Strike off, CODS and Disqualification – Remedies to Company & disqualified Directors

Ministry of Corporate Affairs along with Ministry of Finance has taken actions against the Companies which has not filed the Financial Statement and Annual Return with ROC. MCA strike off more than 2 lakh companies and identified more than 3 lakh Directors for disqualification under section 164(2)(a) of Companies Act, 2013.

What 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 3 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 5 years from the date on which the said company fails to do so

Section 167(1) The office of a director shall become vacant in case he incurs any of the disqualifications specified in section 164.

There are 2 options available to the Company:

Avail Condonation Of Delay Scheme:

If any director stand disqualified due to non-filing of annual financial statement and annual return and the status of such company is not change from “Active” to “Strike off”, the company may voluntarily avail CODS scheme, 2018 under which company may file its overdue documents with the RoC and RoC reactivate the DIN and DSC of such director upto 31^st March, 2018. All pending forms and returns have to be filled with additional fees plus Rs. 30,000/- for compounding of offence.

It is to be noted that availing of CODS doesn’t automatically removes disqualification of director. It only provides opportunity to the company.

Revival of Company:

If status of company has changed from “Active” to “Strike off”, such company can’t avail the benefit of CODS and the company has to approach NCLT for revival of companies under section 252 of the Companies Act. NCLT may ask for latest I.T return, Bank statement, affidavit from directors regarding status of business etc. while deciding of revival of companies. After revival, company has to file its overdue documents.

NCLT has assigned with powers under section 252 for the restoration of name of Company in its record. Although nowhere under Companies Act, 2013 power is hand over to NCLT to remove disqualification of Directors u/s 164.

Option available to the disqualified Director

Approach H.C for removal of disqualification:

If company gets strike off and director got disqualified and company doesn’t want to revive its operations, then such director has to approach respective High Court for removal of his disqualification. H.C may remove disqualification based on the facts and circumstances of each case.

Madras HC recently stay order of RoC disqualifying individual director (https://uja.in/en/relief-to-disqualified-directors-by-madras-high-court/). Delhi HC also remove disqualification to individual directors.

Conclusion

In the absence of any specific provisions in the Companies Act for removal of disqualification by compounding, payment of penalties, only option available is to file writ petition in the H.C for removal of disqualification.