MCA (Ministry of Corporate Affairs) has recently disqualified over 2 lakh Directors of companies that failed to file an annual return of the Company.
Condonation of Delay Scheme 2018 is a Scheme introduced by Central Government as a golden opportunity for the non-compliant defaulting companies to rectify the default, in the exercise of its powers conferred under sections 403, 459 and 460 of the Companies Act, 2013. Read more
Disqualification of Director
A director can be disqualified under Section 164 of the Companies Act, 2013 for the following reasons:
- The Director is of unsound mind and stands so declared by a competent court.
- The Director is an undischarged insolvent.
- The Director has applied to be adjudicated as an insolvent and his application is pending.
- The Director has been convicted by a court of any offence, whether involving moral turpitude or otherwise, and sentenced in respect thereof to imprisonment for not less than six months and a period of five years has not elapsed from the date of expiry of the sentence. Also, any person who has been convicted of any offence and sentenced to imprisonment for a period of seven years or more, will not be eligible to be appointed as a director in any company.
- An order disqualifying the Director for appointment as a director has been passed by a court or Tribunal and the order is in force.
- The Director has not paid any calls in respect of any shares of the company held by him, whether alone or jointly with others, and six months have elapsed from the last day fixed for the payment of the call.
- The Director has been convicted of the offence dealing with related party transactions under section 188 at any time during the last preceding five years.
- A company in which the Director is a part of the Board has not filed financial statements or annual returns for any continuous period of three financial years.
- The company has failed to repay the deposits accepted by it or pay interest thereon or to redeem any debentures on the 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.
As mentioned in para 8, a person can be disqualified from being a Director, if a company on which the person is a Director has not filed an annual return of the company for a continuous period of not less than three years. Under Section 274 of the Companies Act, any person disqualified from being a Director will not be eligible for being appointed as Director for a period of 5 years.
General Rule for Removal of Disqualification
Currently, there is no such rule there to make a Disqualified Director, a Director again before the end of the 5 year period. However, MCA may take any step in this regard in the future.
However one can approach to NCLT for removal of Disqualification with different ways…
Steps Involved after Disqualification
Appointment of New Directors
After disqualification, the first step to be taken by promoters is to file the overdue returns. Existing Directors must appoint new Directors in the Company. Because the existing Directors are disqualified and they will be barred from the filing of returns, they will also be barred from digitally signing the new director appointment application.
Filing of pending Returns
Immediately after the appointment of the new Director, the digital signature of the newly appointed Director can be used to file pending returns.
Appeal to NCLT
Once everything has been filed, an application can be made before the NCLT in respect of changing the company’s status to Active Company. The appeal will be filed with the help of Professional such as CA / CS / Lawyer.
After completion of above process, disqualified Director may again after disqualification appoints as a Director, by filing an appeal to the National Company Law Tribunal within 30 days from the date of Disqualification and thereafter following the process told there.