CONSEQUENCIES – CONTINUATION OF DISQUALIFIED DIRECTOR - 442
CONSEQUENCIES –
CONTINUATION OF
DISQUALIFIED DIRECTOR
A. SHORT SUMMARY:
The purpose behind this editorial,
to understand the concept of ‘Disqualification
of Directors’ Consequences on Directors after becomes disqualified, consequences
on Company, Other Directors, Auditors if disqualify director continue as
Director. Provisions for removal of Disqualification, if possible. Whether
order from high court is final way out for removal of Disqualification. To
discuss following frequent questions:
A.
Whether Disqualified Director can continue in Companies as
Director?
B.
What shall be the effect date of cessation of Disqualified
Director?
C.
Whether there is any way out to remove the disqualification
of Directors?
D.
What are the consequences, if disqualified Director
continued as Director in Company?
First Step: - Reason of
Disqualification of Director
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;
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.
Therefore, if a company fails to file its financial
statement for continue 3 financial year Director shall be disqualified for next
5 years.
Second Step: - Impact of
Disqualification
Section
167(1)(a) The office of a director shall become vacant in case—
(a) he incurs any of the disqualifications specified in section 164;
(a) he incurs any of the disqualifications specified in section 164;
Provided
that where he incurs disqualification under sub-section (2) of section
164, the office of the director shall become vacant in all the
companies, other than the company which is in default under that
sub-section.
Therefore, if a person disqualified in any Company due to
section 167(1) such person shall be considered as Ceased in all other Companies
wherever he was appointed as Director.
One can opine that:
Disqualified Director can’t continue as Director in
Companies. He shall be considered as ceased with immediate effect.
If such Person continues as director even after vacation
such person shall be liable for Imprisonment
or fine.
Consequences:
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 imprisonment for a term which may extend to
one year or with fine which shall
not be less than one lakh rupees but which may extend to five lakh rupees, or with both.
Third Step: - Action by Companies on Disqualification
§ Company shall file e-form DIR-12 with
ROC for cessation of such Director with Immediate effect.
§ Company shall take not in immediate next
Board meeting about vacation of such Director.
§ In case no. of director reduced below
minimum limit due to disqualification, then appoint new Director.
Entry in Register of Members about disqualification/
vacation of Director.
One can opine that:
It is responsibility of the remaining Directors to file
e-form DIR-12 for cessation of Disqualified Director and inform ROC about the
same.
If Directors fails to file DIR-12 they are liable for fine
as mentioned below.
Consequences:
As per Section 166 it is duties of Directors of Company to
comply with provisions of Act, act in good faith etc. If a director of
the company contravenes the provisions of this section such director shall be punishable with fine which shall not be
less than one lakh rupees but which may extend to five lakh rupees.
Fourth Step: - Removal of
Disqualification of Director
As per Companies Act, 2013 Disqualification of Director can’t
be removed by any authority Like (ROC, RD, MCA or NCLT). No authority having
power for removal of Disqualification under Companies Act, 2013.
However, many people have filed Writ Petition in High court
for removal of disqualification of Director. High court has passed order for
Interim Stay on Disqualification of Director. However, “High Court”
is not pronouncing order for remove the disqualification of Directors.
One can opine that:
Once a director is disqualified, and then disqualified for
next 5 years. There is no way out for removal of Disqualification of Director.
Fifth:
-
Consequences if Disqualified Director
Continue as Director
List of Default of
Section in case of Continuation of Disqualified Director
·
If there is only Two Director
in Company one Disqualified – All the Board Meetings shall be invalid
·
If disqualified Director
Signing the Financials- Such financials shall be considered as void.
·
Any documents, Resolution
signed by disqualified Director shall be considered as invalid/ void. ETC
QUICK BITES
A.
What shall be effective date
of Disqualification?
Date of disqualification shall be actual date when filing of
financial statement for third financial year become due.
Date as mentioned in ROC list is not actual date of
disqualification. Disqualification may be any date before that due to Section
164(2).
B.
Whether Company required obtaining
resignation from the disqualified Director?
There is no need of Resignation of disqualified Director.
Because as per act once he disqualified he automatically ceased to continue as
Director.
C.
If all the Directors are disqualified,
How to Company will appoint new Directors?
As per Section 167(3) in case all the directors disqualified
then Promoters shall appoint the New Directors and take help of Roc for
Backhand.
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
Comments
Post a Comment