{The author is a Company Secretary in Practice and can be reached at (M) 9999952595 and (E) cskajalgoyal@gmail.com}