Disqualification of director- Struck off companies

Disqualification of director-
                                              struck off companies



In this Flash editorial, the author referring the provisions relating to Struck Off Companies, Disqualification of Director, cessation of Bank Accounts, and responsibility of Directors due to struck off name of Companies.

This is article no. 268 of the series of editorials written by the author on corporate laws
{Including Companies Act, 2013, SEBI, RBI Regulations, IBC, LLP Act, 2008 etc.}.


During the month June – August ROC has struck off the 200,000 (Two Lakh) Companies from its record. List of Companies struck off from record of ROC available on the website of the ROC. Even Our Hon’ble Prime Minister Mr. Narendra Modi  in his speech at ICAI on CA day has confirmed that scrutiny of 300,000 (Three Lakh) Companies are going on, which can be struck off u/s 248(1).

On Tuesday 5th September, 2017 Ministry of finance restricted directors of around 200,000 Shell Companies from accessing their firms’ bank accounts.
MCA has issued notice on the home page of its website i.e. in relation to disqualification of Directors.
MCA Important NoticE

Any person disqualified under section 164(2) of the Companies Act, 2013 [the Act] is advised not to act as director during the period of the disqualification and not to file any document or application with MCA as the same shall be summarily rejected.

However, this shall be without prejudice to the  liability of the said person for violation of section 164(2) read with section 167 of the Act including the action under section 448 r/w 447 of the wherever warranted. 

After reading the above “notice” of MCA. There are many questions arise in the mind of the professionals and the Corporates. i.e. (i) Whether director of companies struck off by ROC shall be disqualify to incorporate new Company (ii) shall be disqualify for appointment in another Companies (iii) shall have to vacant his office from the all other Companies (iv) shall not able to file forms of other companies in which he is director with his DSC etc. etc.

Legal Language: 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.

Legal Language: Section 167(1):

167. (1) The (1) The office of a director shall become vacant in case
(a) he incurs any of the disqualifications specified in section 164;


Section 164(2)

Sub-section (2) of Section 164 renders a person ineligible for re-appointment as a director of the defaulting company and for appointment in other company.
What sub-section 164 (2) seeks to do is to
·         prohibit re-appointment of a director of the defaulting company and
·         His appointment in any other company, i.e. new appointment. (it might include new incorporations also)

Section 167
Section 164 provides for disqualifications which must be considered in respect of a person who is proposed to be appointed as a director of any company, section 167 provides for grounds for vacation of office of a person who is already a director of a company.

These two sections have different roles to play, Section 164 at the time of appointment and 167 during the continuation of appointment. The consequence of provision of section 167 is that when a person incurs any disqualification under section 164, he will have to vacate his office of director in all the companies in which he is a director.


However, - Section 164 divided into 2 sub- section i.e. two type of situations.

§  Sub section (1) states about disqualification like: unsound mind, undercharged insolvent, court has passed order for non appointment…… etc.
These all are the disqualification relating to the person (i.e. director) only. These disqualifications are not relating to any particular Company.

§  Sub section (2) states about Company fails to file financial statements or annual return or failed to repay the deposit.. Etc.
These all disqualification are relating to the Company, not personal disqualification of the Directors.

i.            Hence one can opine that, in case of any disqualification under Section 164(1) which disqualification is relating to person (i.e. director). Any person disqualify u/s 164(1) shall vacant his office from all the Companies in which he is director pursuant to provision of 167(1)(a).
For an example: a person is director in 7 companies and become unsound mind then in this situation he can’t serve the any company therefore his office should be vacant from all the Companies.
ii.            Hence one can opine that, disqualification u/s 164(2) is disqualification relating to Company and non compliances. In such case he is not allowed to become re-appointment in such Company because he has done non compliance in such company and for appointment in any other Company. But he is still sound mind to become work for the other company in which he has not made any non compliance as mentioned in 164(2). Therefore, one can opine that he shall continue in such companies as director.


The Section 164(2) specifically provides the consequences of the disqualification, namely that a director of the defaulting company shall not 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.

One can opine that the consequence of vacation of office under section 167(1)(a) cannot apply in respect of the disqualification stated in sub-section (2) of section 164. The provision in section 164(2) can be said to be a special provision as against section 167(1)(a) which is a general provision and hence the former should override the latter.

A.     Whether director of company struck off by ROC shall be disqualify to incorporate new Company or appointment in any other Company.

The answer of this question should be YES. Because as per Section 164(2) in case of non compliance director shall not be eligible for re-appointment in that Company or “appointment in any other Company”. Incorporation of New Company attracts the appointment of Director. However, a person who has made non compliance u/s 164(2) shall not be eligible to appoint new Company.

Even the MCA by its Notice mentioned that any person disqualified u/s 164(2) “it is advised not to file any document or application with MCA as the same shall be summarily rejected”.

Therefore, if any person disqualified u/s 164(2) file form for incorporation of Company or appointment in any other Company MCA shall reject the same.

As we have discussed the provision of 164(2) and 167(1)(a) still many questions arise. Here the question

v  Whether vacation u/s 167(1) shall be applied only in case when director disqualified u/s 164(1)?
v  Whether such director eligible to file the forms of other Companies in which he has directorship?
v  Whether such person shall be eligible to sign the financials of other Company in which he has directorship?

During a review meeting chaired by Minister of State for Corporate Affairs P P Chaudhary, it was also decided that directors of such shell (struck off) companies which have not filed returns for three or more years, would be disqualified from being appointed in any other company in that position [as same has mentioned in provisiosn of section 164(2)]

                                    step Against Black Money

In a major clampdown against black money, the government has directed freezing bank accounts of more than 2.09 lakh companies whose names have been struck off from the records. The move is a precautionary measure aimed at preventing misuse of the bank accounts.

A large section of these companies may have failed to comply with the requirement of submitting annual reports and other filings as their businesses had failed to take off. Some of them have come under the scanner of the income-tax department for suspected money laundering and stock price manipulation.

The companies have been removed from the records of the Registrar of Companies (RoC) under section 248 of the Companies Act for reasons including not commencing operations within a year of incorporation or for not carrying out any business in the preceding two fiscal years

In his Independence Day speech, Prime Minister Narendra Modi had said the drive against black money had led to the discovery of a vast number of shell companies.’

Department of Financial Services (DFS) directors (ex-) or their authorised signatories had been restricted from operating bank accounts of such companies and cannot siphon off money from the accounts of these "struck off" companies. However, even prior to such action, if they have siphoned off any money, strict action would still be taken against them, an official release from the Centre stated.

These individuals will therefore not be able to operate bank accounts of such companies till such companies are legally restored under Section 252 of the Companies Act by an order of the National Company Law Tribunal. The restoration, as and when it happens shall be reflected by change in the status of the company from ‘struck off ’ to ‘active’.

Hence, all the Companies which have struck from the records of the ROC due to notice of ROC u/s 248 shall not to manage its Bank Account onwards until they get order for restoration from the NCLT. (Please read my article No. 245 for the process of restoration of name of struck off Companies).

"In case the director or authorised signatory of any 'struck off' company tries to unauthorisedly siphon-off money from its bank account, he/she may attract punishment of imprisonment of not less than six months extendable to 10 years," an official release said.
The government also said that if the fraud involves public interest, the punishment would not be less than three years of imprisonment and the quantum of penalty would be three times the amount involved.


All the Directors of Struck off Companies u/s 248 by ROC shall not be eligible for incorporation of new Company for the 5 financial years and shall not be eligible to appoint in any other Company. Even this disqualification doesn’t prejudice the liability of the said person for violation of section 164(2) read with section 167 of the Act including the action under section 448 r/w 447 of the wherever warranted. They are still liable for the non compliances and penal provision under such sections.
However, Directors disqualified under Section 164(2)(a) of the Companies Act, 2013 and who are associated with struck off companies (S.248) are advised not to make any application for Name Availability(INC-1), Incorporation of Companies (INC-7/SPICe-INC-32/URC-1/INC-12). Forms filed by such Directors shall be rejected summarily by the Central Registration Centre (CRC).

Efforts are also being made by the government to identify the actual beneficiaries and persons behind such shell companies.

Identification of more shell companies is also in progress. Additionally, the professionals, chartered accountants, company secretaries and cost accountants associated with such companies involved in illegal activities have been identified in certain cases and the remedial action by professional institutes such as ICAI, ICSI and ICWAI are being monitored.

Exercise of weeding out shell companies would not only help in checking the menace of black money, but would also promote an ecosystem of 'Ease of Doing Business' and enhancing investors' confidence to which the present government is fully committed.

(Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com).

 Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, I assume no responsibility therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not a professional advice and is subject to change without notice. I assume no responsibility for the consequences of use of such information. IN NO EVENT SHALL I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION WITH THE USE OF THE INFORMATION. 


  1. Sir, If all the directors are disqualified for failure on compliance-filing, who else shall be eligible to act as signatory for subsequent corrective filing?

  2. This comment has been removed by a blog administrator.

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