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Sec 274(1)(g)

10 April 2009

Sec 274(1) starts with the opening statement that "A person shall not be capable of being appointed director of a company, if - ..."

It does not distinguish between a Pvt co and a Public co.

Will it means if a director is disqualified u/s 274(1)(g) not eligible to be appointed in public companies as well as in private company ???

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11 Replies

HARDIK (COMPANY SECRETARY NCFM (Corporate Governance )) (664 Points)
Replied 11 April 2009

Read Section 274(3) it applies to both pvt as well as public.

MOHIT MAHAJAN (LCS, ACA) (2050 Points)
Replied 11 April 2009

Clause (g) was inserted by the Companies Amendment Act,2000. The proviso to Clause (g) states that such Director cannot be eligible for appointment as a Director of any other Public Company for a period of 5 years from the date on which the default occurs, thus The proviso disqualifies a Director of a Public Company from being appointed a Director of another company for a period of 5 years from the date of default. However, it makes no mention of the period of disqualification as regards appointment to a Private Company. I think It does not prevent him from being re-appointed as Director of the defaulting Public Company or appointment or re-appointment as Director of a Private Company. .

CS Asmita Mehta (CS) (308 Points)
Replied 11 April 2009

Hello mohit sir,

Thanks for replying my query........

As you said that the period of disqualification is not mentioned for private company so how we can interpret that he is not disqualified for private companies at all.

HARDIK (COMPANY SECRETARY NCFM (Corporate Governance )) (664 Points)
Replied 11 April 2009

I agree with the answer of mohit the defaulting director can not be appointed in any other public company for 5 years. However he can be appointed in same company.

Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 11 April 2009

Hi Nikita,

Another dicey query from your side but it is very genuine one again. In fact I remember we had a long discussion on the above query during our CS final law classes in 2003.

As per my view your interpretation is very true because if we go by the general language of section 274 we have to read all the clauses of section-274 in conjunction with the opening line of section-274 including clause (g), which means if a director is disqualified u/s 274(1)(g) then he is not eligible to be appointed in public companies as well as in private company.

But at the same time we must appreciate and give some respect to the intention of law. According to Mr. Rammiya and various other eminent experts the intention of law behind introduction of clause (g) was to disqualify certain persons from directorship in Public companies as also mentioned in proviso to section-274(1)(g). In fact the whole clause (g) talks about Public company only.

Further, Companies (Disqualification of Directors under section 274(1)(g) of the Companies Act, 1956) Rules, 2003 also talks about Public companies only. You may check Rule 1(3) of the said rule as mentioned below for your ready reference.

1. Short title, commencement and extent.-

(1) These rules may be called the Companies (Disqualification of Directors under section 274(1)(g) of the Companies Act, 1956) Rules, 2003.

(2) These rules shall come into force from the date of their notification in the Official Gazette.

(3) These rules shall apply to all public limited companies registered under the Companies Act, 1956.

Now on the basis of the above discussion Nikita, you suggest what should be the final interpretation regarding applicability of section-274(1)(g).

Best Regards

Ankur Garg

Shanib (CA Final Student) (113 Points)
Replied 11 April 2009

so ....wht we hav to infer ankur sir....is it mohit's view correct...?

Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 11 April 2009

Dear Shanib,

To a certain extent I agree with Mohit and can conclude that Clause (g) applies only to a Public company.

But I think entire picture of law and its contradictions should be clear to you all to make your answer multi-dimensional and to create more impact on your examiner.

That is why I gave such elaborate answer. The idea was to make you all more equipped to play with and to understand the language of law. Hope you understand my viewpoint. Regards

MOHIT MAHAJAN (LCS, ACA) (2050 Points)
Replied 11 April 2009

Friends for more strict interpretation i can say that

The disqualification is for appointment as a director in both public and private companies, but ineligibility for a period of five years under proviso applies for directorship in a public company only. Hence a person, who is a director of a public company, can be appointed as a director of private company after he has resigned as a director from the defaulting public company or if he continues to be director of the public company; after the Co. has filed the annual accounts and annual returns.

Nikita Ab isse zyada main bhi interpret nahi kar sakta. Ankur ji ne poori provision de di hai. Exam mein dono views likh dena.

For exact answer I think we should wait for some case to be decided by court.

NEHA ARORA (article) (27 Points)
Replied 24 June 2010

Sec 274(1)(g)(A) states that if a public co. hs not filed its annual accounts and annual returns for any coninuous 3 years then....

If a co. filed its annual accounts and annual returns after due date i.e. within 1 month / 2month from the date of AGM respectively then whether this section attracted ???

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(Guest)

No, This section will not attract at that point of time

Ajay Kumar Mourya (C.A.) (37 Points)
Replied 24 June 2010

Hi Neha, Section 274(1)(g) applies only in case of not filing the annual returns for any continuous three financial years.

If Co. filed annual returns but after the due date for the filing the annual return, then penal provisions under the companies act may apply but it does not attract the provision of Section 274(1)(g).