DIRECTOR DISQUALIFICATION

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 comply 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:

1. The Director has failed to file financial statements or annual returns for consecutively for 3 financial years; or
2. The Director has not repaid the deposits taken or paid interest or redeemed any debentures, such failure to pay or redeem has taken place for one year or more, He/she shall also not be eligible to be re-appointed as a director of that company or any other company for a period of 5 years from the date.
3. The Director is of unsound mind and stands so declared by a competent court.
4. The Director is an undischarged insolvent or the Director has applied to be adjudicated as an insolvent and his application is pending.
5. 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.

Procedure for Removal of Director 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.

Frequently Asked Questions

1.Is an individual disqualified as a Director under Section 164 permanently?

No, any individual disqualified under Section 164 shall stay disqualified for a period of 5 consecutive Years from the date of disqualification.

2.Which judicial authority shall have the jurisdiction for grant of stay under section 151 of CPC?

The High court of the state where the Company, whose financial statements have not been filed shall have the jurisdiction to grant stay towards ROC order.

3. What is the next step once the order for stay is granted by the high court?

The petitioner has to submit the court order along with an application to the concerned ROC for reinstatement of DIN in its records.

4.Can an individual become disqualified again after getting his/her DIN reinstated?

Yes, an individual can again be disqualified by the ROC, if he/she does not comply with the court order and file the ROC returns within the stated timelines.