MASS DISQUALIFICATION OF DIRECTORS – 360°ANALYSIS

GROUND REALITY IN 2014 (Pre-Election):

POLITICAL ENVIRONMENT:

  • The political situation was tense with all ruling parties of UPA sensing the dissatisfaction amongst the people.
  • Lot of bickering among allies led to almost a standstill in the govt.
  • Complacency and lack of vision spread negativity.
  • BJP lapped the opportunity and announced Mr. Modi the candidate for PM post.

ECONOMIC ENVIRONMENT:

  • Low GDP growth paired with high inflation projected a very gloomy future.
  • Markets had plummeted as the investors in India, as well as abroad, had lost faith in the system and pulled out their money.
  • Corruption ruled everywhere leading to the country ranking high in the survey of most corrupt countries in the world.
  • On the index of ‘ease of doing business’ India ranked very lowly.
  • Genuine businesses were very demoralized as the economy was on crutches.

PUBLIC OPINION:

  • The public dissatisfaction with the govt. was palpable.
  • The inaction and laxity of the people in power, against the corrupt, had generated an impression of supporting them.
  • The youth of the country was disillusioned and anxious for the future as jobs were shrinking.

MEDIA EVALUATION:

  • Media, as the fourth pillar of democracy, plays a major role in analyzing and presenting the actions of the govt.
  • The UPA govt’s performance on the whole was disappointing but the financial mismanagement, black money, corruption, etc. took it to the lowest level.
  • Media highlighted the misdoings of the govt. agencies leading to a negative perception in the minds of the people.

VOTE FOR CHANGE:

The general election of 2014 witnessed a vote for change and people voted in huge numbers for the BJP. Modi’s oratory skills, projected while canvassing, convinced people that he may be the ideal leader they were looking for. The biggest draw was his promise to fight against black money and corruption.

THE ‘MODI’ FIED ECONOMY:

Mr. Narendra Modi tried to keep his poll promise of cleaning the financial environment. In this process, two major decisions taken have jolted the economic world.

1#: DEMONETIZATION:

In a surprise move Mr. Modi announced demonetization of high value currency notes of 500 and 1000 denomination on 8th November 2016. This was done to-

  • To convey a strong message
  • To flush out black money from the system
  • To limit the cash circulation
  • To remove fake currency
  • To eliminate dodgy funds
  • To identify shell companies

2#: MASS STRIKE-OFF OF COMPANIES AND DISQUALIFICATION OF DIRECTORS:

  • In continuing with its tirade against wrongdoers, the govt announced deregistration of 2.24 lakh companies in 2017.
  • The names of the companies were removed from the Register of Companies by the concerned ROC.
  • The companies had to stop functioning from the date of publishing of the Notice by the concerned ROC.
  • The rippling effect of strike-off saw disqualification of Directors in huge numbers.
  • 3.09 lakh Directors of such companies were barred for 5 years from the date of strike-off.
  • The Directors were also removed from the Board of other companies even though they were active and legitimate.
  • All bank accounts were frozen, increasing their problems manifold.
  • Fines and penalties were levied as per the provisions of the Companies Act.
  • Dues and liabilities continued to be in the name of the company and its directors.

Ignoring the statutory provision of compliance of Financial Statements and Annual Returns has cost the companies and their directors dearly.

– Isha Malik (Company Secretary, MUDS Management Pvt Ltd)

REASONS FOR DISQUALIFICATION OF DIRECTORS:

REASON 1#: Under section 248 of the Companies Act, 2013, the Registrar of Companies(ROC) can strike-off the company’s name if convinced that it had not complied according to the Companies Act.
REASON 2#: In the recent strike-off most of the companies had defaulted on compliance as they had failed to file the Financial Statements or/and the Annual Returns for 3 years consecutively.
REASON 3#: U/s 164(2) & 167(1) of the Companies Act,2013, if a company was deregistered for non-compliance then the Directors of such companies were disqualified from that date.
REASON 4#: In the Companies Act, 1956, ‘listed companies’ referred to Public Companies only but after the implementation of Companies Act 2013, from 01.04.0214. even the Private Companies were covered under it.
REASON 5#: Hence, when the section 164(2) & 167(1) of the Companies Act, 2013, was read together then it interpreted that automatic disqualification of directors of such companies shall occur.

MISINTERPRETATION, IGNORANCE OR AMBIGUITY?

  • As the 2013 Companies Act was implemented from 1st April 2014, the financial compliance was thought to be from the year 2014-2015 as per the understanding of most of the companies.
  • In reality, the previous year was also covered; hence, all such companies who had not complied since 2013, have been deregistered.
  • The companies raised the objection of the Act being applied retrospectively, but it was clarified by the committee, appointed to look after such ambiguities, that it was a continued process therefore, can’t be termed as retrospective.
  • The Directors disqualification was implied as ‘officer in charge’ or an officer who is in the know how of the matters of the company.
  • The section 167(1) created confusion as it states any Director who has been affected by section 164, shall vacate the office. It gives no clarity on 164 (1) & (2) creating confusion as the two cover completely different aspects.
  • One more problem that occurred was that some of the small companies were not at all aware of such regulations being in force.

THE PROCESS OF STRIKE-OFF:

STEP1#: Rule 3(2) specifies that the RoC (Registrar of Companies) sends a Notice of proposed action of strike-off stating the reason in it(if a company was non-operative for long time).

  • The Notice shall be sent to the Company and all its Directors by Registered post.
  • The company shall have 30 days’ time to represent their stand.

STEP 2#: Under section 248(1), Rule 7, the RoC shall send a pre-strike off Notice, form STK-5.

  • It shall be sent to the Company and all its Directors.
  • As per section 248(4) it should also be put on official gazette.
  • Should be put on the MCA website as well.
  • Should be published in Newspaper- once in English daily and second time in a vernacular daily.
  • The Roc also required to inform the concerned regulatory and tax authorities.
  • A 30-day period was granted for objections, if any.

STEP 3#: After expiry of thirty days, Roc should once again put the Notice in official gazette, under section 248(5), Rule 9, Form STK-7.

  • This strike-off notice should be on the MCA website as well.

STEP 4#: After this, the company can be officially dissolved.

CONCERNS RAISED BY THE COMPANIES:

CONCERN 1#: Sheer numbers created a major concern for the entire industry as it impacted a lot many companies and directors, a harsh step according to them.
CONCERN 2#: The companies were not aware that they will be struck-off as they claim they had not received Notice of the ROC otherwise they shall have rectified their mistake.
CONCERN 3#: Some companies claimed that all the documents were in place but were not filed due to some administrative lapse and not intentional.
CONCERN 4#: Many small companies claimed ignorance about the mandatory filing.
CONCERN 5#: The harshest blow was for the disqualified directors who were removed from the Board of other companies too and were barred from being appointed for the next 5 years.
CONCERN 6#: The unjust disqualification of directors adversely impacted the companies which were active and legitimate yet landed in trouble.

The govt wanted to give a warning message to all the companies that compliance and due-diligence were essential for safe business.

-Isha Malik (Company Secretary, MUDS Management Pvt Ltd)

OPTIONS FOR REMOVAL OF DIRECTORS DISQUALIFICATION:

OPTION 1#: Can appeal to The Tribunal u/s 252(3) of the Companies Act 2013. An aggrieved company or its member or creditor or workman can appeal to the Tribunal by the way of filing an application within three years of the name being struck off.
The Tribunal has the power to restore the Company and remove the disqualification of Directors if it’s satisfied by the explanation and evidence.
OPTION 2#: Apply to The National Company Law Tribunal, under rule 27(A), 2017. An application can be filed by the affected company or its members or workmen with the NCLT within twenty years of publication of notice. Due documents have to be submitted, affidavit verified, and stipulated fee submitted.
The Tribunal then heard the case as per the specified Act. At the end, if the Tribunal was satisfied by the documents and evidence, it shall revive the company and remove the disqualification of directors.
OPTION 3#: The aggrieved directors can file a Writ Petition in the concerned court to get reprieve.
OPTION 4#: A new window introduced as Condonation of Delay Scheme, 2018, a one-time settlement opportunity for all except those which have been struck off u/s 248(5). This was the easiest and simplest way in which the companies can be restored, and the directors’ disqualification removed.

THE BEST OPTION: CONDONATION OF DELAY SCHEME, 2018

LET’S UNDERSTAND THE SCHEME:

In the wake of this stern action, a great uproar was created by the industry. The pressure was created to provide a quick solution to this mammoth problem. Thus, the Central Govt. took a step utilizing its powers under sections 403,459 and 460 and introduced the Condonation of Delay scheme (CODS), 2018. This was seen as a relief and an opportunity to rectify their mistakes.

PROVISIONS OF THE COD SCHEME, 2018:

  • All companies, except those removed from the register under section 248(5) of the Companies Act, 2013, can apply.
  • Duration of the scheme was from 01.01.2018 – 13.03.2018, which had been further extended to 01.05.2018.
  • The DINs of the Directors shall be reactivated temporarily to facilitate the filing of overdue documents.
  • The applicant defaulting company had to pay the filing fee as well as the additional fee as prescribed under section 403 of the Companies Act.
  • Then after the company can seek Condonation of Delay by filing e-CODS, 2018 along with a fee of 30,000 rupees.
  • The forms to be duly filled-

          # Form No. 208/MGT-7
          # Form No. 21A/MGT-7
          # Form No. 23
          # Form No. 66
          # Form No. 238/ADT-1

  • Those companies that have not done the needful and their details were not in the records of MCA21 portal and found disqualified by the end of the scheme, then their directors shall be barred once again.
  • Those entities which have been deregistered under section 248 of the Companies Act, 2013 and have appealed for revival of struck off companies under section 252, removal of directors disqualification shall take place only after the NCLT order.
  • The companies which have not complied fully, the Registrars shall take action accordingly.

BENEFITS AND BENEFICIARIES:

  • It’s a window which gives access to one-time settlement benefits to the defaulting companies, saving the time and money of other legal options.
  • It was the fastest and easiest means for revival of struck off companies and restoration of DIN of the disqualified Directors.
  • As per available information, already almost 14,000 companies have benefitted from this scheme by submitting the overdue documents.
  • MCA clarified in a later published Circular that the Registrars of Companies can raise a ticket through Change Requirement Form (CRF) on the MCA portal.
  • They can then reactivate the DINs of affected Directors.
  • However, these Directors shall not be linked to any other company which had been struck off under section 248(1). This the RoCs can cross check before raising CRF.

SECURING THE FUTURE:

Mr. Modi time and again made it clear to all that the mission ‘Clean Money’ was a continuous process and shall continue till it sees light of the day. MCA, along with other agencies, was diligently working on the issue. It claimed in mid 2018 that very soon the next list of ‘strike off’ companies shall be in public domain.

As per news reports, the current fiscal year, 2018-2019 shall witness an equal or more number of companies being struck off. A rough estimate of 2.25 lakh companies and 7,191 LLPs (Limited Liability Partnership) may be blacklisted for not filing returns.

The Directors, were the custodians of fair practices, should guide the company in a manner that all records were updated and clean. Companies, in future, need to adhere to the ‘Rule Book’. Compliance in matters of accounts, funds, returns should be hundred percent. Self-regulation should be put in place so that adverse conditions do not arise. All signatories should know the fingerprints of the Companies Act and then take decisions accordingly.

Had the MCA taken concrete steps to spread awareness; lesser number of companies and directors shall have been affected.

-Shweta Gupta (Founder and CEO, MUDS)

Any doubts, query or curiosity, please feel free to contact us:
call at 9599653306 or mudsmanagement@gmail.com

 

By | 2018-10-18T16:36:51+00:00 October 18th, 2018|Removal of Director, strike off of companies|0 Comments

Leave A Comment

*

code

G E T A Q U O T E
get a quote
SUBSCRIBE To OUR NEWSLETTER
Subscribe our Newsletter
X
SCHEDULE YOUR CONSALUTATION TODAY
captcha
Enter the code above here *