Circumstances under which a Director become Disqualified

A Director is person who is under pressure to perform certain functions on behalf of Company’s shareholders for the proper functioning and taking the Company toward growth.

The Companies Act, 2013 has certain special provision which deals with the circumstances under which a Director can be disqualified to act as Director of the Company.

Circumstances Under Which a can become Director Disqualified

A Director can become disqualified under the following states:-

• 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
• an order disqualifying him/her for appointment as a director has been passed by a court or Tribunal and the order is in force;
• he/she has not paid any calls in respect of any shares of the Company held by him/her, whether alone or jointly with others, and six months have elapsed from the last day fixed for the payment of the call;
• he/she has been convicted of any of the offence dealing with related party transactions under section 188 at any time during the last preceding five years; or
• No person who is or has been a Director of a Company which has not filed the Financial Statements or Annual Returns for any continuous period of three financial years;
• He/she has failed to repay the deposits accepted by it or to pay interest thereon or to redeem any debentures on the due date or to pay interest due thereon or pay any dividend declared and such failure to pay or redeem continues for one year or more;
• In the last two (B) clause, the Director 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.

The Ministry of Corporate Affairs (MCA) in 2017 has struck off the around 2.17K Companies on the due to not carrying of any business from past many years and/or Companies as well as many other Directors who were associated with such Companies has been disqualified to act/become as Director which shall not be eligible to be appointed in any other Company onwards for a period of five (5) years also such Disqualified Director shall be punishable with an imprisonment for a term upto 1 year or with a fine of Rs. 1 lac to Rs. 5 Lacs or with both.

Make it How to Remove Director Disqualification

Situation I:

When status of the Company is ‘struck off’ and the Director intends to revive the Company and remove his disqualification:- An appeal for revival of the Company has to be filed before the National Company Law Tribunal (NCLT)*. Once the order for revival is passed by NCLT, the appellant shall comply with the requisites to revive the Company within the time stipulated in the Order.

If revival of the Company is denied by NCLT, the Company can appeal before the Appellate Tribunal (NCLAT) for revival

Situation II:

When status of the Company is ‘struck off’ but wants to remove his disqualification without reviving the company

Writ petition for removal of disqualification shall be filed before the High Court* / Supreme Court. Once the interim and/or final order against such disqualification is received, the Petitioner shall comply with the requisites to removal his disqualification.

Situation III:

When the status of the Company is ‘active’ but all the Directors are disqualified and wants to remove disqualification.

In certain situation, where the Company is active but either one or all directors is/are disqualified because of any reason, such person shall opt for situation II.

In certain other situations, when there is a deadlock in the Company it is advisable to appoint to new Directors in the Company the status of which is ‘active’