Can a Director Be Disqualified as a Company Director?

A company is a legal organization that requires people to conduct its affairs. A director is a person who is elected or selected to act and take decisions on behalf of the company. There can be one or more, full-time or part-time directors in a company and all of them fall under the category of ‘Officers’.

Role Of A Director In A Company!

A director of a company is like the captain of a ship in the view of the fact that he is responsible for managing the affairs of the company. Companies Act, 2013, enumerates the duties and responsibilities of a director which is much more amplified in comparison to the Companies Act, 1956.

Grounds For Disqualification Of A Company Director:

Section 164 (1&2) of the Companies Act, 2013, lays down the factors which lead to disqualification of a company’s director.

1. A person shall not be eligible for appointment as a director of a company-

• if he is of unsound mind and is found to be so by a competent court;
• if he has applied for insolvency and his application is pending;
• if he has been convicted for any offense and awarded punishment for more than 7 years and more;
• if order by a Court or Tribunal has been passed disqualifying him;
• if he has been convicted under section 188 in the preceding 5 years;
• if the company has failed to pay the deposits or interests or any such liability for more than one year;
• if he has failed to comply with Section 153 (2); relating to DIN number.

2. No person who is or has been a director of a company which-

• has not filed financial statements, or annual returns for a continuous period of three financial years; or
• has failed to repay the deposits accepted by it, or pay interest thereon; or
• to redeem any debentures on the due date or pay the interest due thereon; or
• pay any dividend declared and such failure to pay or redeem continues for one year or more,

shall be eligible to be re-appointed as a director of that company or appointed in another company for a period of five years from the date on which the said company fails to do so.

Most Disqualification Due To Non-Compliance!

In 2017, a mass disqualification of directors by the Ministry of Corporate Affairs, took the entire industry by surprise. More than 3 lakh directors were hit by disqualification as the company had not filed financial statements, or annual returns, or both, for the previous three years.

The message communicated was that Directors are supposed to be custodians of ethical practices therefore if they fail in doing so, they are liable to a penalty. They were automatically removed from all other companies too and barred for 5 years.

Procedure For Removal Of Disqualification Of Director:

The Companies Act, 2013, does not specify any remedial measures for those who have been disqualified under Section 164(2) of the Act. As the disqualification occurs due to a strike off the company for non-compliance, therefore, the process to remove disqualification of directors is through the restoration of the company.

The company can appeal to the National Company Law Tribunal and if restored, then the director can apply to the ROC for activation of his DIN.

If a director wants relief on his own, then he can do so by filing a Writ Petition in the concerned High Court. Many directors have got relief from the Courts and have successfully saved their careers.

“Disqualified Directors need to consult at the earliest and act swiftly so that they are able to overcome their disqualification promptly.”
-Shweta Gupta, Founder and CEO, MUDS