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 noted in point 8, an individual is typically barred from serving as a Director if the organisation on which the person is to serve has not filed an MCA annual return for three years in a row. Under Section 274 of the Business Act, anyone prohibited from being a Director is unable to be appointed as a Director in any business for a period of 5 years. As a result of the recent director disqualification, lakhs of promoters have suffered.

The ROC, on the other hand, gave those businesses a chance to react to the notifications before striking them off. Because no answer was provided, the firms were finally shut down by the concerned ROCs.

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 financial years; or shall be eligible to be re-appointed as

Under the aforementioned criterion, the Ministry ruled all administrators of firms that had not submitted their taxes for the preceding three fiscal years were ineligible. All of these directors are listed on the MCA website.

The primary reason for compiling the Disqualified Director List was the government’s belief that an excessive number of SHELL Companies were converting black money into white money without breaking no laws and failing to submit returns. As a consequence, all of the shell corporations’ administrators were disqualified.

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 businesses, giving them just one chance to file their annual reports and balance sheets with the ROC and have their directors’ status changed from DISQUALIFIED to APPROVED.

The matter of the administrators who were disqualified because of STRUCK OFF Companies, on the other hand, remains unsolved. The directors subsequently petitioned the state supreme court to keep their DISQUALIFICATION because they were experiencing difficulties conducting business in their lawful firms.

At the request of Disqualified Directors and, as a result, real businesses, the Supreme Court issued INTERIM stays of disqualification of directors in a number of cases. However, no order has been issued by the Court to remove the director’s disqualification since the disqualification may only be revoked after 5 years have elapsed since the director was disqualified for failing to comply with the terms of the Act.

Conclusion

If a director of a corporation that has been struck off wishes to seek an interim stay of their disqualification, they may submit a writ petition before the Hon’ble High Court. However, the author believes that such directors should be removed from businesses until their Disqualified Period expires. Because Section 167 (1) (a) clearly states that the Director’s office will be vacant if he is disqualified under Section 164, the Director’s office will be vacant.