Grounds for Director Disqualification And Removal Of Disqualification

Published On: Jul 14, 2020Last Updated: Oct 14, 20233.4 min read

The director of a company is an individual that is under onerous pressure for the smooth functioning and development of the company on behalf of the shareholders of the company.

Some people also use their power unfairly and use the company’s position and other advantages for their own benefit. The Companies Act, 2013 has a special clause covering the circumstances in which a director may be excluded from serving as the director of a company. Now let us hold to our subject and discuss important aspects of it.

Grounds of Disqualifications

There arise situations which may lead the disqualification of a director as per Companies Act, 2013, which states:-

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An individual is not qualified as a director of a company if —

  • Where he/she is unsafe and has been found by a competent court;
  • If he/she is an unloaded insolvent;
  • If he/she has applied for insolvency and his/her application is pending;
  • Where the court has convicted him/her of any crime, be it moral turpitude or otherwise, and sentenced for no less than six months in prison, and a term of five years shall not expire after the expiry of the sentence.
  • A court or tribunal has issued an order disqualifying it from appointment as a director and the order remains in force;
  • S/he has not received any appeals for any shares of the company owned, either alone or jointly and the last day set for payment for the call has elapsed for six months.
  • S/he was convicted at any time during the past five years of the offense dealing with the transactions of related parties under section 188.
  • No person who is or was a director of a company that did not file financial statements or annual returns for a continuous period of three-years.
  • If you have not reimbursed the deposits that you accepted, paid interest, or paid debentures on the due date, paid interest or paid any dividends that you reported, and that default in payments or redeeming lasts for a year and more.
  • Under the last two provisions, the director is not entitled to be re-elected as the company’s director or appointed for the period of five years following the date the company fails to do so by another entity.

The government began taking action in 2017 to tackle corruption, which is deeply rooted in the Indian economy.

Accordingly, in 2017 the Ministry of Corporate Affairs (MCA) disqualified some 2.17 lakh companies on the basis that they have not been carrying out any business of last many years and/or are companies or numerous directors who have been associated with such a company as directors and so they can not be appointed for a period of five (5) years apart from the director in any other enterprise.

Removal of Disqualification

Circumstance I:

If the company’s status is ‘canceled’ with an intent to close private company and the Director intends to re-invigorate and remove his disqualification.

An appeal for the company’s revival must be brought before the National Company Law Tribunal ( NCLT) *. Once the order for revival has been passed by NCLT, the appellant shall meet the company revival requirements within the period stipulated in the Order.

If NCLT denies its revival, the Company may appeal for revival before the Appellant Tribunal (NCLAT).

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Circumstance II:

When the status of the company is ‘removed,’ but wishes to erase its disqualification without the company being resurrected.

The High Court/Supreme Court shall file a written request for withdrawal of disqualification. Until the interim and/or final order is issued, the applicant complies with the disqualification provision.

Circumstance III:

If the company’s status is ‘active,’ all managers are disqualified and want to remove the disqualification.

If the Company is active but one or all of the directors are disqualified for any reason in certain situations, the individual shall opt for situation II.

In certain other situations, it is advisable that when there is an impasse in the company new Directors should be appointed in the company whose status is ‘active.’

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Anandan Mudaliar
About the Author

Anandan Mudaliar

Anandan Mudaliar pursuing Company Secretary is associated with as Operational Executive of the Company. He is handling various MCA related compliance along with good grip in Company, LLP and other various legal drafting.