Removal of Director Disqualification

Overview of Removal of Director Disqualification

A company is generally managed by a bunch of people known as directors who collectively form the Board of Directors. They are responsible for making strategic decisions that affect the overall functioning of the business entity. It is imperative that the directors act in good faith. Work towards the benefit of the shareholders. The company that they represent. A director is expect to perform his tasks. Duties with diligence and utmost care and integrity, failing which he/she could be remov or ousted. The year 2017 saw a massive step taken in the right direction by the government as they disqualified over 3,00,000 persons holding directorship positions as they faile to comply with regulatory requirements that were set by the Companies Act, 2013.

Disqualification of Directors

The Companies Act, 2013 lays down the grounds upon which a director may attract disqualification. Section 164 of the Companies Act, 2013 deals with the same, presented here in a condensed manner:

1. Where he/she has been declar as a person of unsound mind by a competent court.
2. Where he/she is an undischarged insolvent.
3. Where insolvency has been applie for, but the application still stands pending.
4. Where there is an offence involving moral turpitude that he/she has been convicted of and sentence with imprisonment for a period of not less than six months.
5. Any court/Tribunal has passe an order that disqualifies him from being appointe as a director.
6. Where he/she holds the shares of any company and has not made the payment of any such call, provided six months have passed since the last date to pay such call money.
7. At any time during the final preceding five years, he/she has been convicted of an offence involving related party transactions which are governed under Section 188 of the Companies Act, 2013.
8. Where he/she has not obtained a Director Identification Number (“DIN”).
9. Where he/she is the director of a company that has either – a. Failed to file the annual returns for 3 years running. b. Failed to pay interest on/repay the deposits for over a year. c. Faile to pay any dividend that was declared for over a year. d. Failed to redeem debentures or pay interest on debentures for over a year

With regard to this particular provision, non eligibility for directorship will be for a period of five years from the date of such default. Be it in that particular company or any other company.

Effect of Disqualification of Director

Ever since the mass disqualification rally of 2017, the Ministry of Corporate Affairs (“MCA”) has been vigilant in keeping tabs on the directors with regard to their regulatory and statutory compliances. Depending on what the grounds for disqualification is in a particular scenario, a person is disqualified either for a period of five years or as the case may be. The names of the directors who are disqualified will be publish on the MCA portal. The DIN allotted to that specific director will be deactivated by the Registrar of Companies.

Removal of Disqualification

Disqualified directors can make use of a couple of approaches that will be their lifeboats in disguise.

Appeal to be made against the disqualification

In case the company has had one or more directors disqualified. The disqualified director may file a writ petition with the High Court, seeking relief. This results in creating a stay against the order temporarily. This gives the director sufficient time to right the wrongs, provided it is within the scope of the law to do so.

New Directors to be appoint on a temporary basis

If the company has had all of its directors disqualified, in order to stay compliant, the company may appoint new directors to come in and take the reins. This will ensure that the compliances, regulatory or statutory, are observ to the full.

Additionally, if there are returns that are overdue, or any compliances that haven’t been met and remain outstanding. The DIN and Digital Signature Certificate (DSC) of the new directors may be use to upload and submit all pending forms in the interim.

Filing of an application with the National Company Law Tribunal (NCLT)

If there arises a situation where because of non-compliance with regard to the filing of returns. The status of the company is move to ‘Strike Off’. An application may be file with the NCLT moving towards restoring the ‘Active’ status for the company again. The necessary documents may be submitte to the NCLT and the Registrar of Companies for clearance of the “Strike Off” status.

At the time of the hearing, a practicing professional (CA/CS/Advocate) may represent the company and present all the relevant facts with regard to the particular case. If the NCLT is satisfi with the details present, the clearance for strike off will be rule upon. Once the clearance for strike off is receiv and the company’s status is restor to “Active”, the restoration of the DIN of the directors may also be initiat.

Managing the affairs of a company is not a piece of cake. There are various compliances to be met. Each one just as important, each one with its respective penalties and consequences when not follow. Directors have a fiduciary responsibility to the shareholders and the public, at large, which is why they have to be people of good repute and possess impeccable moral character.

Eligibility criteria for Removal of Director Disqualification in India

To remove director disqualification. The only eligibility criteria is for your Director not to have any hidden reasons that can stop them from being requalified as your Company’s Director.

Documents required to obtain an Removal of Director Disqualification

The documents are different based on the state of the Company:

• In case the Company was in function

1. A petition to NCLT
2. All the documents that are overdue under Section 403

• In case the Company was non-functional

1. A petition to the high court
2. All the documents that are overdue under Section 403

• Documents Required for Filling Cost Audit Report Through XBRL:

1. Cost Audit Report in form CRA-3
2. Challan of CRA-2 filed for appointment of Cost Auditor

FAQs About Removal of Director Disqualification?

Disclaimer: The content provided here is for informational purposes only. Your access to or use of the Site or Content does not create an attorney-client relationship. The information provided on this website is not legal or professional advice and should not be relied upon for such purposes or as a substitute for legal advice from a licensed attorney in your state. For more information and tailored information, please feel free to contact us.