What is the Procedure for Removal of Director Disqualification under Section 164?

A company stands on two pillars; namely, shareholders and board of directors wherein the former appoint the later to manage the daily operations. Directors play a vital role in the functioning of a company. The central responsibilities of directors include managing business, forming strategies and take operational decisions. Moreover, a director also needs to ensure that the company meets its statutory obligations. In case, the directors fail to fulfill their legal duty; then, they have to face repercussions of disqualification. There can be several potential reasons for the disqualification of directors. This blog will unveil disqualification reasons and procedure to file an appeal against it.

Reasons for Disqualification of Directors

As per Section 164 of Companies Act, 2013, all companies need to file their annual return and balance sheet along with the ROC each year. If the directors don’t compel with the stated provision, then, they might get disqualified. Apart from that, there can be other conditions for the disqualification of directors. Let’s have a look at that:

Any director who has applied for adjudication as an insolvent or his application is still pending.

In case the court or Tribunal has earlier passed an order to disqualify the director for his appointment.

Further, if the director hasn’t paid any calls in regards to the respective shares of a company held by him, whether alone or jointly.

It applies to a director who is the part of the board but hasn’t filed annual returns or financial statements for consecutive three financial years.

A director convicted by the court of any offence, thereby sentenced to imprisonment for not less than six months.

Moreover, a person who was convicted of any offence and sentenced to seven years in prison or more shall not be eligible to get appointed as a director in any company.

If the company fails to repay the accepted deposits, redeem any debentures on the due date, pay the interest due or pay any dividend declared for one year or more.

In case, the director is of unsound mind, and a competent court confirms the same.

Besides, it pertains those directors who have been convicted of the offence related to party transactions under section 188 during the last preceding five years.

Lastly, the court has the authority to disqualify a director who is an undischarged insolvent.

Impact of Disqualification

When a person breaches any of the disqualification conditions, then he becomes ineligible to become a director of any company. Such restriction is effective for five years or as the case may be. Reportedly, the Ministry of Corporate Affairs (MCA) has disqualified around three lakhs directors under Section 164(2) of the Companies Act in the year 2017. Besides, MCA has published the list of disqualified Directors on the official government portal.

Introduction of Condonation of Delay Scheme for the relief of Directors

The government released Condonation of Delay Scheme or CODS, to companies for escaping from the disqualification of directors. MCA came up with CODS vide a general Circular No.16/2017, which was active from 01st January 2018 until 01st May 2018.

Numerous companies leverage the scheme of COD to rescue their Director Identification Numbers (DIN). Under CODS, companies revive the DIN by submitting specified statutory documents with the Registrar of Companies (ROC).

Procedure for Removal of Director Disqualification as per the Latest Provisions

After the expiration of CODS, various disqualified directors appeal to the High Court and National Company Law Tribunal (NCLT) to restore their DIN. Therefore, the Ministry of Corporate Affairs gave a perfect get through in the form of the new provision. Here is the step by step procedure to follow for the removal of directors disqualification:

To File a Writ Petition– The first and foremost step that a disqualified director needs to take is to file a Writ petition. The Writ Petition is filed under Article 226 of the Indian Constitution before the High Court. An appellant must accompany these set of information in correspondence to the said Writ petition:

Memo of parties to the petition comprising the name, designation, address, etc.;

A Notice of Motion with an urgent application;

Explain the factors which lead to the non-compliance of filing of statutory documents;

Also, include a synopsis of the list of date and events;

Current status of the company and directors seeking restoration;

A list of all the companies in which the appellant is the director;

A copy of Press Release or Impugned Notice which the ROC has issued, listing all disqualified directors;

Stay application under Section 151 of CPC;

And a Prayer clause to discard the publication issued by the ROC under Section 164 (2) (a) of the Companies Act, 2013.

Appeal under Section 252- The next step is to file a petition under Section 252 of the Companies Act. It applies to those companies whose name got struck off in disqualification. Such an appeal is made before the National Company Law Tribunal (NCLT) to recover the name of the company with ROC.

File Statutory Documents- After the regulatory bodies of NCLT and Hon’ble High Court passes the orders of DIN reactivation and revival of struck off company. The appellant requires to file Statutory documents with ROC. Also, file the annual returns of the last three years with Income-Tax Authority.

Activation of DIN- Once the appellant meets all the necessary compliances and pays off any imposed penalty, the ROC takes the course of action. Thereby ROC raises a ticket on MCA21 portal via Change Requirement Form (CRF) and uploads a copy of the concerned order on the portal. Thus, after validation of CRF, the deactivated DIN shall get reactivated again.

Conclusion

To render a remedy for the removal of disqualification of directors, the Ministry of Corporate Affairs (MCA) has undertaken an exceptional move. The issue of recent Circulars of Writ petition has been a saviour for disqualified companies. It has not only helped companies to restore their name with Registrar of Companies (ROC) but also acts as an opportunity to revive struck off companies.

The appellant just needs to file annual statements and other statutory documents for activation of the DIN. Contact Swarit Advisors to streamline the process of director disqualification removal. We can ease the entire procedure by drafting the Writ petition and file pending compliance documents with Respective ROC. Also, our team has experienced advocates and lawyers who will appear in court on your behalf.