DISQUALIFICATION OF DIRECTORS
BACKGROUND
MCA 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.
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, it’s 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.
Ministry of Corporate Affairs
along with Ministry of Finance has taken actions against the Shell Companies i.e.
those Companies which have not filed the Financial Statement and Annual Return
with ROC.
Why
were these directors barred?
·
For
not doing RoC filing and
·
For
not completing other formalities related to compliance after show-cause notice
was served.
The Directors whose
names have been barred:
·
Cannot
hold any board position in new ventures
·
They
will not have to step down from the board of other companies on which they are
currently directors.
·
The
law allows the government to bar these directors from taking up any board
position for five years
The steps taken are:
Before
discussing the provisions with respect to Disqualification of Directors, let us
have a look at a recent ruling in this regard;
Disqualified
Directors of debarred company approach Courts:
The
government move to debar directors of companies who have not filed Annual
Returns for successive three years is being challenged in court of law citing
retrospective application of Companies Act 2013.
It
is settled position with several Supreme Court rulings wherein law is always
applicable retrospectively unless any prior date is mentioned specifically. Sec
164 of Companies Act 2013 is applicable to all companies including Private
Limited Companies w.e.f 1st April 2014.
Prior
to the enactment of Companies Act 2013, the corresponding Section 274(1)(g)
under Companies Act 1956 was applicable only to Public Companies. Subsequently,
now when 3years be elapsed for non filing of Annual Returns would be for those
companies whose AGM is due at the end of the month of Sep 2017 to which filing
is due in October 2017. However MCA had debarred disqualified Directors at the
starting of Sep 2017. Let’s understand it with Example;
|
FY
|
Annual Filing Requirement Post
Companies Act 2014
|
|
2014-15
|
30th
October 2015
|
|
2015-16
|
30th
October 2016
|
|
2016-17
|
30th
October 2017
|
However,
Madras HC stays ROC order disqualifying Directors dated 30th Sep
2017. See the link below;
Let
us first discuss the provisions with respect to Companies’ Act 2013 for disqualification
of directors (SECTION 164)
The
following remedies are available after disqualification
|
FIRST REMEDY
If
your Directors have been Disqualified by the concerned ROC u/s 164(2)(a) of
Companies Act, 2013 for non filling of financial statements or annual returns
for a continuous period of three Financial years, then the said
disqualification can be removed by making following steps:
1.
First
filling a restoration petition before the concerned NCLT u/s 252(3) of
Companies Act, 2013
2.
Taking
an order from NCLT upon Report from ROC for restoration of the name of
company in the Register of Companies as maintained by Concerned ROC
3.
Completion
of all pending annual fillings As per the directions from NCLT
Further,
as the director has contravened Sec 164(2)(a) of Companies Act, 2013, NCLT
may impose certain penalties u/s 172 of Companies Act, 2013
|
SECOND REMEDY
Second
Remedy available is by filling Physical letter with ROC and requesting them
to appoint new director after obtaining approval
promoter or, in his absence, the Central
Government shall appoint the required number of directors who shall hold
office till the
directors
are appointed by the company in the general meeting
|
Examples cited
below may help you to understand the situation clearly
Mr.
A, who holds the position of Director in 5 companies i.e. X Ltd., Y Ltd., Z
Ltd., P Ltd., and Q Ltd.
Suppose
P Ltd., made default u/s 164(2) i.e. has not filed financial statements or
annual returns for any continuous period of three financial years as a result
of which The name of Company has been struck off from the record of ROC and
name of Mr. A has been mentioned in the list of disqualified directors by MCA
on September, 12 2017
Consequence of such
disqualification on other companies:
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.
Also
if such director (here Mr. A) files any form in other Company (i.e. X Ltd., Y
Ltd., Z Ltd., and Q Ltd) then an error is occurring that “the person associated
with the DIN is disqualified and not allowed to file the form”
Intention of
Ministry:
Once
as director is disqualified u/s 164(2) (a) he has to vacate the office from all
the Companies in which he is acting as director as a vacation u/s 167(1)
Note
Such
disqualified director can freely continue as Shareholders in all the Companies
irrespective they are disqualified u/s 164 and vacate office u/s 167.
In case you want to
remove the Disqualification
As
per The Companies (Appointment and Qualification of Directors) Rules, 2014
contain a provision pursuant to “application for removal of disqualification of
directors shall be made in Form DIR-10.”
Rule
14(5) states that, “Any application for removal of disqualification of
directors shall be made in Form DIR-10.” However this is physical form required
to be file with other form with the appropriate authority.
For more
details, contact CS Neha Seth at csnehaseth@gmail.com
or call us at 9871903449
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