Disqualification of Company Director – When an individual cannot take directorship

Section 164 of Companies Act 2013 has listed few disqualifications for director. If any person fulfills these criteria then he or she will not be eligible to get appointed as director of a company.

disqualification of company director

As per section 164 (1) of Companies Act 2013, a person shall not be eligible for appointment as a director of a company, if-

  • he is of unsound mind and stands so declared by a competent court;
  • he is an undischarged insolvent;
  • he has applied to be adjudicated as an insolvent and his application is pending;
  • he has been convicted by a court of any offence, whether involving moral turpitude or otherwise, and sentenced in respect thereof to imprisonment for not less than six months and a period of five years has not elapsed from the date of expiry of the sentence.

Provided that if a person has been convicted of any offence and sentenced in respect thereof to imprisonment for a period of seven years or more, he shall not be eligible to be appointed as a director in any company;

  • an order disqualifying him for appointment as a director has been passed by a court or Tribunal and the order is in force;
  • he has not paid any calls in respect of any shares of the company held by him, whether alone or jointly with others, and six months have elapsed from the last day fixed for the payment of the call;
  • he has been convicted of the offence dealing with related party transactions under section 188 (Related Party Transaction) at any time during the last preceding five years; or
  • he has not complied with sub-section (3) of section 152.

As per Section 152(3) no person shall be appointed as a director of a company unless he has been allotted the director identification number or DIN.

If you are an existing director then in addition to section 164(1), you are also required to go through provisions of section 164(2) of Companies Act 2013.

As per section 164(2) of the Companies Act 2013, no person who is or has been a director of a company which —

  • has not filed financial statements, or annual returns for any continuous period of three financial years; or
  • 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.

As per section 164(3) of Companies Act 2013, a private company may by its articles of association provide for any disqualifications for appointment as a director in addition to those specified in sub-sections (1) and (2):

Provided that the disqualifications referred to in clauses (d), (e) and (g) of sub-section shall not take effect—

  • for thirty days from the date of conviction or order of disqualification;
  • where an appeal or petition is preferred within thirty days as aforesaid  against the conviction resulting in sentence or order, until expiry of seven days from the date on which such appeal or petition is disposed off; or
  • Where any further appeal or petition is preferred against order or sentence within seven days, until such further appeal or petition is disposed off.

As per section 167(1) (a) of Companies Act 2013, the office of a director shall become vacant in case he incurs any of the disqualification specified in section 164.

As per Companies (Appointment and Qualification of Directors) rules, 2014, every director shall inform to the company concerned about his disqualification under sub section (2) of section 164, if any, in form DIR-8 before he is appointed or reappointed.

If a company fails to file the financial statements or annual returns or fails to repay any deposits, interest, dividend or fails to redeem the debentures, as specified in sub-section (2), the company shall immediately file Form DIR-9, to the registrar furnishing therein the names and addresses of all the directors of the company during the relevant financial years.

If the company failed to file Form DIR-9 within a period of 30 days of the failure that would attract the disqualification under sub section (2), officers of the company as specified in clause (60) of section 2 of the act shall be the officers in default.

Removal of disqualification can be done by applying for such removal in form DIR-10.

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