Recently, over the years, the Registrar of Companies, all over India has been very strict with the compliances and therefore, disqualified as many as thousand of Directors in the year 2017 and 2018 on account of various non-compliances. Accordingly, it is very important to take note of the reasons by which a Director can be disqualified for appointment as Director in any Company. In this article, we shall throw light on the same.
SECTIONS APPLICABLE: Section 164, 188, 152, 165 of the Companies Act, 2013
RULES APPLICABLE: Rule 12A, 12B, 14 of the Companies (Appointment and Qualification of Directors) Rules, 2014
REASONS FOR DISQUALIFICATION OF DIRECTORS:
1. He is of unsound mind;
2. He is an undischarged insolvent;
3. He has applied to be adjudicated as an insolvent and his application is pending;
4. He has been convicted by a court of any offence, involving moral turpitude or not, and sentenced for imprisonment for not less than six months and a period of five years has not been elapsed from the expiry of date of sentence.
5. Further, in case a person has been convicted and sentenced for more than seven years or more, then he shall not be eligible for appointment as Director in any Company;
6. An order disqualifying him for appointment as a director has been passed by a court or Tribunal and the order is in force;
7. He has been convicted of an offence with respect to related party transactions at any time during the last preceding five years;
8. He has not paid any calls in respect of any shares of the Company held by him, and six months have elapsed from the last day fixed for the payment of the call;
9. He has been appointed as an Director in Company without Director Identification Number (DIN);
10. He is a Director in more than twenty Companies violating the limits as specified in Section 165 of the Companies Act, 2013.
11. In the event e-Form DIR-3 KYC of the Director has not been filed on the MCA portal. The status of the Director in this case would be “Disqualified due to non filing of DIR-3 KYC”;
12. In the event the person is a Director of the Company which has not file ACTIVE Form (INC-22A). The status of the Director in this case would be “Director of ACTIVE non-compliant company”;
13. In case he is appointed as a Director in a Company which:
14. has not filed financial statements or annual returns for any continuous period of three financial years; or
15. 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,
16. then the person shall not be eligible to be the Director for five years from the date on which the said company fails to do so.
FREQUENTLY ASKED QUESTIONS:
1. What compliance has to be done on part of Company and Director when a person incurs disqualification?
In the event, a Director incurs disqualification, he shall inform the Company. Further, in the event the Director incurs disqualification for the reason mention in point no. 12 above, then the Company shall inform the Form DIR-9 immediately.
Further, it is pertinent to note that the Company shall inform to the Company about his disqualification in Form DIR-8 before he is appointed or re-appointed.
2. In case the order against the Director convicting him of offences involving moral turpitude, related party transactions, etc as mentioned in point no. 4, 5 and 6 is in appeal, then also will the Directors will be disqualified.
In such event, the Directors shall be continue to be disqualified even if the matter is in appeal in case once order is passed against such person by any tribunal, court or any such authority.
3. What is the remedy in case the Director incurs disqualification due to non compliance on the part of the Company as mention in point no. 12.
In case the Director is disqualified due to non filing of financial statements and annual returns i.e. the status of his DIN on the MCA portal is showing to be “Disqualified u/s 164(2)”, then currently, petition is being filed with the High Court of various states against the ROCs of respective states against such disqualification and accordingly, the Hon’ble High Courts are passing interim order for activation of DIN and DSCs. For elaborative, discussion on point, you may refer https://taxguru.in/company-law/remedies-disqualified-directors-companies-act-2013.html.
{The author i.e. Kajal Goyal is a Company Secretary in Practice at Kajal Goyal and Associates and can be reached at (M) 9999952595 and (E) cskajalgoyal@gmail.com}
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