DISQUALIFIED FROM DIRECTORSHIP BY ROC UNDER SECTION 164(2)(A)

The Director Identification Number (DIN) is a number assigned by the Central Government to individuals who want to become or are already directors of a corporation. A DIN is required for all company directors. Section 164(2) of the Companies Act, 2013 allows the Registrar of Companies (ROCs) to reject a director’s DIN. This article focuses on the Disqualification of Directors u/s 164(2).

Section 164(2):

According to Section 164(2), a director is ineligible to be re-appointed as a director of a business or to be appointed as a director of another company for five years after the company of the director fails to comply with the following:

• For three consecutive financial years, has not filed annual returns or financial statements
• Has failed to return any deposits it has accepted, pay interest on deposits, redeem debentures on the due date, pay the interest due on debentures, or pay any dividend declared for a period of one year or longer.

Disqualification of Director as per Section 164 (2)

(1) Every director shall inform to the company concerned about his disqualification under sub-section (2) of section 164, if any, in Form DIR-8 before he is appointed or re-appointed.

(2) Whenever a company fails to file the financial statements or annual returns, or fails to repay any deposit, interest, dividend, or fails to redeem its debentures, as specified in sub-section (2) of section 164, the company shall immediately file Form DIR-9, to the Registrar furnishing therein the names and addresses of all the directors of the company during the relevant financial years.

(3) When a company fails to file the Form DIR-9 within a period of thirty days of the failure that would attract the disqualification under sub-section (2) of section 164, officers of the company specified in clause (60) of section 2 of the Act shall be the officers in default.

(4) Upon receipt of the Form DIR-9 under sub-rule (2), the Registrar shall immediately register the document and place it in the document file for public inspection.

(5) Any application for removal of disqualification of directors shall be made in Form DIR-10.

Reasons for Disqualification of a Director

• 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
• 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.

• If the director has been convicted of a crime and sentenced to more than 6 months in prison by a court.
• If a court determines that the director is mentally ill.
• If the company’s director is found guilty under section 188 of the Criminal Code for party transactions made by the director in the previous five years.

The Ministry of Corporate Affairs (MCA) in 2017 has struck off the around 2.17K Companies on the due to not carrying of any business from past many years and/or Companies as well as many other Directors who were associated with such Companies has been disqualified to act/become as Director which shall not be eligible to be appointed in any other Company onwards for a period of five (5) years also such Disqualified Director shall be punishable with an imprisonment for a term upto 1 year or with a fine of Rs. 1 lac to Rs. 5 Lacs or with both.

Duties of Director after Disqualification:

Every director shall inform to the company concerned about his disqualification under sub-section (2) of section 164, if any, in Form DIR-8 before he is appointed or re-appointed.

Duty of remaining Directors after disqualification:

• It is the duty of the remaining Directors to file the e- Form DIR 12 for cessation of disqualified Director and inform ROC about the same.
• To hold immediate Board meeting about vacation of such director.
•  Appoint new Director, In case the no of director reduced below minimum due to disqualification.

Solution for Disqualification of Directors u/s 164(2)

A Director who has been disqualified can appeal the decision with 30 days of notice to temporarily stay the order. Companies Act 2013 states that an order disqualifying a Director does not take effect within 30 days of conviction resulting in sentence or order. Once, an appeal is initiated, the person would continue to be Director until the expiry of 7 days from the date on which the appeal or petition is disposed off. Hence, any person who has received an order can file the returns and appeal within 30 days to stay the order of director disqualification.

On disqualification, the Directors disqualified under Section 164(2)(a) of the Companies Act, 2013 has only two following options:

1. Wait for five years for ROC to remove the disqualification
2. Move a write petition to Hon’ble High Court having jurisdiction for removal of disqualification

When a director files an appeal with the NCLAT, he or she retains his or her position as a director of the defaulting firm for the next seven days. A director has seven years to file the annual returns in order to avoid being disqualified. There is no system in place to re-appoint a disqualified director. After five years from the date of disqualification, a disqualified director can be reappointed.

Directors can also take their case to the High Courts to have their director disqualification lifted. However, different High Courts have differing opinions on whether Section 164(2) disqualification should be lifted. The High Courts of Gujarat, Karnataka, Madras, and Allahabad, for example, have awarded remedies with specific directives and revoked the ROC lists, which included ineligible directors. The Mumbai High Court, on the other hand, does not grant a remedy for the director’s disqualification.