Disqualifications of Directors

Directors not eligible for appointment in their own company.

There are certain scenarios after which a person can become ineligible for an appointment as a director in his own company. These scenarios are mentioned in section 164 of the companies act. 2013.

1. A person of unsound mind if declared by any competent court

2. An insolvent person who is still undischarged

3. Any person who has applied to the court for adjudicating himself as insolvent

4. A person will be disqualified for an appointment in any company for 5 years if he is or was convicted for 6 months or more. The person will get disqualified for a lifetime if he was convicted for 7 years or more. The offence should be under the companies act and not any other acts.

5. Court or NCLT can disqualify any person through any order.

6. A person who has not paid calls or money on shares

7. If any person is convicted even for a single day for any offence related to related party transactions.

8. If he has not obtained DIN

9. If he has exceeded the number of directorships

10. All the existing directors shall be disqualified if the company has defaulted in furnishing annual return or financial statements.

There are some other scenarios possible when the directors become disqualified for life.

1. If directors disobey the Registrar or Inspector at the time of inspection.

2. Private Limited companies can provide any other conditions for the disqualifications.

What to do after a Director is Disqualified

The Director is required to inform the company in form DIR-8 before he is appointed or reappointed.

If a company fails to file financial statements or annual returns or fails to repay any deposit, the company shall file form DIR-9 with Registrar furnishing details of all directors during relevant years.

On receipt of intimation, the Registrar will register the document and place it in the document file for public inspection.

Application for removal of disqualification of directors shall be in form DIR.10.

Other significant issues

If NCLT grants a re-schedule of payment of deposits, the disqualification applies after the expiry of 1 year from the date re-scheduled.

If the offences are compounded after payment of compounding fees, the disqualifications will be removed and the person will become eligible for appointment.