Director Disqualification

Director Disqualification – a way to Become a Director Again

Over 2 lakh directors of companies that failed to file their MCA annual returns were recently banned by the Ministry of Corporate Affairs. Many companies have been left without a Board of Directors as a result of MCA’s recent ruling. Some directors who serve on the boards of many firms have been disqualified, regardless of whether only one of the companies failed to complete an MCA annual report. In this essay, we’ll look at how to reclaim your directorship after Director Disqualification.

A director is often disqualified under Section 164 of the businesses Act, 2013 for the subsequent reasons:

  • A competent court has determined that the Director is mentally ill.
  • The Director is a bankrupt who has yet to be discharged.
  • The Director has filed an insolvency petition, which is now pending.
  • The Director has been convicted by a court of any offence, whether including moral turpitude or not and sentenced to jail for not more than six months, with a period of five years remaining from the date of the sentence’s expiration. A person who has been convicted of any crime and sentenced to a term of imprisonment of seven years or more will also be ineligible to serve as a director in any corporation.
  • A court or tribunal has issued an order disqualifying the Director from being appointed as a director, and the order is still in effect.
  • The Director has failed to pay any calls on any shares of the corporation that he owns, whether alone or jointly with others, and six months have passed since the deadline for payment of the decision was set.
  • At any point during the previous five years, the Director was convicted of dealing with related party transactions under section 188.
  • A corporation in which the Director may be a member of the Board of Directors has not filed financial statements or annual returns for three years in a row.
  • The corporation has failed to repay the deposits it has accepted, pay interest on them, redeem any debentures on the first day of the month, pay the interest due on them, or pay any dividend declared for a period of one year or longer.

As stated in point 8, an individual is frequently prohibited from serving as a Director if the organization on which the person may serve as a Director has not submitted an MCA annual return for three years in a row. Anyone disqualified from being a Director is ineligible to be appointed as a Director in any company for a period of 5 years under Section 274 of the Business Act. As a result, lakhs of promoters have suffered as a result of the recent director disqualification.

The ROC, on the other hand, gave those enterprises an opportunity to respond to the notices given to them before striking them off. The enterprises were eventually knocked off by the concerned ROCs since no response was offered.

Following that, the Ministry of Corporate Affairs designated an excessive number of directors as “DISQUALIFIED” under Section 164 (2)(a) of the Businesses Act, 2013, which states that no person who is or has been a director of an organization that— has not filed financial statements or annual returns for any continuous period of three financial years; or shall be eligible to be re-appointed as a director of that company or appointed in another company for a period of three years shall be eligible to be re-appointed as a director

The Ministry deemed all the administrators of enterprises that had not filed their taxes for the previous three financial years disqualified under the aforementioned criteria. The MCA website has a list of all of these directors.

The main reason for producing the Disqualified Director List was that the government believed there were an excessive number of SHELL Companies changing their black money into white money while breaking no laws and failing to file returns. As a result, all of the administrators of these shell corporations were disqualified.

Director Disqualification – a way to Become a Director Again

 

Following the government’s close-up mission, there were three types of companies in which there were DISQUALIFIED, DIRECTORS.

  1. Defaulting Businesses: Despite their active status, directors are disqualified due to the non-filing of their tax returns.
  2. Companies that are active and have a legitimate business but are disqualified: Because the administrators of these active firms were also directors of the other companies that were shut off or disqualified.
  3. take away companies whose administrators were eventually disqualified after being struck off.

The Government announced the CODS Scheme 2018 for the first two classes of firms, giving them only one opportunity to file their annual returns and balance sheets with the ROC and have their directors’ status changed from DISQUALIFIED to APPROVED.

However, the issue of the administrators who were disqualified because of STRUCK OFF Companies remains unresolved. The directors then petitioned the state supreme court, demanding that their DISQUALIFICATION be maintained because they were having problems conducting business in their legitimate businesses.

In numerous situations, the supreme court granted INTERIM stays of disqualification of directors on the request of Disqualified Directors and, as a result, genuine firms. However, no order has been made by the Court to remove the director’s disqualification because the disqualification can only be withdrawn after a period of 5 years has passed since the director was disqualified for failing to comply with the Act’s provisions.

Conclusion

So, if any director of a company that has been struck off wants an interim stay on their disqualification, they can file a writ petition in the Hon’ble High Court. However, according to the author, it is preferable to have such directors removed from firms until their Disqualified Period is over. Since Section 167 (1) (a) makes it plain that the office of the Director will be vacant if he is disqualified under Section 164, the office of the Director will be vacant.