Remedy for Removal of Disqualification of Director
Whether there Is any cure to get rid of Disqualification of DIRECTOR:-
Short Summary:
In this flash piece of writing, the author
begins by referring the provisions of Section 164 and 167 of Companies Act,
2013 pursuant to provisions of Disqualification of Director. Further author try
to talk about the way out to get rid of from status of disqualification, if
any. Therefore disqualified person shall be eligible to appoint as director or
continue as director in other Companies.
The main thrust of the article, however, is
upon the ‘Whether there is any treatment to get rid of
from the Disqualification position of Director?”
This is article no. 277 of the series of editorials
written by the author on corporate laws {Including Companies Act, 2013, SEBI,
RBI Regulations, IBC, LLP Act, 2008
etc.}.
Introduction:
As Directors were enjoying picnic from the
long time by non compliance with the provisiosn of Companies Act. They have
created the Companies but not complied with the legal formalities to run the
Company. Government has struck off such Companies and disqualified the
Directors (By blocking of DIN) being new appointment or continue as director in
existing Companies. Such Disqualified Directors are spending sleepless nights.
Ministry
of Corporate Affairs along with Ministry of Finance has taken actions against
the Shell Companies in other words the Companies which has not filed the
Financial Statement and Annual Return with ROC. MCA has identified 106,578
Directors for disqualification under section 164(2)(a) of Companies Act, 2013
as on 12th September, 2017.
Legal Provisions for
Disqualification of Directors:
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
Section 167(1) The office of a director shall become vacant in case he
incurs any of the disqualifications specified in section 164.
Remedy to Remove
Disqualification of Director
At present, subsequent to disqualification
of Directors by Government, Corporates/ Directors going through following
troubles like:
i.
Directors can’t use
their DIN
ii.
No e-form can be file
in any Company with the DSC of such Director.
iii.
A Company (Complied
with the provisions of the Act and Active) where there are only 2 directors and
one of them is disqualified that company not able to file its e-form with ROC,
not able to conduct the Board Meetings, not able to comply with the provisiosn
of the Act due to only one director on the Board.
iv.
Such person not able
to incorporate new Companies.
Pursuant to above mentioned troubles
Directors / Companies are looking for the way out to remove the
Disqualification under Section 164(2). Professionals / Corporates having many
questions pursuant to removal of disqualification like:
i.
Whether disqualification can be eliminate by
COMPOUNDING?
ii.
Whether disqualification can be eliminate by
“REVIVAL OF COMPANY”?
iii.
Whether disqualification can be eliminate by
“NCLT” or Whether disqualification can
be eliminate by filing of DIR-10 by Central Government?
A. Whether
disqualification can be eliminate by COMPOUNDING?
As per the Black’s Law Dictionary, to “Compound”
means “to settle a matter by a money payment, in lieu of other liability.”
This definition thoughtfully represents the concept of Compounding as
a Settlement Mechanism, a settlement
by paying the penalty in lieu of facing the prosecution for the offence
committed.
Power of Compounding given u/s 441 of Companies
Act, 2013. As per Section 441 Any
Offence punishable
under this Act is compound by Tribunal. As a result, compounding
option available for offence
conducted by the Directors/ Company.
Disqualification u/s 164(2) trigger because of non
filing of financial statement u/s 137 and non filing of annual return u/s 92.
Compounding can be done for section 137 and 92 after making default good.
Disqualification of Directors given u/s
164 however, no penalty / prosecution provide under Section 164 except one that
such director shall be disqualified for 5 year. After completion of 5 year he
becomes eligible to apply for removal of disqualification.
Therefore one can
opine that first no punishment/ penalty/ fine is prescribed under section 164
and 167, Second Disqualification is not an offence. If it is not an offence and
no penalty / fine is prescribed then it can’t be compound under Section 441.
Hence, disqualification can’t be removed by compounding of offence.
B.
Whether disqualification can be
ELIMINATING by “REVIVAL OF COMPANY”?
This question has
already been discussed by the author in an another Article series No. 274
available on Link: http://www.csdiveshgoyal.info/2017/09/whether-disqualification-of-director.html
Extract of one paragraph of such write-up:
“one can opine that “Revival of name of Company in
the record of ROC is not a criteria for removal of disqualification of
director.” Even Name of Company is restored in the record of ROC still
directors shall be continued as disqualified u/s 164(2) for appointment and
reappointment and liable for vacant office in other Companies u/s 167(1) until
unless there is any amendment in the provisiosn of Companies Act, 2013 or any
clarification issued by the Central Government”.
C.
Whether disqualification can be
eliminate by “NCLT” or
Whether
disqualification can be eliminate by filing of DIR-10 by Central Government?
As
per the NCLT Rules nowhere under the rules power / process is given to NCLT for
removal of disqualification of Directors u/s 164(2). Hence until unless there
is any amendment in the provisiosn of Companies Act, 2013 or any clarification
issued by the Central Government Hon’ble NCLT don’t have any power to remove
the disqualification of director.
Power of Central Government:
As per The Companies
(Appointment and Qualification of Directors) Rules, 2014 contain a provision pursuant
to “application for removal of
disqualification of directors shall be made in Form DIR-10.”
Rule 14(5) states that, “Any application
for removal of disqualification of directors shall be made in Form DIR-10.”
However this is physical form required to be file with other form with the
appropriate authority.
As per study of
Section 164(2) and Rule 14 simultaneously “one
can opine that disqualification of Directors can be eliminating by filing of application
in DIR-10 with Central Government. However, such application in DIR-10 can be
made only at the end of the tenure of five years post his disqualification.”
Therefore, Filing of DIR-10 before
completion of 5 year is not a way out for removal of disqualification of
director or to get rid from the status of disqualified Director.
CONCLUSION:
It can be conclude at present,
since there seems to be no remedy available as per the Companies Act, 2013, a
Writ Petition can be made by the aggrieved director under Article 226 of the
Constitution of India in the absence of any alternate remedy available.
On September 21, 2017, the
Madras High Court has passed an interim order[10] staying the RoC Chennai’s order of
disqualification of Bhagavan Das Dhananjaya Das as the director of Birdies and
Eagles Sports Technology, a private company..
Therefore, it can be said that once a director is disqualified u/s 164(2) he shall continue disqualified for FIVE financial years. In the Active Companies promoters have to appoint new directors for smooth working of the Company.
(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
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Filing of application in DIR-10:-
ReplyDeleteSir, Is anywhere mention in Companies Act 2013 that one can file DIR-10 only after 5 years?
Thanks in adavance
well written. i agree with all of the views except compounding as there is section 450 which says that if there is no penal provision given in section the general penal provisions would be applicable.
ReplyDeleteDVD