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Disqualification of Director

Disqualification of Director – Companies Act 2013

Disqualification of Director – Companies Act 2013

The Ministry of Corporate Affairs has started to strike-off companies that are dormant and disqualify Directors of Companies that have not filed their MCA annual return continuously for over three years. In this article, we look at the provisions under Companies Act 2013 relating to disqualification of Director and its consequences.

Section 164 of Companies Act 2013

Section 164 of the Companies Act 2013 deals with disqualification of Directors. According to the Companies Act 2013, the following conditions can be reasons for disqualifying a Director.

  • The Director is of unsound mind and stands so declared by a competent court.
  • The Director is an undischarged insolvent.
  • The Director has applied to be adjudicated as an insolvent and his application is pending.
  • The Director 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. Also any person who has been convicted of any offence and sentenced to imprisonment for a period of seven years or more, will not be eligible to be appointed as a director in any company.
  • An order disqualifying the Director for appointment as a director has been passed by a court or Tribunal and the order is in force.
  • The Director 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.
  • The Director has been convicted of the offence dealing with related party transactions under section 188 at any time during the last preceding five years.
  • A company in which the Director is a part of the Board has not filed financial statements or annual returns for any continuous period of three financial years.
  • The company 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.

As mentioned in point 8, a person can be disqualified from being a Director, if a company on which the person is a Director has not filed MCA annual return for a continuous period of three years.  Hence, its important for all private limited company, one person company and limited company to file MCA annual return on time and maintain compliance under Companies Act, 2013.

Consequences of Director Disqualification

Once a person is disqualified as a Director, he/she will not be eligible for being appointed as Director of that company or any other company for a period of 5 years from the date on which the company failed to file annual compliance.

Until recently, the MCA has not strictly enforced this provision of the Companies Act. However, from September 2017 the MCA has began strictly enforcing these provisions of the Companies Act and has published names of disqualified Directors on its website.

Hence, its important for all persons who are Director of a Company to ensure that compliance is maintained properly.

Appealing Director Disqualification Order

The Companies Act 2013 states that an order disqualifying a Director does not take effect within 30 days of conviction resulting in sentence or order. Hence, any person who has received an order can file the returns and appeal within 30 days to stay the proceedings.

Once, an appeal is initiated, the person would continue to be Director until expiry of 7 days from the date on which the appeal or petition is disposed off. Hence, any person who has received an order for disqualification as a Director must immediately file an appeal and the overdue returns – to have good chances of being able to continue to Act as Director of a Company.

How to handle Director Disqualification and Become a Director Again – Read the Guide!

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