The Registrar of Companies (ROC) in September, 2017, 2018 and now in 2019 took an outrageous step and struck off many Companies who had not done their filing for a period of two financial years or more believing that the Companies are not doing any business in accordance with Section 248 (2) of the Companies Act, 2013 and consequently, disqualified its Directors pursuant to Section 164(2)(a) of the Companies Act, 2013.
Every year, the Registrar of Companies having respective jurisdiction of a particular state is striking off thousands of Companies and accordingly, in this article, we will discuss the remedies available to disqualified Directors:
DISQUALIFICATION OF DIRECTORS
In accordance with Section 164(2)(a) of the Companies Act, 2013, any 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, then he shall be ineligible for re-appointment 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.
There are other reasons as well through which a particular person can be disqualified to be a Director however; practically, till date, the Directors are disqualified under this provision only and in more layman language, 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 statements (i.e. eForm AOC-4) or annual returns (i.e. eForm MGT-7) for a continuous period of three financial years.
REMEDY AVAILABLE TO DISQUALIFIED DIRECTORS
- REMOVAL OF DISQUALIFICATION FROM HIGH COURT
As the Companies Act, 2013 does not provide any remedial measure for removal of Disqualification, therefore, the foremost and convenient option is to move to Hon’ble High Court for removal of Director disqualification with jurisdictional viability ie. under whose ROC the Director is disqualified, but then again under this option, different Hon’ble High Courts have different precedents and views in this regard. For instance, the Hon’ble High Court of Gujarat, Karnataka, Madras, and the Allahabad High Court are giving permanent relief with certain directions and quashing the lists of ROCs mentioning disqualified Directors, whereas Hon’ble Mumbai High Court is not removing Director disqualification at all since beginning.
Further, the Hon’ble Delhi High Court was removing Director disqualification earlier as a grant of interim relief however recently while deciding this considerable common interests of disqualified directors in certain writ petitions, Hon’ble Single Judge of Hon’ble High Court of Delhi in the case of Mukut Pathak vs. Union of India dismissed the petition to quash list issued by ROC of NCT of Delhi and Haryana under certain terms but held that deactivation of DIN and DSC of petitioner by ROCs to be bad and directed the ROC to reactivate the DIN and DSC, and otherwise also the Hon’ble High Court of Delhi is listing all the matters in a bunch to be heard later and thereby not granting interim relief and neither removing disqualification and on the other hand, the Hon’ble High Court of Rajasthan is passing interim (temporary) order to reactivate the DIN and digital signature of the Directors for the purpose of filing of statutory return, so as to the effect that such interim order will remain subject to final outcome of the present writ petition.
Further, the petition with the Hon’ble High Courts are being filed under Article 226 of the Indian Constitution under Writ jurisdiction to seek relief. This solution has been explored since 2017 by many of the disqualified directors in High Courts and the judgements have given a new lease of life to a Director’s career.
Note: It is very important to keep in mind that removal of Director disqualification and revival of Companies are two different process and accordingly, fall under the jurisdiction of two regulatory bodies i.e. the power to decide upon the cases of removal of Director disqualification lies with the Hon’ble High Courts whereas the power to revive the Company lies with the National Company Law Tribunal (NCLT).
- REVIVAL OF COMPANY
In order to revive the Company, the petition is required to be filed with the Hon’ble National Company Law Tribunal (“NCLT”) having respective jurisdiction of the state whose ROC has struck off the Company along with the requisite fees. The Tribunal i.e. NCLT after hearing, shall pass order for restoring the name of the Company and the status of the Company shall become “ACTIVE” on submission of such order with the ROC.
- BACKEND APPOINTMENT OF DIRECTOR
This option is most suitable to ensure continuity of the Company and that the annual returns and financial statement are filed with the ROC timely and can be opted majorly in following situations:
- Where all the Directors are disqualified in an ACTIVE Company and are not able to remove the same from the Hon’ble High Court;
- Where a running Company’s operations gets affected on the fact of having common Directors of a non-compliant Company.
In the aforementioned situations, the promoters/shareholders of the Company have power to appoint Directors through back end i.e. by convening general meeting and passing resolutions in accordance with the Section 168(3) of the Companies Act, 2013.
Once an application for backend appointment of Directors is filed by the promoters/shareholders of the Company to the office of the Registrar of Companies, then it shall forward a report to the Regional Director and upon scrutiny, they shall add one Director on the Board of the Company and the same shall be reflected on the MCA portal of the Company.
*****
{The author i.e. Kajal Goyal is a Company Secretary in Practice at Kajal Goyal and Associates and founder of Alliance Professionals and can be reached at (M) +91-9999952595 and (E) cskajalgoyal@gmail.com}
Author Bio
Can the backend appointment of the director be done in case of LLP also?