How termination of CODS shall effect Disqualification of Directors

How termination of CODS shall effect Disqualification of Directors

Short Summary:

As MCA issued the list of approx 309,614 Director who has been disqualified under section 164(2) and whose DIN has been blocked by the MCA. Due to this action many representations made from industry, defaulting companies and their directors seeking an opportunity for the defaulting companies to become compliant and normalize operations.

With a view to give them opportunity the CG has introduced a scheme namely “Condonation of delay scheme 2018” [CODS-2018].”The scheme was effective w.e.f. 01^st January, 2018 to 01^st May, 2018.

Many Companies have taken the benefit of scheme by completion of pending Annual Forms with ROC along with CODS form. “However, still lot of Companies are there in MCA records, which have still not completed the pending Annual Filings.”

As the scheme is expire on 01st May, 2018. A question arises in the mind of professionals and Corporates i.e. How to remove the disqualification of Directors of the Companies, which has not completed the Annual filings under CODS scheme and not taken the benefits of CODS Scheme?”

Few Questions:

While discussing above question, many other questions came into mind i.e.

1.        Whether CODS shall be available to Companies, which has filed petition for restoration of Companies before NCLT on or before 01^st May, 2018?

2.      Whether CODS shall be available to Companies, which has filed writ petition for Strike off of Companies before High Court on or before 01^st May, 2018?

3.      What shall be the course of action for the Companies which have not taken the benefit of CODS scheme?

Other Food for Thoughts:

A.     Whether DIN of Director shall be deactivating again?

B.     Consequences if a person not complied with CODS, however used his DIN for resignations and appointments in another companies during CODS Period?

Effect of Closure of CODS Scheme

A.     Deactivation of DIN

As per paragraph no. 4 point (i) of CODS:  DIN of disqualified director shall be activating only for the period when scheme shall be effective.  (i.e. 01^st January, 2018 to 01^st May, 2018)

As per paragraph no. 4 point (iv) of CODS: 

The Din of Directors have not filed overdue documents and the e-form CODS and are still found to be disqualified on conclusion of scheme, “shall be liable to deactivated on expiry of the scheme”.

However, in other word it can be said that:

“Directors who has not complied with the CODS shall remain disqualified u/s 164,

therefore his DIN shall be deactivated again”

B.   Effect on Directorships:

After expiry of Scheme director who has not complied with Scheme shall be disqualified again as mentioned above. Therefore,

        i.  He shall not be eligible to get appointment as Director in other Companies (for 5 years). (Section 164)

      ii.  He shall not be eligible to re-appoint in that Company. (Section 164)

    iii.  His office from other companies shall be Vacant automatically. (Section 167)

    iv.  Such persons are not eligible to incorporate new Companies.

      v.  Following other effects:

·        Shall not be eligible to sing the Documents on behalf of Company in capacity of Director,

·        Shall not eligible to attend Board Meeting

·        His name shall be removed from the register of Directors.

Penalty for the Directors for Non Compliance

Ø  Any person who contravenes the provisions of sec 164:

There are no specific penal provisions stated for the occurrence of default, but same as be stated under section 172 of the Act, company and every officer who is in default of chapter IX shall be punishable with fine of Rs. 50000 to 5 Lacs

Ø  Contravention on continue as director even after attainment of disqualification

He shall be punishable with the imprisonment for a term upto 1 year or with fine of Rs. 1 lac to Rs. 5 Lacs or with both

C.    Action to be taken by ROC:

As per paragraph no. 7 of CODS:  The ROC shall take all necessary actions under CA 1956/ 2013 against the Companies who have not availed the CODS and continue in default in filing.  Therefore, actions that can be taken by ROC can be followings:

I.          Show cause notice:

Registrar of Companies can issue show cause notices u/s 92/ 99/ 129/ 137 to the Directors of such defaulting Companies for contravention of provision of Section 92, 96 and 137 of Act respectively.

Even ROC has issued show cause notice to many companies under above

mentioned sections.

Note­: ROC can issue show cause notice in many other sections also like 164, 166, 167 etc.

II.          Compounding of Offence u/s 441:

As per provisions of Companies Act, 2013, if company fails to file Annual form within the additional time prescribed under Section 403 (i.e. 270 days) then company has to file application with NCLT for compounding of offence u/s 137 and 92.

III.          Additional Filing Fees:As per Companies Amendment Act, 2017

No Upper Cap  - Additional Fees:

In the Companies (Amendment) Act, 2017 It is approved that if any company fails to comply with the provisions of Section 92 & 137 the Companies Act, 2013 i.e. filing of e-form MGT-7 and AOC-4 with in period of 60 days and 30 days of date of Annual General Meeting “Then as per amendment act the Company can file such form subject to additional fees of Rs. 100/- per day.

Calculation of Time Period and Additional Fees:

S. No.	Normal Fees (Calculation for the Company having capital of Rs. 100,000/-)	Period of Default	Additional Fees as per Companies Act, 2013	Additional Fees as per Companies Amendment) Bill, 2017
A.	Rs. 300	30	600	3000
B.		31	1200	3100
C.		60	1200	6000
D.		61	1800	6100
E.		90	1800	9000
F.		91	3000	9100
G.		180	3000	18000
H.		181	3600	18100
I.		300	3600	30000
J.		301	3600	30100

Major Effect:

One can be opine that once the this section notified, there shall be huge additional fees for non-filing of Annual Forms and such fees shall be increase by each day. “There is no upper cap in additional Fees”

1.        Whether CODS shall be available to Companies, which has filed petition for restoration of Companies before NCLT on or before 01^st May, 2018?

As per paragraph no. 4 point (v) of CODS: 

In case of struck off Companies u/s 248 and which have filed application for revival “upto the date of scheme (i.e. 01^st May, 2018) in such situation DIN of Directors shall be re-activated on NCLT order.

After reading above paragraph, one can opine that if a company has filed application u/s 252 for revival of Company before 01^st May, 2018 in such case his DIN shall be reactivate after order of NCLT (even if passed after 01^st May, 2018)

Note: However, CODS form is not available on MCA website. Therefore, this shall be still question whether CODS shall be available or not.

2.      Whether CODS shall be available to Companies, which has filed writ petition for Strike off of Companies before High Court on or before 01st May, 2018?

CODS shall not be available to the companies, who have filed write petition with high court even before or after 01^st May, 2018. Even in its orders Hon’ble high court has given the instruction to companies to file overdue documents and CODS on or before 01^st May, 2018.

(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