Written by:- MEDHA R LAXMI, 3rd YEAR STUDENT OF NLU, BHOPAL
DISQUALIFICATION OF DIRECTORS
REMOVAL OF DISQUALIFICATION OF DIRECTORS : According to Section 164(2)(a) of the Companies Act, 2013, any person who is or has been a director of a company that has not filed financial statements or annual returns for three consecutive financial years is ineligible for re-appointment as a director of that company or any other company for a period of five years from the date on which the said company fails to do so. There are other reasons why a person can be disqualified from being a Director, but for the most part, Directors are disqualified for a period of five years if the company in which he or she is or was a Director has not filed financial statements or annual returns for three consecutive financial years.
HOW TO REMOVE DISQUALIFICATION OF DIRECTORS?
1. REMOVAL OF DISQUALIFICATION FROM HIGH COURT
Because the Companies Act of 2013 does not provide any remedy for removing a Director’s disqualification, the most obvious and practical option is to petition the Hon’ble High Court for removal of the Director’s disqualification with jurisdictional viability, i.e. under whose ROC the Director is disqualified; however, different Hon’ble High Courts have different precedents and views in this regard. For example, the Hon’ble High Courts of Gujarat, Karnataka, Madras, and Allahabad are providing permanent relief and quashing the lists of ROCs stating disqualified Directors, however, the Hon’ble Mumbai High Court has not removed Director disqualification since the beginning. Further, the Hon’ble Delhi High Court was removing Director disqualification earlier as a grant of interim relief however recently while deciding this considerable common interests of disqualified directors in certain writ petitions, Hon’ble Single Judge of Hon’ble High Court of Delhi in the case of Mukut Pathak vs. Union of India dismissed the petition to quash list issued by ROC of NCT of Delhi and Haryana under certain terms but held that deactivation of DIN and DSC of petitioner by ROCs to be bad and directed the ROC to reactivate the DIN and DSC, and otherwise also the Hon’ble High Court of Delhi is listing all the matters in a bunch to be heard later and thereby not granting interim relief and neither removing disqualification and on the other hand, the Hon’ble High Court of Rajasthan is passing interim (temporary) order to reactivate the DIN and digital signature of the Directors for the purpose of filing of statutory return, so as to the effect that such interim order will remain subject to final outcome of the present writ petition. Further, the petition with the Hon’ble High Courts is being filed under Article 226 of the Indian Constitution under Writ jurisdiction to seek relief. This solution has been explored since 2017 by many of the disqualified directors in High Courts and the judgments have given a new lease on life
2. REVIVAL OF COMPANY
The petition must be filed with the Hon’ble National Company Law Tribunal (“NCLT”), which has jurisdiction over the state whose ROC has struck off the Company, along with the relevant fees, in order to resuscitate the Company. After hearing, the Tribunal, i.e. NCLT, will issue an order restoring the Company’s name, and the Company’s status will change to “ACTIVE” upon submission of the order to the ROC.
3. BACKEND APPOINTMENT OF DIRECTOR
This option is most suitable to ensure continuity of the Company and that the annual returns and financial statement are filed with the ROC timely and can be opted majorly in following situations to a Director’s career.
- Where all the Directors are disqualified in an ACTIVE Company and are not able to remove the same from the Hon’ble High Court;
- Where a running Company’s operations gets affected on the fact of having common Directors of a non-compliant Company
In the aforementioned situations, the promoters/shareholders of the Company have the power to appoint Directors through the back end i.e. by convening the general meetings and passing resolutions in accordance with Section 168(3) of the Companies Act, 2013.
Once an application for backend appointment of Directors is filed by the promoters/shareholders of the Company to the office of the Registrar of Companies, then it shall forward a report to the Regional Director and upon scrutiny, they shall add one Director on the Board of the Company and the same shall be reflected on the MCA portal of the Company.