As per Sec 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.

*As per the analysis of Sec 164(2) of Companies Act 2013, it says that the disqualified director cannot be appointed in any other Company as a director after his disqualification for a period of 5 years. However, there is no provision in Sec 164(2) which says that he has to resign from all other companies, if he disqualifies from being a director in One Company u/s 164(2). Which means that he can continue to be the directors of all other companies. i.e he cannot be a director in newly incorporated company and the disqualifying company.

MCA has recently come out with a notification that-

Any person disqualified under section 164(2) of the Companies Act, 2013 [the Act] is advised not to act as director during the period of the disqualification and not to file any document or application with MCA as the same shall be summarily rejected. However, this shall be without prejudice to the  liability of the said person for violation of section 164(2) read with section 167 of the Act including the action under section 448 r/w 447 of the wherever warranted.

MCA has come out with a list of disqualifying directors u/s 164(2)(a) i.e particularly those directors who have not filed annual returns for a period of 3 year of different cities who cannot be appointed in new companies which is on the home page of the MCA Website. Also there is a list of directors associated with struck off companies u/s 248 of Companies Act, 2013.

However, if the disqualification is as per Sec 164(1) of Companies Act 2013, then he cannot be appointed as a director in any company and has to resign from all other companies in which he is a director i.e if he is of unsound mind, insolvent etc.

News by the Government:

Recently On Tuesday, the government directed freezing bank accounts of more than 2.09 lakh companies whose names have been struck off from the records and had said action would be taken against more such firms. About the directors and signatories of the over 2.09 lakh firms, the government had said they would not be able to operate bank accounts of such companies till these entities are legally restored. Directors or authorized signatories of deregistered companies who try to siphon off money from the firms’ bank accounts can face up to 10 years imprisonment. The government has also identified chartered accountants, company secretaries and cost accountants associated with shell firms in certain cases. The government is also trying to identify the actual beneficiaries of those shell companies and whether there is any fraud involved in public interest. Notices have been given to freeze the accounts of such companies. It is expected that because of this around 2 lakh directors would be disqualified from being appointed in new companies.

The exercise of weeding out of shell companies would not only help in checking the menace of black money but also promote an ecosystem of ease of doing business and enhancing investors’ confidence. Further it would help in protecting investors interest and to ensure and fair transactions in the Company.

Also, on 08.09.2017, version of Form DIR 12 and SPICE Form has been revised which may have some changes.

Conclusion:

As per the above changes and notifications, appointment of director in any company is now covered with stringent norms and strict actions would be taken against any person who violate the rules and try to hamper investors interest. Good initiative taken by the Government which may help in protecting investors interest.

Please refer all the relevant section, rules, notifications, amendments as applicable. The Author is not responsible for any losses incurred.

Content is merely for sharing knowledge. For any queries or suggestions, Author can be reached at caswetamakwana@gmail.com or 9819244185.

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Tags : Companies Act (2037) Companies Act 2013 (1809)

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