Understand the intricacies of director disqualification in India under the Companies Act 2013. Learn about grounds, proceedings, consequences, and the process to remove disqualification.
Here is a detailed explanation of director disqualification under the Companies Act 2013 in India:
1. Grounds for Disqualification:
a. Conviction of an Offense: If an individual is convicted of any offense involving moral turpitude and has been sentenced to imprisonment for a period of at least six months, they may be disqualified from acting as a director.
b. Non-compliance with Annual Filings: If a company has failed to file its financial statements or annual returns for a continuous period of three financial years, and the concerned person was a director of that company during the defaulting period, they may face disqualification.
c. Insolvency: A person who has been declared insolvent by a court and the order for such insolvency is in force, they may be disqualified from being appointed as a director.
d. Prohibited Directorships: Certain individuals are restricted from being directors. This includes minors, undischarged insolvents, and persons disqualified by the National Company Law Tribunal (NCLT) or the Central Government from being appointed or re-appointed as a director.
e. Fraudulent Actions: If a person has been found guilty by a court of fraud, misfeasance, or breach of trust in relation to a company, they may face disqualification.
f. Non-compliance with Deposits: Directors who have defaulted in the repayment of deposits or interest thereon may be disqualified.
g. Non-resident Directors: In cases where a person has been appointed as a director without obtaining a Director Identification Number (DIN) or if their DIN has become inactive, they may face disqualification.
2. Initiating Disqualification Proceedings: The Ministry of Corporate Affairs (MCA) has the authority to initiate director disqualification proceedings. The Registrar of Companies (RoC) refers cases to the MCA based on non-compliance or other grounds for disqualification.
3. Notice and Opportunity to be Heard: Before passing a disqualification order, the MCA provides a notice to the concerned person, outlining the grounds for disqualification and giving them an opportunity to present their case. The notice will specify a timeframe within which the person can respond and provide an explanation for the alleged non-compliance or disqualification grounds.
4. Disqualification Order: If the MCA finds the grounds for disqualification to be valid and sufficient, it may pass a disqualification order. The order specifies the period of disqualification, which can range from five years to a lifetime, depending on the nature and severity of the offense.
5. Consequences of Disqualification: Once disqualified, a person is prohibited from acting as a director or being involved in the management of any company during the disqualification period. They are also barred from being appointed as a director in any other company.
6. Removal of Disqualification: In certain cases, a disqualified director can apply for relief from disqualification by filing an application with the National Company Law Tribunal (NCLT). The NCLT has the power to remove the disqualification if it is satisfied that the disqualification is unjust.
To remove the disqualification of a director in India, the disqualified director can follow the procedure outlined below:
Gather Required Documents: Collect all the necessary documents related to the disqualification, including the disqualification order, relevant court orders (if any), and any other supporting documents that substantiate your case for removal of disqualification.
Prepare an Application: Draft an application to be filed with the National Company Law Tribunal (NCLT) requesting the removal of the disqualification. The application should include the following details:
a. Personal Information: Provide your name, address, contact details, and Director Identification Number (DIN).
b. Disqualification Details: Clearly state the grounds on which you were disqualified, along with the relevant provisions of the Companies Act 2013.
c. Reasons for Removal: Present a detailed explanation and provide evidence to support your case for removal of disqualification. This may include demonstrating that the disqualification is unjust or that you have rectified the non-compliance that led to the disqualification.
d. Supporting Documents: Attach copies of all relevant documents, such as court orders, affidavits, financial statements, annual returns, etc., that substantiate your arguments and demonstrate your eligibility to have the disqualification removed.
e. Any Additional Information: Include any additional information or arguments that you believe are relevant to your case.
f. Consult Legal Professional: It is advisable to seek guidance from a legal professional to ensure that your application is correctly prepared, addresses all the necessary points, and adheres to the procedural requirements.
g. File the Application: Submit the application along with the supporting documents to the NCLT within the prescribed time frame. Pay the required filing fees as per the applicable regulations.
Attend NCLT Hearing: After filing the application, the NCLT will schedule a hearing. Attend the hearing and present your case before the tribunal. Provide all the necessary explanations and evidence to support your request for the removal of disqualification.
NCLT Decision: The NCLT will consider your application, along with the arguments and evidence presented, and make a decision on whether to remove the disqualification. If the NCLT is convinced that the disqualification is unjust or that you have rectified the non-compliance, it may pass an order removing the disqualification.
It is important to note that the specific procedures and requirements may vary depending on the circumstances and jurisdiction. Therefore, it is advisable to consult with a legal professional who can provide personalized guidance based on your specific case.
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Author is A Practicing Chartered Accountant with over 5 years of rich experience in Company Law, Audits, Accounts & taxation. She is keen in streamlining business accounts of the Company and provide Business advisory services She can be connected on sweta@caswetamakwana.com or on 9819244185.
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