Disqualification of Directors Under Companies Act 2013

As we all are aware the basic features of Private Limited Companies like, Perpetual succession, Going concern, limited liability, separate legal entity etc etc. Some people were wrongly benefitted by these relaxation in the curtain/shell of Private companies. and it was very difficult to actually find out the Culprits.

Now, the govt has made it very clear that there is no way to get rid from the non compliances. You have to mandatorily comply with law if a person wish to do some business. Or we can say that Our Govt has prepared a circle to actually remove or find out the shell companies registered with MCA.

The Govt Firstly issued the Notices to companies to reply why your companies should not be struck off. Many persons were happy and that their companies are struck off without any cost and compliances. Directors who were on a long-term picnic after removal of names of their companies are now under a danger zone as soon as the next step for freezing bank account and blocking DIN Number has been executed.

Adding to a press release issued by Minister of Corporate Affairs has similar communication. This press release had two important points –

1. Department of Financial Services (DoFS) issued instructions to all the Banks on 5th September 2017, the Directors (ex-) or their authorized signatories had been restricted from operating the Bank accounts of such companies and they cannot syphon off money from the accounts of these “struck off” companies.
2. It has been decided that in case the Director or authorized signatory of any “struck off” company tries to unauthorized syphon-off money from its bank account, he/she may attract punishment of imprisonment of not less than six months extendable to 10 years. If it is found that the fraud involves public interest, the punishment shall not be less than 3 years (imprisonment) and fine may also be imposed which would be three times the amount involved.

On 13.09.2017, MCA has blocked filing of All Forms of Defaulting Companies with the DSC of Disqualified Directors. Additionally, MCA has also blocked the filing of forms of non-defaulting company, but having the DIN & DSC of Disqualified directors.

Facts

• Some People were incorporating companies on day to day basis and not complying of any legal formalities.
• Many people were incorporating companies only to run current account, to file some tenders, to show the company Big, etc.
• There are Many people who are actually filing their income tax returns/VAT Returns/ service tax Returns/TDS Returns etc. But were not aware of ROC Compliances.
• Even many companies were incorporated to curb the black money or to avoid the tax liabilities.
• many of these “strike – off” companies have bank balances, properties, loans, other liabilities, disputes among promoters and directors, and need restoration.

Disqualifications for the appointment of Director section 164:

1. A person shall not be eligible for appointment as a director of a company, if–

(a)  he is of unsound mind and stands so declared by a competent court;

(b)  he is an undischarged insolvent;

(c)  he has applied to be adjudicated as an insolvent and his application is pending;

(d)  he has been convicted by a court of any offence, whether involving moral turpitude or otherwise, and sentenced in respect thereof to imprisonment for not less than six months and a period of five years has not elapsed from the date of expiry of the sentence:

(e)  Provided that if a person has been convicted of any offence and sentenced in respect thereof to imprisonment for a period of seven years or more, he shall not be eligible to be appointed as a director in any company;

(f)   an order disqualifying him for appointment as a director has been passed by a court or Tribunal and the order is in force;

(g)  he has not paid any calls in respect of any shares of the company held by him, whether alone or jointly with others, and six months have elapsed from the last day fixed for the payment of the call;

(h) he has been convicted of the offence dealing with related party transactions under section 188 at any time during the last preceding five years; or

(i)   he has not complied with sub-section (3) of section 152.

2. 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.

3. A private company may by its articles provide for any disqualifications for appointment as a director in addition to those specified in sub-sections (1) and (2):

Provided that the disqualifications referred to in clauses (d), (e) and (g) of sub-section (1) shall not take effect–

1. for thirty days from the date of conviction or order of disqualification;
2. where an appeal or petition is preferred within thirty days as aforesaid against the conviction resulting in sentence or order, until expiry of seven days from the date on which such appeal or petition is disposed off; or

iii.        where any further appeal or petition is preferred against order or sentence within seven days, until such further appeal or petition is disposed off.

Further Rule 14(1) of Companies ( Appointment & Qualification of Directors ) Rules 2014 says that every Director of the Company Shall inform to the Company concerned about his disqualification under Sub section 2 of section 164, in form DIR 8.

Further Sub Rule 2 provides that where company fails to file the financial statements or annual returns, or fails to repay any deposit, interest, dividend, or fails to redeem its debentures, the company shall immediately file form DIR 9 to ROC furnishing the names and addresses of all the directors of the company during the financial year. Further where company fails to file the form DIR 9 within 30 days of the failure that would attract disqualification under sub section 2 of section 164, officers of the company specified in clause (60) of Section 2 of the Act shall be the officers in default.

Upon receipt of Form DIR-9 under sub rule (2), the registrar shall immediately register the document and place it in for public inspection.

Any Application for Removal of Disqualification of Directors shall be made in DIR 10. Which can be made only after expiry of 5 years.