Director’s Disqualification under Section 164 – A Must-Know for Every Compliance Professional
If you’ve worked with companies or directors, you’d know that becoming a director isn’t always straightforward. Section 164 of the Companies Act, 2013 plays a key role in deciding who can and who cannot be a director.
As professionals — whether you’re a CA, Company Secretary, or legal advisor — it’s important to not just know the law but also understand how it applies in real situations.
What is Section 164 All About?
Section 164 outlines disqualifications that restrict a person from being appointed or reappointed as a director. It’s broadly divided into two categories— one related to individual conduct and the other to company defaults.
1. Section 164(1): Disqualifications Based on Personal Grounds
This covers situations where an individual is directly unfit to be a director. For example:
- Declared of unsound mind by a competent court
- An undischarged insolvent or someone who’s applied for insolvency
- Convicted and sentenced to imprisonment for 6 months or more — here, the person is disqualified for 5 years post sentence
- Disqualified by a court or tribunal order
- Hasn’t paid call money on shares held for over 6 months
- Convicted under Section 188 (related party transactions)
These are individual red flags — and as professionals, we must always do a proper due diligence before facilitating any directorship appointment.
2. Section 164(2): Disqualification Due to Company Defaults
Now this is where things get tricky. A person can be disqualified if any company they were a director in:
- Didn’t file financial statements or annual returns for 3 continuous financial years, or
- Failed to repay deposits, debenture interest, dividends, or redeem preference shares for over a year
In such cases, the individual cannot be reappointed in that company or appointed in any other company for a period of 5 years.
Real-Life Learnings & Professional Checklist
Let me share what we follow in our CA practice — and you may want to consider adopting this too:
- Get DIR-8 from proposed directors before appointment – this is a declaration of non-disqualification
- Obtain DIR-2 (consent to act) along with background checks
- Keep a close tab on AOC-4 and MGT-7 filing timelines — avoid that dangerous 3-year non-compliance window
- If someone is disqualified, DIR-9 and DIR-10 filings become necessary to inform the ROC
Final Words
Disqualification doesn’t just affect compliance — it dents reputations, disrupts operations, and creates governance chaos. As professionals, we’re not just advisors; we’re risk managers. One missed filing can jeopardize someone’s eligibility across the board.
So, next time you’re reviewing a company’s records or onboarding a new director, pause and ask: Are we Section 164 clean?
