Non filing of DIR3 KYC form amounts to Disqualification of Director?

While Disqualification of Directors is not a new concept, recent action by the Ministry of Corporates Affairs (MCA) under Companies Act, 2013, disqualification has become a talk of the town. Every Individual who were a director of non-active Companies (more popularly known as Shell Companies) has found out that their DIN (Director Identification Number) is disabled and they are not allowed to be a Director on any other Company in India.

So what is Disqualification of Directors?

Section 164 of the Companies Act, 2013 deals with Disqualification of Directors the most important part is Section 164(2) which deals with periodic disqualification.

As per Section 164 (2) of the Companies Act, 2013, ' 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 the 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.'

How disqualification is affecting Directors?

An Individual who is disquieted under Section 164(2) is not eligible to be appointed or continue to be Director on board of any other company as well. In fact as per MCA, his/her DIN is shown as ' Disqualified by RoC u/s 164(2)'

Anyone can check the same by visiting MCA website > MCA Services > Enquire DIN Status.

Enter the DIN and you will get status as below

Note: Disqualification period varies from individual to individual.

What is DIR 3 KYC and what if Individual fails to file the same?

DIR 3 KYC is recently introduced requirement by MCA wherein every Individual holding a DIN, was required to file KYC with MCA on or before September 20, 2018. It was again mandatorily required to file by all Individuals. However, those who have failed to file the same have seen their DIN is blocked again. The status on MCA will change to 'Deactivated due to non-filing of KYC’.

To check the same by visiting MCA website > MCA Services > Enquire DIN Status.

What will be the impact of non-filing of DIR 3 KYC?

• All Individual who has not filed DIR 3 KYC, can file the same anytime by paying a one-time filing fee of Rs. 5,000 as ROC Fees.
• MCA will temporarily deactivate the DIN of the Individual who has failed to file the KYC form with status as 'Deactivated due to non-filing of DIR 3 KYC’ and will reinstate the DIN upon the filing of KYC.
• The Company will not be able to file any forms containing DIN of the Individual whose DIN is deactivated due to non-filing of DIR 3 KYC including INC 22A Form.
• Further, there are many provisions of the Companies Act, 2013 and LLP Act, 2008 provides for the requirement of Directors to sign documents under the respective Act with DIN. Now, with the deactivation of DIN, an Individual will not be able to sign any documents under Companies Act, 2013 or LLP Act, 2008 in the capacity as a Director or Designated partner.

Will non-filing of DIR 3 KYC will amount to 'Disqualification’?

The answer is NO. Disqualification as per the Companies Act, 2013 is covered under Section 164(2) whereas DIR 3 KYC is an annual requirement but failure to file the KYC form will not amount to disqualification of Directors. Which means that Disqualified Director is different than the Directors who have failed to file DIR 3 KYC form.