Section 164 - Disqualifications for Appointment of Director: The Companies Act, 2013
Updated: Apr 10
Directors are the people who generally mangers the company and collectively they are known as the Board of Directors. They are responsible for making strategic decisions that affect the overall functioning of the business entity. The directors must act in good faith and work towards the benefit of the shareholders and the company that they represent.
A director is expected to perform his tasks and duties with diligence and utmost care and integrity, failing which he/she could be removed or ousted. The year 2017 saw a massive step taken in the right direction by the government as they disqualified over 3,00,000 persons holding directorship positions as they failed to comply with regulatory requirements that were set by the Companies Act, 2013.
Disqualification of Directors
The Companies Act, 2013 lays down the grounds upon which a director may attract disqualification. Section 164 of the Companies Act, 2013 deals with the same, presented here in a condensed manner: -
· Where he/she has been declared as a person of unsound mind by a competent court.
· Where he/she is an undischarged insolvent.
· Where insolvency has been applied for, but the application still stands pending.
· Where there is an offense involving moral turpitude that he/she has been convicted of and sentenced with imprisonment for not less than six months.
· Any court/Tribunal has passed an order that disqualifies him from being appointed as a director.
· Where he/she holds the shares of any company and has not made the payment of any such call, provided six months have passed since the last date to pay such call money.
· At any time during the final preceding five years, he/she has been convicted of an offense involving related party transactions which are governed under Section 188 of the Companies Act, 2013.
· Where he/she has not obtained a Director Identification Number (“DIN”).
· Where he/she is the director of a company that has either – a. Failed to file the annual returns for 3 years running b. Failed to pay interest on/repay the deposits for over a year c. Failed to pay any dividend that was declared for over a year d. Failed to redeem debentures or pay interest on debentures for over a year
About this particular provision, non-eligibility for directorship will be for five years from the date of such default, be it in that particular company or any other company.
Effect of Disqualification of Director
Ever since the mass disqualification rally of 2017, the Ministry of Corporate Affairs (“MCA”) has been vigilant in keeping tabs on the directors regarding their regulatory and statutory compliances. Depending on what the grounds for disqualification are in a particular scenario, a person is disqualified either for five years or as the case may be. The names of the directors who are disqualified will be published on the MCA portal. The DIN allotted to that specific director will be deactivated by the Registrar of Companies.