An Insight into Disqualification of Directors under Section 164 of Companies Act, 2013
With the implementation of the Companies Act 2013, the Government of India bought many changes compared to the previous Act of 1956. The new Act had strict provisions for non-complying companies and their directors. If any organisation fails to meet the compliance norms set by the government, then the Registrar of Companies reserves the right to remove companies name from RoC’s list and order disqualification of directors for a period of five years. This could lead to careers of individuals working as directors for the corporate come to a standstill.
Why Directors are Disqualified?
Director disqualification due to any reason can prove to be a major roadblock in any directors’ career. The Companies act of 2013 had stricter provisions for non-compliance. One of these provisions about directors can be understood as,
“Any company can have one or more number of directors working full-time or Part-time. All these directors will fall under the category of OFFICERS and strict actions will be taken against them if their companies fail to abide by the set rules.”
The directors of the company are responsible for the smooth operation of the company under their direction and thus they are responsible for any action taken by the company that leads to failure in complying with the directions of Government. Under the Companies Act of 2013, directors can be disqualified on the following grounds,
The other reasons for directors’ disqualification are,
Ways to Remove Directors’ Disqualification
Initially, it was thought that there was no option available for a disqualified director apart from waiting for the five years exile period to end to resume directorship work. However, the other option was that if a company is revived after being struck off from RoC then the directors can also apply for the revival of their role. There were about 2.4 companies that were axed by the Ministry of Corporate Affairs (MCA) using the Companies Act in 2017. These companies started exploring the options for their revival and the directors hoped to get their DIN reactivated. When the MCA came up with the Condonation of Delay Scheme 2018, the company’s directors hoped to get their company revived without paying heavy penalties and apply for their disqualification removal.
Condonation of Delay Scheme, 2018
A company’s director is required to file all the financial details of the company with the Ministry of Corporate Affairs every year as per the Companies Act 2013. If the directors fail to submit these details for three consecutive years, then the Ministry could go on to remove the company from RoC and deactivate its directors’ DIN for a period of five years. In the year 2018, the Central Government came up with Condonation of Delay Scheme or CODS where directors were allowed to file the relevant document to get their DINs reactivated. Many companies at that time used this scheme for revival and removal of directors’ disqualification. This is how this scheme worked:
Options for Directors Missing Out on CODS
The directors’ who failed to use this scheme for the removal of disqualification were left in the lurch. The other option for them was to apply in the National Companies Law Tribunal and hope to get company revival orders. Once the company was revised, they could apply for the removal of their disqualification and reactivation of DIN. In this case, when the NCLT passed the order of company revival, then RoC used to verify this order and relevant documents of the directors. But this procedure could only be followed if the companies wanted revival, the directors who just wanted to activate their DIN without applying for the revival of their company were only one option. This option was to apply for removal of disqualification in the respective High Court through a Writ Petition. The option of writing a Writ Petition to High court is available due to constitutional rights conferred by Article 226 of the constitution to seek relief.
How Writ Petition Can help in Removal of Directors’ Disqualification?
Let’s understand how filing a Writ Petition can help in the removal of directors’ disqualification through the case of Pradeep Jain V/s Union of India and ORS.
In this case, the petitioner was in the list of disqualified directors released by the RoC. The petitioner’s company was not carrying out its business for five years. Also, its bank account was not operational for the previous three years. The company of the petitioner was in no position to apply for the revival of the company. And, he wanted to reactivate his DIN by seeking relief from the disqualification. The petitioner wanted the High Court to let him avail CODS 2018 or allow it to go for voluntary dissolution.
The decision of the Court:
The Delhi High Court issued the following orders in the case based in the Writ petition of the petitioner. The Court said the company of the petitioner must file the following documents with application fin the RoC.
After filing the above documents, the RoC will scrutinize these documents to remove the disqualification of the directors.
This case paved the way for other directors to file for relief in the High Court if they want to remove disqualification without the revival of their company. Even after the CODS was over, filing of the Writ petition to remove directors’ disqualification is still the proven way to end the exile for directors.
How Writ Petition is Filed?
If you want to file a writ petition for the removal of directors’ disqualification, then you just follow the following steps.
1. The disqualified director has to undertake to use his constitutional right to file the Writ Petition under Article 226 of the Constitution in the respective High Court. The High Court should be chosen according to the area of jurisdiction of the company. In the application, the petitioner should include the following information,
2. After this, the High Court issues orders after hearing the option for reactivation of the DIN of directors. The directors need to file the copy of the order and all other statutory documents to the RoC to continue with the process p0f registration.
3. Once the defaulter petitioner fulfils all the required documents and completes payment of all the penalties, the RoC will start the process of reactivation.
Opting for Legal Help in Removal of directors’ Disqualification
Taking help of a professional in filing Writ petition in the Court can prove to be immensely helpful considering the technicalities involved in the same. There are a lot of minute details that need to be considered for drafting a concise and lucid petition that only an experienced professional can handle. Also, if you are opting to take help from a professional legal firm, it will not only help you in the filing of the petition but also help during the representation in the Court. An advocate from a reputed firm will attend all the hearing of the Court and put arguments effectively to ask for relief from disqualification. Once the Court grants a favourable order, you can take the help of the advocate to follow the respective compliance norms like filing the order to RoC, submitting all the necessary documents in the RoC, and submission of penalties for non-compliance. After all of this is completed, the RoC will activate your DIN to complete the process of disqualification removal.
Chances of Favourable Outcome
If you are worried whether the outcome of filing a Writ petition in high Court will fetch positive results, then this will serve as good news to you. There have been many instances across High Courts all over the country where director’s disqualification has been removed after hearing on Writ petition filed by them. The judiciary has granted interim relief to many directors and also, quashed orders of RoC in some cases.
The Court is in general agreement with the aggrieved petitioners on the following points:
Based on these points most of the directors end up getting remedies on their pleas. Now the only problem remaining is to keep a positive outlook on the case and fined a good legal firm to help in disqualification removal. You can pick a reliable and trustworthy firm for yourself as there are many legal firms offering services related to disqualification removal.