Disqualification of Director

Disqualification of Director

As per Section 164(2) of the Companies Act, 2013, no person who is or has been a Director of a Company which;

  • Has not filed financial statements or annual returns for any 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 that due date or pay interest due thereon or pay any dividend declared and such failure to pay or redeem continues for one year or more’

Shall not be eligible to be re-appointed as a director of that Company or appointed in other company for a period of five years from the date on which the said company fails to do so.

Impact on Directors for consideration

  1. Eligibility for appointment in existing or new companies OR incorporation in new companies.

In accordance with provisions of Section 164(2) of the Act, the director shall neither be eligible for re-appointment in the respective company nor be appointed as a director in any other company.

  1. Liability of Director once the Company is Struck Off.

As per Section 248 of the Act, the liabilities, if any, of every director, manager or other officer who was exercising any power of management and of every member if the Company under Strike Off, shall continue and may be enforced as if the Company has not been dissolved. Hence, the status of strike off of the name of Company does not provide an excuse on the liabilities of the Directors.

  1. Penalty on the Director for non-compliance.
      • Contravention of provisions under Section 164.

    There is no mention of the penal provisions in case of default. However Section 172 of the Act states that the Company and every officer who is in default of Chapter IX shall be punishable with fine of Rs. 50,000/- to Rs. 5,00,000/-.

  • Contravention in continuing to be a Director, subsequent to the disqualification.

He shall be punishable with an imprisonment for a term upto 1 year or with fine which shall not be less than Rs. 1,00,000/- but which may extend to Rs. 5,00,000/- as per Section 166(7) of the Act

  • Penalty for default in compliance of general duties as a Director.

As per Section 166: (1) A Director is bound to act in accordance with the Articles of Association of the Company. (2) A Director of a Company shall act in good faith in order to promote the objects of the Company for the benefit of its members as a whole and in the best interests of the Company, its employees, the shareholders and the community and for the protection of environment.

  1. Vacation of office of directorship under Section 167

As per Section 167(1) of the Act, the Office of a Director shall become vacant if he incurs any of the disqualifications specified in Section 164. Further, as per MCA press release, “on suffering the disqualification, the Director shall vacate the office”.

  1. Removal of Disqualification

As per the Companies (Appointment and Qualification of Directors) Rules, 2014 contains a provision relating to “Application for removal of disqualification of directors to be made in Form DIR-10”

 

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