Everything Need To Know Related To Director Disqualification

A Company is a separate legal entity which can act through natural persons. Directors are the person who acts on behalf of company. These are the persons, hired by the company to direct and see day to day affairs of the company. There is no minimum qualification required for the post of Directors. But there are certain provisions, which lead to Director Disqualification. Here I am answering few queries related to director disqualification:

1. If any person is convicted of an offence and sentenced for imprisonment of two years, can that person become director of the company?

Yes, he can become the director of a company, if five years of period has been completed after the completion of sentence. According to the section164 (d) of Companies Act, 2013, a person is disqualified as director, if a person has been convicted by court for any offence which includes moral turpitude or any other offence and sentenced for that imprisonment for not less than six months and a period of five years has not elapsed from the date of expiry of the sentence.  But if a person has been convicted for any offence and sentenced for imprisonment for a period of seven years or more, that person cannot become director and is disqualified.

• What are the criteria’s on the basis of which a person is disqualified to become director of the company?

According to section 164(1), a person is disqualified to become a director of the company if,

• A person is not mentally fit or of unsound mind and if its proved in the court also
• If the person is declared as insolvent
• If the matter related to insolvency is pending in the court
• If the person has been convicted by court on the ground of moral turpitude or any other offence and for which that person has been imprisoned for not less than 6 months and period of 5 years has not been completed after completion of sentence.
• If a person has been convicted for any offence for which sentenced in respect of the offence is imprisonment for a period of 7 years or more
• Any other order in force passed by the Court or Tribunal which disqualifying him to become director of the company
• If the person has not paid his calls for shares of the company and if 6 months has already been expired from the last fixed day of payment of call
• If the person has not received DIN

• Whether a person can hold the position as director of the company, if he has not filed any financial statements or annual returns for 3 continuous financial years?

No, that person cannot continue as director of the company. According to the section 164(2), of companies act, a person is disqualified to become director of the company who has not filed any financial statements and Annual Return for 3 continuous financial year and defaulter in other payment also and cannot be reappointed in the same company as director for the next 5 years.

• Whether Director has to vacate the office once he disqualified?

Yes, according to 167 of the act, director has to vacate the office if

• the person is disqualified under section 164
• if he has not attended any board meeting without seeking leave permission, held during a period of twelve months
• the person acts in contravention of section 184 related to contracts in which he has direct or indirect interests.
• If he is disqualified by any order of the Court

• Can a disqualified director hold share of a company?

Yes, they are allowed to continue as shareholders of the company even if they are disqualified as director.

• Whether a disqualified director can become partner in LLP?

Yes, he is eligible for partner in LLP.  Until unless he is,

• Of sound mind

• Not insolvent or matter related to it should be pending in the court.

• Whether Non-filing of New DIR- 3 KYC Form leads to director disqualification?

Any person who has been allotted “Director Identification Number” before 2018 needs to file form DIR-3 KYC to update KYC details in the system before 15th September 2018.
For the  year 2019-20, e very Director who has been allotted DIN is required to file form DIR-3 KYC before 30th April of the immediately next financial year.
After expiry of the respective due dates, system will mark all non-compliant DINs ‘Deactivated due to non-filing of DIR-3 KYC’. It may lead to director disqualification.

• How a company will function if all the directors have to vacate the office?

According to section 167(3), required numbers of directors shall be appointed by promoter or in his absence the central government, till the time directors are appointed in the general meeting by the company.

• Is there any remedy available for directors who contend that his name has wrongly been removed?

Under the Companies act 2013, no such remedy is available but our constitutional law has given right to aggrieved director to file writ petition.

1. What are the differences between provisions related to disqualification of director according to the Companies Act 1956, and the Companies Act, 2013?

1. How can the director remove their name from the list of disqualified director’s post serving the punishment of 5 years ban?

According to Rule 14 (5) of the Companies (Appointment and Qualification of Directors) Rules, 2014, the director can give application to the RoC for the same but it can be made only at the end of the 5 years duration post his disqualification.

For further details you can contact our team of expert lawyers at LawyersINC.