It is not less than a nightmare for all those Directors who were recently trapped after being disqualified from their directorship. MCA, after releasing a list containing number of names of disqualifying directors, has actually changed the rule of game. Although the governing provisions were there in CA, 1956 & also present in CA, 2013, but it is actually became active in September, 2017.
In this write-up, technicalities of the governing section(s) shall be discussed to arrive at the conclusion as to whether any remedy is available for removal of disqualification of Directors as on date.
Section 164(2) says,
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 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.
Section 167(1) says,
The office of a director shall become vacant in case—
(a) he incurs any of the disqualifications specified in section 164;
Though above definition contains two different non-compliances, but as of now we shall discuss only section 164(2)(a) together with its connectivity with section 167(1), which says that if a person is a director of a company which is not complying the provisions i.e. non filing of financial statements ‘OR’ annual returns of Companies Act, 2013 for three consecutive years, then such director(s) shall be disqualified from re-appointment in the same company and also shall not be liable to appointed in any other company and has to vacate his office.Online GST Certification Course by TaxGuru & MSME- Click here to Join
Now above interpretation brings out following practical issues:
What, if a director becomes disqualified from his directorship??
If a director becomes disqualified from the directorship then the remaining director(s) (together with new appointed director, if any) shall continue to act. Let’s understand this with an example:
a. Suppose in M/s ABC Pvt Ltd, there are 2 directors i.e. Mr. A & Mr. B and subsequently Mr. A becomes disqualified, then the remaining director i.e. Mr. B together with new appointed director (because in Pvt Co., minimum no. of directors shall be 2) shall continue to act as Directors of M/s ABC Pvt Ltd.
What if all the directors become disqualified from their directorship??
MCA recently came up with some sort of relief, which says that if all the directors of a company shall stand vacated due to disqualification u/s 164(2)(a)read with section 167(1) then following options are available with the company:
1. The Promoters has the power to appoint new Directors u/s 167(3) and in all such cases, the issue of role check shall arise;
2. The ROCs also has the facility to add the signatory from back end with prior approval of Regional Director. For that, following documents shall be required:
The ROC’s/RD’s has to approve the above application within one week from the date of receipt of application.
Filing of Form DIR-10 can be done for removal of disqualification??
Rule 14(5) of The Companies (Appointment and Qualification of Directors) Rules, 2014 deals with filing of Form DIR-10, which says that once a director becomes disqualified u/s 164(2), then Form DIR-10 shall be filed after the expiry of 5 years of disqualification. In nutshell, Form DIR-10 shall be entertained only after the expiry of 5 years of disqualification.
Can this disqualification be removed either by Reviving a company or by approaching NCLT??
Well, as of now this is a most debatable issue as to whether the disqualification can be removed by reviving the company or by approaching NCLT. As per reasonable understanding of law, law is silent on this, so till the time law is amended, no concrete answer can be given.
Around the corner, every concerned person, be its professional or the disqualified Director himself, is in a very typical situation as to how to eradicate this disqualification. Although, there is no such remedy available as of now, but every problem comes with a solution. So, the only option we are left with is to wait for the amendment in the provisions of CA, 2013.
Hope this information will help you in your Professional endeavors. For further assistance/query, feel free to write to us.
Author: C S Ekta Maheshwari is the Author of this article and is Company Secretary by profession. The Author can be reached at firstname.lastname@example.org
Disclaimer: The entire contents of this article is solely for information purpose and have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation.. It doesn’t constitute professional advice or a formal recommendation. The author has undertook utmost care to disseminate the true and correct view and doesn’t accept liability for any errors or omissions. You are kindly requested to verify & confirm the updates from the genuine sources before acting on any of the information’s provided herein above.