Introduction:
In the realm of corporate governance, the appointment of directors holds paramount significance. However, there exist specific provisions delineating qualifications and disqualifications for individuals aspiring to hold directorial positions in a company. Section 164 of the Companies Act, 2013 comprehensively outlines the conditions that disqualify a person from assuming the role of a director in a company.
Qualifications for Director Appointment:
Section 164(1) enumerates several disqualifying factors preventing an individual’s eligibility for directorship:
a) Mental Incapacity: An individual declared of unsound mind by a competent court is ineligible for directorial appointment.
b) Insolvency: Being an undischarged insolvent or having an insolvency application pending disqualifies an individual from directorship.
c) Applied to be adjudicated as an insolvent: An individual shall not be eligible for appointment as a director if they have applied to be adjudicated as an insolvent, and their application is pending. This status bars the person from assuming a directorial position until the adjudication process regarding their insolvency application reaches a conclusion.
d) Criminal Conviction: A person convicted and sentenced for not less than six months by a court for an offense, involving moral turpitude or otherwise, is disqualified for a period of five years from the date of the sentence. Moreover, a conviction resulting in imprisonment for seven years or more bars one from directorial roles in any company.
e) Court or Tribunal Order: If a court or tribunal has passed an order disqualifying an individual from directorship, and the order remains in force, it leads to disqualification.
f) Non-Payment of Calls: Failure to pay calls on shares held, individually or jointly, for a period of six months from the last fixed payment date disqualifies an individual.
g) Offense Related to Related Party Transactions: Conviction for dealing with related party transactions under Section 188 within the preceding five years leads to disqualification.
h) Non-compliance with DIN: Failing to obtain a Director Identification Number (DIN) as per Section 152(3) is a disqualifying factor.
i) Non-Compliance with Section 165(1): Failure to comply with Section 165(1) provisions leads to disqualification.
Moreover, Clause d, e, and g disqualifications remain in force despite appeals or petitions filed against convictions or disqualifications. However, the vacation under Section 167 is postponed until the appeal is disposed of.
Director Re-appointment Disqualifications:
Section 164(2) addresses disqualifications for re-appointment as a director or appointment in any other company:
a) Non-filing of Financial Statements: If a company fails to file financial statements or annual returns for three consecutive financial years, a director of that company is disqualified from re-appointment for five years or appointment in any other Company.
b) Failure in Financial Obligations: Failure to repay accepted deposits, pay interest, redeem debentures, or pay dividends for over one year disqualifies a director from re-appointment for five years appointment in any other Company.
Exceptions and Additional Disqualifications:
Section 164(2) exemptions government companies from its applicability, and Section 164(3) permits private companies to include additional disqualification criteria through their articles.
Conclusion:
Understanding the stringent criteria outlined in Section 164 is crucial for individuals aspiring to hold directorial positions in companies. Compliance with these provisions ensures the maintenance of corporate integrity and governance while safeguarding the interests of stakeholders.
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