Can Disqualified Directors Be Shareholders?

In the wake of recent mass disqualification of directors by Ministry of Corporate Affairs, a lot of queries and doubts have surfaced and more and more directors are eager to know about conditions that lead to disqualification as well as its aftermath!

Comprehending Companies Act 2013!

The Companies Act, 2013, that came into force from April 1, 2014, not only witnessed quite a few amendments but also introduced new concepts to the previous Act of 1956.

On one hand ‘listed company’ now referred not only to public companies but covers all private companies; on the other, the concept of ‘one person company’ was introduced for the first time.

Numerous amendments, stringent norms and add-ons were introduced to bring in more transparency, check inflow and outflow of black money, usher in a healthier atmosphere for genuine businesses of the corporate world.

Grounds For Disqualification of a Company Director:

Section 164 (1&2) of the Companies Act, 2013, lays down the factors which lead to disqualification of a company’s director.

1. A person shall not be eligible for appointment as a director of a company-

• if he is of unsound mind and is found to be so by a competent court;
• if he has applied for insolvency and his application is pending;
• if he has been convicted for any offense and awarded punishment for more than 7 years and more;
• if ordered by a Court or Tribunal has been passed disqualifying him;
• if he has been convicted under section 188 in the preceding 5 years;
• if the company has failed to pay the deposits or interests or any such liability for more than one year;
• if he has failed to comply with Section 153 (2); relating to DIN number.

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

• has not filed financial statements, or annual returns for a continuous period of three 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 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.

Disqualification- An Impact Of Struck Off Companies!

Owing to the implementation of the Companies Act, 2013, the companies that failed to comply on the front of financial statements and annual returns for consecutive three years were struck off.

Hence, end of 2017 witnessed a humongous number of companies being deregistered and as a cascading effect, more than 3.3 lakh directors disqualification occurred.

Can Disqualified Directors Act As Shareholders Or Not?

The Companies Act, 2013, lists the fines, penalties like imprisonments for the disqualified directors for dereliction of duty, non-compliance, default, etc. Yet, when the question arises if a director is disqualified, can he still continue to be a shareholder, then the answer has to be positive as there is no mention against it in the Act.
Irrespective of the fact that whether the disqualification has occurred owing to Section 164 or Section 167, the Act does not prevent such disqualified directors from being a shareholder in the company.

Looking For Effective Means For Removal Of Directors Disqualification?

If you are a disqualified director, exploring means to recover your DIN, then contact MUDS at the earliest!
MUDS is a trustworthy consulting company with tons of experience in such matters. They have helped many distressed directors in removing their disqualification and resurrecting their careers!

“Whatever may be the reason for being disqualified as a director, you can consult and find out the most effective way to reverse it successfully!”
-Shweta Gupta, Founder and CEO, MUDS