Removing Directors Disqualification in India: Causes, Procedure & Prevention
1. Introduction
The role of a director in a company is crucial, requiring them to perform their duties professionally and diligently. However, if a director contravenes the provisions of the Companies Act, 2013, the Registrar of Companies (RoC) has the authority to declare such directors as disqualified. Disqualification of a director has severe implications, including:
• Prohibition from serving as a director in any company for five years.
• Automatic cessation of directorship in all companies where they are serving.
• Potential impact on the company’s operations, especially in cases where the minimum required number of directors is not met.
This guide provides an in-depth understanding of the reasons for disqualification and the step-by-step process to remove director disqualification.
2. Conditions Leading to Directors Disqualification
As per Section 164 of the Companies Act, 2013, a director may be disqualified under the following conditions:
2.1 Non-Filing of Financial Statements
• Failure to file annual financial statements or annual returns with the RoC for three consecutive financial years.
2.2 Default in Repayment of Deposits
• Failure to repay deposits, interest on deposits, or redeem debentures for more than one year.
2.3 Insolvency
• A director who has been declared insolvent.
2.4 Unsound Mind
• A director who is declared to be of unsound mind by a competent court.
2.5 Conviction for Criminal Offenses
• If sentenced to imprisonment for a period of not less than six months.
• If sentenced to imprisonment for seven years or more, such disqualification is permanent.
2.6 Default in Share Payments
• Failure to pay calls on shares held for more than six months.
2.7 Company Strike-Off
• If a company is struck off under Section 248, its directors are disqualified from being appointed in other companies.
3. Consequences of Directors Disqualification
• Loss of Directorship: The director is removed from all companies where they hold a position.
• Operational Challenges for the Company: If the number of directors falls below the statutory requirement (two for private companies, three for public companies), the company becomes non-compliant.
• Restriction on Future Appointments: The disqualified director cannot be reappointed in any company for five years.
4. Procedure for Removal of Director Disqualification
To remove disqualification, the following legal remedies are available:
4.1 Filing a Writ Petition in High Court
• The affected director must file a Writ Petition under Article 226 of the Indian Constitution before the jurisdictional High Court.
• The petition should include:
o Memo of Parties to Petition
o Notice of Motion
o Synopsis of List of Dates and Events
o Stay Application under Section 151 of CPC
• The High Court may grant interim relief by staying the disqualification.
4.2 Application to NCLT for Revival of Company
• If the disqualification is due to the company’s strike-off, an application under Section 252 of the Companies Act, 2013 must be filed before the National Company Law Tribunal (NCLT).
• Upon approval, the company’s name is restored, and director disqualification is revoked.
4.3 Filing an Application with the Registrar of Companies (RoC)
• A request for removal of disqualification should be made to the RoC via the Change Requirement Form (CRF).
• Supporting documents, such as the High Court or NCLT order, must be attached.
4.4 Activation of Director Identification Number (DIN)
• Once the disqualification is removed, the director must apply for reactivation of Director Identification Number (DIN).
5. Case Studies
Case Study: ABC Pvt Ltd
A director of ABC Pvt Ltd was disqualified due to non-filing of annual returns for three consecutive years. Upon filing a Writ Petition in the Delhi High Court, the court granted relief, stating that the penalty was disproportionate and allowed the director to continue serving.
Case Study: XYZ Ltd
XYZ Ltd was struck off due to non-compliance, leading to disqualification of all its directors. The directors approached NCLT, which restored the company and reinstated their directorship.
6. Preventive Measures to Avoid Director Disqualification
To prevent disqualification, companies should ensure:
• Timely filing of annual returns and financial statements.
• Regular compliance checks and audits.
• Proper documentation and payment of statutory dues.
• Ensuring compliance with call money payments and deposits.
7. Conclusion
Director disqualification can severely impact both the individual and the company. However, legal remedies exist to challenge and remove such disqualifications. By staying compliant with statutory obligations, directors can prevent disqualification and ensure smooth company operations.
For professional assistance, reach out to us on email: info@returnfilings.com or on whatsapp: https://wa.me/919910123091 to stay compliant with statutory obligations.
frequently asked questions (faq's) related to Removal of Director Disqualification
Q What is director disqualification?+
Q Why are directors disqualified?+
Q What are the grounds for director disqualification under the Companies Act, 2013?+
Q Can a director disqualification be removed?+
Q How can a disqualification be removed?+
Q What is the process for removing disqualification due to non-filing of financial statements/annual returns?+
Q What is the process for removing disqualification due to conviction?+
Q Where should the application for removal of disqualification be made?+
Q What documents are required for the application?+
Q Is there a fee for applying for removal of disqualification?+
Q Can a person whose disqualification has been removed immediately become a director?+
Q What is the role of the Registrar of Companies in the removal of disqualification?+
Q Where can I find the latest notifications and circulars related to director disqualification and removal?+
Q How do I check if a person is disqualified from being a director?+
Q What is the meaning of "moral turpitude" in the context of director disqualification?+
Q Can a person disqualified under one section of the Companies Act be appointed as a director under another section?+
Q What is the impact of director disqualification on a company?+
Q How long does it take to remove a director disqualification?+
Q Can a company appoint a disqualified person as an employee?+
Q What are the consequences of acting as a director while disqualified?+
Q How can I appeal a director disqualification?+
Q What is the role of the National Company Law Tribunal (NCLT) in matters related to director disqualification?+
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