While Disqualification of Directors is not a new concept, recent action by the Ministry of Corporates Affairs (MCA) under Companies Act, 2013, disqualification has become a talk of the town. Every Individual who were a director of non-active Companies (more popularly known as Shell Companies) has found out that their DIN (Director Identification Number) is disabled and they are not allowed to be a Director on any other Company in India.
What is Disqualification of Directors?
Section 164 of the Companies Act, 2013 deals with Disqualification of Directors the most important part is Section 164(2) which deals with periodic disqualification.
As per Section 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 the 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.”
How disqualification is affecting Directors?
An Individual who is disquieted under Section 164(2) is not eligible to be appointed or continue to be Director on board of any other company as well. In fact as per MCA, his/her DIN is shown as “Disqualified by RoC u/s 164(2)”
Anyone can check the same by visiting MCA website > MCA Services > Enquire DIN Status.
Enter the DIN and you will get status as below
Note: Disqualification period varies from individual to individual.
What is DIR 3 KYC and what if Individual fails to file the same?
DIR 3 KYC is recently introduced requirement by MCA wherein every Individual holding a DIN, was required to file KYC with MCA on or before September 20, 2018. It was again mandatorily required to file by all Individuals. However, those who have failed to file the same have seen their DIN is blocked again. The status on MCA will change to ‘Deactivated due to non-filing of KYC’.
To check the same by visiting MCA website > MCA Services > Enquire DIN Status.
What will be the impact of non-filing of DIR 3 KYC?
Will non-filing of DIR 3 KYC will amount to ‘Disqualification’?
The answer is NO. Disqualification as per the Companies Act, 2013 is covered under Section 164(2) whereas DIR 3 KYC is an annual requirement but failure to file the KYC form will not amount to disqualification of Directors. Which means that Disqualified Director is different than the Directors who have failed to file DIR 3 KYC form.