Activation of DIN of disqualified Directors: Writ petition and interim stay order by CS Mohit Saluja



In the year 2017, Ministry of Corporate Affairs by taking the ambit of Section 248 which talks about “Power of Registrar to remove name of company from register of companies” struck off more than 2 lakh companies which were not filing its returns for the last many years and the Government was of the view that such companies were not carrying on their business for more than 2 years. And Marked the Directors of such companies as “DISQUALIFIED DIRECTORS”
 



However, those companies were given a chance by the ROC to reply to the notices issued to them before striking them off. Since no reply was given, the companies ultimately were struck off by the concerned ROCs.
 
Also, thereafter, Ministry of Corporate Affairs marked a large no. of directors as “DISQUALIFIED” by taking the ambit of Section 164 (2)(a) of the Companies Act, 2013 which states that
 
(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; or
 
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.
 
Following above provisions, all the directors of the companies which have not filed their returns for the last 3 Financial Years were declared Disqualified by the Ministry. The list of all such director is available at the MCA Site at following link:
 
 
The main reason behind issuing Disqualified Director List was also that the Government was of the view that there are a large no. of SHELL Companies which are converting their black money into white whereas they were not complying any law and were not filing their returns. Hence, all the directors of such shell companies were declared Disqualified.
 
Now, there were three types of companies in which there were DISQUALIFIED DIRECTORS after the clean up mission of the Government.
  1. Defaulting Companies: having Active Status but Directors Disqualified because of Non Filing of their return
  2. Genuine Active Companies having genuine business but having disqualified status: Since the directors of these active companies were also directors of any other struck off or disqualified companies.
  3. Strike Off Companies, the directors of which ultimately got disqualified on getting struck off.
For the First two classes of companies, Government launched the CODS Scheme 2018 whereby such companies were given one time option to file their annual return and balance sheets with ROC and get the status of their Directors APPROVED FROM DISQUALIFIED.
 
But the problem still persist for the directors who were declared Disqualified on account of STRUCK OFF Companies. Then such Directors moved to the HIGH COURT requesting the court to put STAY on their DISQUALIFICATION since they were facing difficulty in carrying business in their genuine companies.
 
On the request of Disqualified Directors and the genuine companies, High Court in many cases, pronounced judgements for INTERIM STAY on Disqualification of Directors. However, in no case any order has been passed by the Court for removal of Disqualification since the disqualification can only be removed after the completion of 5 years from the date when the director was disqualified, by complying with provisions of the Act.

Conclusion:

So, if any director of any struck off Company want to get interim stay on disqualification can file a writ petition in Hon’ble High Court. However, it is suggested by the author that it is better to get such directors removed from the companies till the completion of their Disqualified Period. Since, Section 167 (1) (a) is clear that the office of Director shall stands vacant in case, he incurs any disqualification specified in Section 164.
 
Legal Provision 164:

Disqualifications for Appointment of Director

Notified Date of Section: 01/04/2014

164. (1) A person shall not be eligible for appointment as a director of a company, if —
(a) he is of unsound mind and stands so declared by a competent court;
(b) he is an undischarged insolvent;
(c) he has applied to be adjudicated as an insolvent and his application is pending;
(d) 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;

(e) an order disqualifying him for appointment as a director has been passed by a court or Tribunal and the order is in force;
(f) 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;
(g) he has been convicted of the offence dealing with related party transactions under section 188 at any time during the last preceding five years; or
(h) he has not complied with sub-section (3) of section 152.

6[5[4[(i) he has not complied with the provisions of sub-section (1) of section 165.]]]

1[(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; or
(b) 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.]

2[Provided that where a person is appointed as a director of a company which is in default of clause (a) or clause (b), he shall not incur the disqualification for a period of six months from the date of his appointment.]

(3) A private company may by its articles provide for any disqualifications for appointment as a director in addition to those specified in sub-sections (1) and (2):

3[Provided that the disqualifications referred to in clauses (d), (e) and (g) of sub-section (1) shall continue to apply even if the appeal or petition has been filed against the order of conviction or disqualification.]

Exception/ Modification/ Adaptation

1. In case of Government company - Sub-section (2) shall not apply . - Notification dated 5th june, 2015.

Amendments 

2. Inserted by The Companies (Amendment)Act,2017 Amendment Effective from 7th May 2018

3. Substituted by the Companies (Amendment) Act,2017 Amendment Effective from 7th May 2018

In section 164 in sub-section (3) for the words:-

"Provided that the disqualifications referred to in clauses (d), (e) and (g) of sub-section (1) shall not take effect—
(i) for thirty days from the date of conviction or order of disqualification;
(ii) 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
(iii) where any further appeal or petition is preferred against order or sentence within seven days, until such further appeal or petition is disposed off."

The following Clause shall be substituted, namely :-

"Provided that the disqualifications referred to in clauses (d), (e) and (g) of sub-section (1) shall continue to apply even if the appeal or petition has been filed against the order of conviction or disqualification."

Inserted by the Companies (Amendment) Ordinance,2018 dated 02.11.2018

Inserted by the Companies (Amendment) Ordinance,2019 dated 12.01.2019    [Companies (Amendment) Ordinance 2018 is repealed on 12th January 2019] 

6.Inserted by the Companies (Amendment) Act,2019 -: Effective From 02nd November 2018  [Companies (Amendment) Second Ordinance 2019 is repealed on 31st July 2019]


Disclaimer: 

The author is based at Jalandhar and is practicing company Secretary and a Certified CSR Professional. The information contained in this write up, as provided by the author, is to provide a general guidance to the intended user. The information should not be used as a substitute for specific consultations. Authors recommend that professional advice is sought before taking any action on specific issues. The author can be however contacted for further clarification at 99145-58709 or via mail at csmohitsaluja@gmail.com
 
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