Applicable Provisions: Section 164 of the Companies Act, 2013

‘Disqualifications for Appointment of Director‘ means restricting a person from becoming a director on the basis of certain conditions as mentioned under the Companies Act, 2013

As we aware that the company is artificial person, it cannot act on its own. To run the business, company requires management who can act on behalf of the company to run the business. The directors are the part of management. Therefore, if they have any disqualification as mentioned under Companies Act, 2013, they will not be appointed as a director in any company.

CONDITIONS FOR DISQUALIFICATION OF DIRECTOR:

Section 164(1) A person shall not be eligible for appointment as a director of a company, if —

(a)

He is of unsound mind and stands so declared by a competent court;

(b)

He is an undischarged insolvent;

(c)

He has applied to be adjudicated as an insolvent and his application is pending;

(d)

He has been convicted by a court of any offence, whether involving moral turpitude or otherwise, and sentenced in respect thereof to imprisonment for not less than 6 months and a period of 5 years has not elapsed from the date of expiry of the sentence:

Proviso: If a person has been convicted of any offence and sentenced in respect thereof to imprisonment for a period of 7 years or more, he shall not be eligible to be appointed as a director in any company;

(e)

An order disqualifying him for appointment as a director has been passed bycourt or Tribunal and the order is in force;

(f)

He has not paid any calls in respect of any shares of the company held by him, whether alone or jointly with others, and 6 months have elapsed from the last day fixed for the payment of the call;

(g)

He has been convicted of the offence dealing with related party transactions under section 188 at any time during the last preceding five years; or

Section 164(2) No 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 3 financial years; or

Disqualifications For Appointment of Director

  • 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 1 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.

Proviso:  Where a person is appointed as a director of a company which is in default of clause (a) or clause (b) of sub section (2) of section 164, he shall not incur the disqualification for a period of 6 months from the date of his appointment.

Section 164(3): A private company may by its articles provide for any disqualifications for appointment as a director in addition to those specified in sub-sections (1) and (2):

Proviso:

1. Disqualifications referred to in clauses (d), (e) and (g) of sub-section (1) shall continue to apply even if the appeal or petition has been filed against the order of conviction or disqualification.

2. disqualifications referred to in clauses (d), (e) and (g) of sub-section (1) shall not take effect—

(i) for thirty days from the date of conviction or order of disqualification;

(ii) where an appeal or petition is preferred within thirty days as aforesaid against the conviction resulting in sentence or order, until expiry of seven days from the date on which such appeal or petition is disposed off; or

(iii) where any further appeal or petition is preferred against order or sentence within seven days, until such further appeal or petition is disposed off.”

REMEDIES ARE AVAILABLE FOR THE DISQUALIFICATION OF DIRECTORS

A director can make an application to the National Company Law Tribunal (NCLT). He can temporarily ask for a stay order from the tribunal. However, as we already mentioned, an order disqualifying a director is not effective within the next 30 days.

Additionally, as soon as an appeal is initiated, the disqualified person will still continue to be the director of the company for the next seven days. Within this period, he can file his annual returns or fulfils the needs of any other conviction to stay the order of disqualification.

 Disclaimer: –The above mentioned article has been based on relevant provisions of Companies Act, 2013 . Under no circumstance, the author shall not liable for any direct, indirect, special or incidental damage resulting from, arising out of or in connection with the use of the information.

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