Removal of Disqualification of Directors U/s 164 (2)(A) of Companies Act 2013

Procedure of Removal of Disqualification of Directors U/s 164 (2)(A) of Companies Act 2013

Before moving to the procedure for removal of Disqualification of Directors.

Recently MCA has taken the very strict step against the companies & its directors for non compliance of Legal Formalities applicable on them.

Like   :

Struck of companies,

Freezing of Bank Accounts,

Blocking DIN Number.

issuing list of disqualified directors of stuck of companies and also active but defaulting companies, Signing of MOU with CBDT etc.

Ministry of Corporate Affairs issued two important lists in this regard –

1. List Of Directors Associated With Struck Off Companies U/S 248
2. List Of Disqualified Directors U/S 164 (2)(A).

Even the MCA has also issued clarification that “Any person disqualified  under section 164(2) of the Companies Act, 2013  is advised not to act as director during the  period  of the disqualification and not to file any document or application with MCA as the same shall be summarily  rejected. 

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Reasons for such action:

1. To limit the companies with similar directors.
2. To improve the compliance ratio of our country.
3. To find out the shell companies
4. To stop the money circulation between these private companies.

Disqualification of Directors 164 (2) and Vacation of Office 167 (1) (a)

According to Section 164(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.

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

Step to be taken by disqualified directors/defaulter companies.

The Disqualification list has been issued for 3 years

• Default for the F.Y. 2012 to 2014 and disqualified till 2019
• Default for the F.Y. 2013 to 2015 and disqualified till 2020
• Default for the F.Y. 2014 to 2016 and disqualified till 2021

As it is clear that their disqualification under Section 164(2) shall be for 5 years only. But, their silence may be harmful and be recorded in the files of Registrars of Companies (RoCs) and of Serious Fraud Investigation Office (SFIO).

What steps should be taken by the company and the directors in case of non – compliance of Section 164 (2)

Company- Private Company or Public Company in which default has been done, such company will have to inform the Registrar in Form DIR-9 within a period of thirty days of the failure that would attract the disqualification under sub-section (2) of Section 164, furnishing therein the names and addresses of all the directors of the company during the relevant financial years, otherwise the officers of the company as specified in Section 2 (60) of the Act shall be the officers in default.

Directors– In case of other companies where the person is a director, he will inform the company concerned about the disqualification incurred in Form DIR-8 before he is appointed/ reappointed.

Further, as per Section 167 (2) — if a person, functions as a director even when he knows that the office of director held by him has become vacant on account of any of the disqualifications specified in sub-section (1), he shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees, or with both.

How a company will function if all the directors of a company will need to vacate their offices?

As per Section 167 (3), where all the directors of a company vacate their offices under any of the disqualifications specified 167 (1), then –

• the promoter or, in his absence,
• the Central Government (i.e., MCA Delhi)

shall appoint the required number of directors who shall hold office till the directors are appointed by the company in the general meeting.

How can the director remove his/her name from the list of disqualified directors post serving the punishment of 5 years bar on appointment/ re-appointment?

 As per Rule 14 (5) of the Companies (Appointment and Qualification of Directors) Rules, 2014, the director shall make an application in form DIR–10 to the RoC for removal of disqualification and the said application can be made only at the end of the tenure of five years post his disqualification.

What other Steps or measures which can be present for Removal of Disqualification of directors?

 As per My opinion, There could be chances that

1. MCA can issue directions to the companies and its promoters to call a general meeting and appoint new directors in the company and may after submitting all the resolutions and consent of that new director in physical to the ROC Concerned update the Details of that New director on MCA by backend updation.
2. MCA can release a form which will be filed by all the disqualified directors and then after levying some penalty MCA may pass an order for removal of disqualification.
3. MCA May Issue a Time Period like 21 days or 30 days for making the default good and then after making the default good they may pass an order fo removal of disqualification.

However there is no such provision in the law for removal of disqualification of director before the tenure of 5 years. We are looking for this major change in the provisions and waiting for the relief.

Hope this is article will help you or your clients and clarified the conceptual and procedural Part.

DISCLAIMER: The entire contents have been developed on the basis of relevant information and are purely the views of the authors. Though the authors have made utmost efforts to provide authentic information however, the authors expressly disclaim all or any liability to any person who has read this document, or otherwise, in respect of anything, and of consequences of anything done, or omitted to be done by any such person in reliance upon the contents of this document. Reader should seek appropriate counsel for their own situation. I shall not be held liable for any of the consequences directly or indirectly.

Any other suggestions /opinions are welcomed.

Regards

CS Megha Sharan (Company Secretary in Practice)

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