Disqualification and Vacation of Office of Directors in Companies Act, 2013
Directors play a crucial role in companies per the Companies Act, 2013. They must adhere to specific qualifications and can face disqualification under Section 164, such as being of unsound mind, insolvent, convicted of offenses, or failing to comply with court orders. Understanding these regulations is essential for appointing and maintaining directors in compliance with the law.
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DISQUALIFICATION AND VACATION OF OFFICE OF DIRECTORS & REMOVAL & RESIGNATION OF DIRECTORS 1 BY NILESH A. PRADHAN, PRACTISING COMPANY SECRETARY
Basic 2 Director is defined under Section 2(34) of the Companies Act, 2013 as a director appointed to the Board of a company. An appointed or elected member of the Board of Directors of the Company. He has responsibility for determining and implementing the Company s policy. A Director shall act in accordance with Articles of Association of the Company.
Some types of Directors 3 Women Director Independent Director Alternate Director Board of Directors Resident Director Additional Director Nominee Director
DISQUALIFICATION OF DIRECTORS (SECTION 164) 4 Section 164 (1): A Person is not eligible to be appointed as Director if a. he is of unsound mind and stands so declared by a competent court; b. he is an undischarged insolvent; c. he has applied to be adjudicated as an insolvent and his application is pending;
Cont.. 5 d. he 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: Provided that if a person has been convicted of any offence and sentenced imprisonment for a period of seven years or more, he shall not be eligible to be appointed as a director in any company; in respect thereof to
Cont... 6 e. an order disqualifying him for appointment as a director has been passed by a court or Tribunal and the order is in force; f. he 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;
Cont... 7 g. he has been convicted of the offence dealing with related party transactions under section 188 at any time during the last preceding five years; or h. he has not complied with sub-section (3) of section 152. (Not acquired DIN) i. he has not complied with the provisions of sub-section (1) of section 165. (Number of Directorships)
Cont 8 Section 164 (2): No person who is or has been a director of a company which (a) has not filed financial statements or annual returns for any continuous period of three financial years; or (b) 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, shall be eligible to be re-appointed as a director of that company or appointed in other company for a period of five years from the date on which the said company fails to do so.
Cont 9 Provided that where a person is appointed as a director of a company which is in default of clause (a) or clause (b), he shall not incur the disqualification for a period of six months from the date of his appointment.
Cont 10 A private company may by its articles provide for any disqualifications for appointment as a director in addition to those specified above. The disqualifications referred to in clauses (d), (e) and (g) of sub- section (1) shall continue to apply even if the appeal or petition has been filed against the order of conviction or disqualification.
Some more points.. 11 When a Company fails to file Financial Statements or Annual Returns or fails to repay any interest, deposit, dividend or fails to redeem its Debentures as specified in Section 164(2) the Company shall within 30 days of such failure file form DIR-9 with ROC furnishing names and addresses of all Directors of the Company during relevant years
Cont.. 12 Upon failure of the Company to file DIR-9, the officers of the Company as specified in Section 2(60) of the Act shall be the Officers in default. As per Rule 14(5) of The Companies (Appointment and Qualifications of Directors) Rules, 2014, the Director shall make an application for removal of disqualification in Form DIR-10 to ROC.
Some Facts 13 Action of MCA publishing the names in September, 2017 of: 1. 1,06,578 Directors who were disqualified under section 164 (2) 2. Directors disqualified associated with Struck off (defaulting) companies MCA published list of Disqualified Directors under Section 164(2)(a) for non-filing of Annual Returns or Financial Statements for Period 2014-15, 2015-16 and 2016-17 on 31st December, 2018, disqualified from period 01/11/2016 upto 31/10/2021.
Cont 14 Disqualification with Retrospective Effect from November 2016. MCA published list of Disqualified Directors under Section 164(2)(a) for non-filing of Annual Returns or Financial Statements for Period 2015-16, 2016-17 and 2017-18 on 3rd February, 2020, disqualified from period 01/11/2018 upto 31/10/2023. Disqualified Directors had to vacate Office under Section 167.
Cont 15 DIN of all Disqualified Directors was deactivated. DIN of all Directors associated with Struck off Companies was deactivated. Backend entry of Directors for filing Financial Statements and Annual Returns. Writ Petitions filed with High Courts for removing Disqualification
Cont 16 Period of disqualification 5 years Upon end of Tenure of disqualification, will disqualification be removed automatically??
Cont 17 Status disqualification. of Director restored upon end of Eligible now to be appointed or re-appointed.
Cont 18 Penalty for contravention of Section 164: The company and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees, and in case of continuing failure, with a further penalty of five hundred rupees for each day during which such failure continues, subject to a maximum of three lakh rupees in case of a company and one lakh rupees in case of an officer who is in default.
Cont 19 What needs to be checked to find disqualification under Section 164(2)?..... o In some cases DIN status is approved even if the name of Director is in disqualified list . o In cases of amalgamated companies due to non-updation of master data the Directors are disqualified due to non- filing of annual forms for amalgamated Company. o Some companies are still active and status of DIN is shown approved in spite the Companies have not filed return for last 4-5 years.
Cont 20 Whether removal of disqualification and activation of DIN which is deactivated due to disqualification under Section 164(2) is same?
Cont 21 Whether DIN will be automatically updated or DIR-10 has to be filed ? If the DIN is automatically updated still one need to file DIR-10? How to file DIR-10 as the same is not e-form?
VACATION OF OFFICE OF DIRECTORS (SECTION 167) 22 The Office of Director shall become vacant in following cases: a. incurs Disqualification under Section 164 Office of Director becomes vacant in all other companies when he incurs disqualification under Section 164(2), other than the company which is in default under that sub-section. (Applicable from 7th May,2018)
Cont 23 b. absents himself from all Board meetings during 12 months with or without leave of absence. Absent from all Board Meetings??? Whether proper Notices were served ?? Whether proper Board Meeting held with quorum ???
Cont 24 c. contravention of Section 184 Section 184 deals with Disclosure of Interest by Director. Entering into contracts or arrangements with those Company or Companies or Body Corporates or other Entities in which he or she is directly or indirectly interested.
Cont 25 d. Failure to disclose interest under Section 184 Section 184 mandates every Director to disclose his concern or interest in any company or companies or body Corporates, firms or other association of Individuals in form MBP-1 in every Financial year. What if a Director is not in position to give the disclosures??
Cont 26 e. Disqualified by order of Court or Tribunal f. Convicted by Court of any offence including moral turpitude or otherwise and imprisoned for not less than 6 months Office not to be vacated in above (e) and (f) Clauses - for 30 days from date of conviction or order of disqualification; Until expiry of seven days from date of Appeal or Petition In case further appeal or petition is preferred, until that day such further appeal or petition is disposed off. - -
Cont 27 G. Removed in pursuance of provisions of the Act. Removed under Section 169 of the Companies Act, 2013. Whether opportunity of being heard given ? Special Notice given ?
Cont 28 h. Ceases to hold office or other employment in the Holding, Subsidiary or Associate Company. Whether resolution has to be passed in such company? Resignation letter to be given or communication made? What if he doesn t want to cease his office in this company? Holding Company fails to disclose to the subsidiary ?
Cont 29 A Private Company may provide any other ground for vacation through Articles of Association. Promoter or in his absence Central Government shall appoint required number of Directors where all the Directors vacate their office due to disqualification.
Cont.. 30 Punishment for contravention of Section 167: If a person, functions as a director even when he knows that the office of director held by him has become vacant on account of any of the disqualifications specified in subsection (1), he shall be punishable with fine which shall be not less than Rs. 1 lakh but which may extend to Rs. 5 lakhs for contravention of Section 167.
VACATION OF OFFICE UNDER SECTION 161 31 Section 161 deals with appointment of Additional Director, Alternate Director and Nominee Director. Alternate Director shall vacate the office when the Director in whose place he is appointed returns to India .
Cont 32 Additional Director needs to be regularized at General Meeting otherwise he stands to vacate his position. Term and concept, Alternate Director, not of any practical application as Meetings can be held through electronic means.
REMOVAL OF DIRECTORS (SECTION 169) 33 A Company can remove a Director from his office before the expiry of his term. Reasonable opportunity of being heard to be given to the Director. Special Notice is required to remove a Director or to appoint somebody in place of him. Pass Ordinary Resolution in the General Meeting of the Company.
Cont 34 Company cannot remove Director appointed in following cases: 1. Director appointed by Tribunal 2. Company has availed itself of the option given to it under section 163 to appoint not less than two thirds of the total number of directors according to the principle of proportional representation. Director so removed shall not be re-appointed as Director by the Board of the Company
Cont 35 Director so appointed to fill in casual vacancy shall hold office till the date up to which his predecessor would have held office if he had not been removed. An independent director re-appointed for second term under sub-section (10) of section 149 shall be removed by the company only by passing a special resolution and after giving him a reasonable opportunity of being .
Cont 36 Penalty for contravention of Section 169: Company and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees, and in case of continuing failure, with a further penalty of five hundred rupees for each day during which such failure continues, subject to a maximum of three lakh rupees in case of a company and one lakh rupees in case of an officer who is in default.
RESIGNATION OF DIRECTOR (SECTION 168) 37 A Director may resign from his office by giving notice in writing to the Company. The Board has to take note of the Resignation. Intimation to the Registrar of Companies within 30 days of date of resignation in form DIR-12. The resignation has to be noted in the Director Report.
Cont 38 Director may file form DIR-11 within 30 days with ROC when he resigns from a Company. It is optional to file DIR-11.
Cont 39 Can a Company reject resignation of Director ?? If a Director do not want to continue with the Company, can he file DIR-11 ?? What happens in a situation where Director has filed DIR- 11 but Company has still not filed DIR-12 ?? Is he still a Director in that Company in such case ??
Cont 40 There should be minimum 2 Directors in Private Company and 3 Directors in Public Company Whether Form DIR-12 can be filed where the number of continuing Directors goes below the Statutory limit? Whether form DIR-11 can be filed in such a Case ?
Cont 41 Penalty for contravention of Section 168: The company and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees, and in case of continuing failure, with a further penalty of five hundred rupees for each day during which such failure continues, subject to a maximum of three lakh rupees in case of a company and one lakh rupees in case of an officer who is in default.
42 THANK YOU FOR YOUR ATTENTION ! This presentation is not created to advertise and solicit work and should not be advertisement. treated as The document have been prepared on the basis of relevant provisions . Although care has been taken to ensure the accuracy, completeness and reliability of the information provided. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. This is not to be treated as professional advise. We assume no responsibility for the consequences of use of this information. entire contents of this NILESH A. PRADHAN & CO., LLP Email: info@napco.in
