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Options available for Disqualified director

Dhaval Gusani 
on 25 July 2018

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Ministry of Corporate Affairs (MCA) along with the Ministry of Finance has taken actions against the Shell Companies, in other words, the Companies which has not filed the financial statement and Annual Return with ROC. MCA has identified more than 3,00,000 Directors for disqualification under section 164(2)(a) of Companies Act, 2013.

In September 2017, ROC barred or disqualified around 3,09,614 directors for the five years due to non-compliance of the provision of the Companies Act. After this action, the DIN and DSC of all the disqualified directors can’t be used in filing of any document and such director need to resign from all the Companies.

Provisions of the Act: Section 164(2):

No person who is or has been a director of a company which -

  • Has not filed financial statements or annual returns for any continuous period of 3 financial years; or
  • 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 5 years from the date on which the said company fails to do so

Section 167(1) The office of a director shall become vacant in case he incurs any of the disqualifications specified in section 164.

OPTION AVAILABLE TO THE DISQUALIFIED DIRECTOR

If Company gets strike off and director got disqualified and strike off Company don’t want to revive its operations, then such director has to approach respective High Court for removal of his disqualification on the ground that opportunity of being heard is not provided to him before taking any action against him. H.C may remove disqualification or grant interim stay order based on the facts and circumstances of each case.

Ground of Arguments in Writ Petition

1. The opportunity of Being Heard

Disqualifying the Petitioner under Section 164(2)(a) without even serving him a due notice or affording him a hearing is a gross violation of the basic principles of natural justice enshrined under Article 14 of the Constitution of India. The right of an aggrieved citizen to be heard before an executive order against him/her is passed is a right that has been recognized as integral to the basic structure of the Constitution of India by the Hon’ble Supreme Court of India.

2. Violation of the principle of Natural Justice

Directors, without even serving a proper notice and even affording the opportunity to justify his position, ROC issued the impugned Circulars and subsequently published the impugned lists, that included the name of the Directors on the website of MCA thereby immediately disqualifying under Section 164(2)(a) r/w Section 167(1) of the Companies Act, 2013. Therefore, it is a patent violation of the Fundamental Right to be heard and is a clear violation of the Principles of Natural Justice as laid down under Article 14 of the Constitution of India.

3. Notice Service

Moreover, In the general scenario, some small businesses and companies are incorporated but fail to commence business due to commercial transactions and deliberations not manifesting into action. There are also instances where due to lack of professional guidance, companies fail to comply with filings because of no business activity having taken place in such companies. Therefore, instead of directly disqualifying the Petitioner under Section 164(2)(a), the Respondents ought to have sent a due notice regarding the default under Section 164(2)(a) and thereafter afforded them an opportunity to make good the default by 30.09.2017.

So, after filing Writ Petition under Article 226 of the Constitution of India, High Court may pass stay order on the list of disqualified directors till further hearing and based on the stay order, we can reactivate the DIN and DSC of director from concerned ROC after filing copy of writ petition, stay order and cover letter.


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Category Corporate Law
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