Director Disqualification and Condonation of Delay Scheme

Narendra Kumar

05 Sep, 2022

Director Disqualification

What is the Provisions of Director Disqualification as Per Companies act, 2013?

Section 164 of the Companies Act 2013, deals with disqualifications for the appointment of directors. It provides that:

1. No person will be eligible for appointment as a director of a company, if-
   1. He is of unsound mind and a competent court has declared so;
   2. He is an undischarged insolvent;
   3. His application to be adjudicated as an insolvent is pending;
   4. He has been convicted of an offense, related to moral turpitude or otherwise, by a competent court and has been sentenced to imprisonment for not less than 6 months; also a period of 5 years has not elapsed from the date of expiry of such sentence.
      In the event where a person has been convicted of any offense, subsequently sentenced to an imprisonment of minimum7 years, then he shall not be eligible to be appointed as a director in any company;
   5. He has been convicted of the offense subject to Section 188 of the Companies Act, 2013of related party transactions at any time during the last preceding five years;
   6. A court has disqualified him to be appointed as a director and such an order is in force;
   7. There are unpaid calls related to any shares held by the director, alone of joint, of the company, six months have elapsed from the last day so fixed for payment of such call;
   8. He has not been allotted a Director Identification Number (DIN).
2. A director is not permitted to be re-appointed as a director of that company or appointed in other company, for a period of five years, if
   1. He has not filed annual returns or financial statements for the continuous period of 3 financial years;
   2. He has failed to repay the deposits accepted by the company or pay interest, or to redeem any debentures on the due date or pay interest due, or pay any dividend declared

And such failures continue for one year or more.

3. Any Private Company through its articles lay down additional provisions of disqualifications for the director’s
4. Director disqualifications due to conviction as referred will not take effect for 30 days from the order of director disqualification or the date of conviction;
   1. in the event when an appeal or petition has been preferred within 30 days against such conviction, then disqualification shall not take effect until the expiry of 7 days from the date of disposal of such an appeal or petition
   2. If any further appeal or petition is preferred within seven days, then no effect until such further appeal or petition is disposed of

What Does Companies (Appointment and Qualification of Directors) Rules, 2014 Lay Down for Director Disqualification?

Rule 14 of the Companies (Appointment and Qualification of Directors) Rules, 2014 provides that if a director has been disqualified under section 164(2), Companies Act then he shall inform the concerned company about his director disqualifications, in Form DIR-8 before being appointed or re-appointed.

Rule 14 also states that when a company has failed to file the annual returns or financial statements, or has failed to repay the deposits accepted by the company or pay interest, or to redeem any debentures on the due date or pay interest due, or pay any dividend declared, as per section 164(2), the company must immediately file Form DIR-9, with the Registrar. The form shall include the names and addresses of all the directors of the company during the relevant financial years.

If a company fails to file the Form DIR-9   within a period of 30 days, it shall attract the disqualification of officers of the company who is in default.

When the Form DIR-9 has been filed, the Registrar must register the document and place it for public inspection.

An application for removal of disqualification of directors has to be made inForm DIR-10.

What is Provisions of Company Law Settlement Scheme, 2014?

General Circular No.34/2014 was notified by the Ministry of Corporate Affairs on 12.08.2014 for Company Law Settlement Scheme, 2014. Its objective was to give opportunities to the defaulting companies to make their default good by filing the belated documents. Also, it gave the opportunity to inactive companies to be declared as ‘Dormant Company’.

1. The scheme came into force on 15^th August 2014 and remained in force till 15^th October 2014.
2. The defaulting company will pay the statutory filing fee and an additional fee of 25% of the actual additional fee is payable on the date of filing of each document.
3. If the defaulting company has filed an appeal against any notice issued or complaint filed under Companies act 2013, it shall withdraw the appeal and file a proof same before the filing of an application for immunity certificate.
4. The application for seeking immunity with respect to the belated filing of a document shall be made online through e-form CLSS-2014 after the documents have been taken on record or approved by RoC
5. The designated authority shall then examine the application and grant an immunity certificate with respect to the related
6. The scheme also lays down the specific cases where the provisions of this scheme are not applicable.

What are Provisions of Condonation of Delay Scheme, 2018?

This scheme was introduced by the MCA through General Circular No.16/2017 and came in effect on 01.01.2018, remained in force till 31.03.2018. The time was further extended through General Circular No. 02/2018& General Circular No. 03/2018 till 01.05.2018

1. The scheme was applicable to the defaulting companies, other than the companies which have been stuck off/ whose names have been removed from the register of companies under the provisions of Companies Act. The defaulting companies were permitted to file the documents which were due for filing till30.06.2017.
2. What procedure is to be followed under this scheme?
   1. The DINs of the concerned disqualified directors which are de-activated at present will temporarily be activated to enable them to file the overdue documents.
   2. The defaulting company has to file the overdue documents as per the prescribed e-form along with paying the statutory filing fee along with the additional fee payable for filing the overdue documents at the time of actual filing.
   3. The defaulting company after the filing the documents, must seek ‘condonation of delay’ by filing the e-CODS form online, the fee for which shall be Rs.30, 000/-.
   4. The DINs of the Directors associated with the defaulting companies that do not file their overdue documents and the prescribed form upon expiry of this scheme shall be deactivated on expiry of the scheme period.
   5. For the defaulting companies whose names have been removed from the register of companies and which have filed applications for revival, the Director’s DIN shall be re-activated only upon the NCLT’s order of revival, subject to the company filing of all overdue documents.