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A managing director can be appointed for a maximum period of five years. An MD of a pre-existing company can also be appointed as a director of another company as long as the board of directors of the earlier company authorize this new appointment.  In a public or private company, a total of two-thirds of directors are appointed by the shareholders and the rest one-third are appointed in cognition to the guidelines prescribed in the Article of Association (AOA). For private company, their Article of Association can suggest the steps to appoint any and all directors. The Companies Act also has a clause that permits a company to appoint two-thirds of the company directors to be appointed according to the regulation of proportional representation. The nominated director is elected through 3^rd party authorities or the Government to stop mismanagement and misconduct. The duties of a director are to act responsibly and exercise reasonable care and skill while performing his service on behalf of the organization.

Steps to Appoint a Director from a Legal Perspective –

• Set a meeting of the Board of Directors as per section 173 and SS-1.
• Obtaining DIN and Digital Signature Certificate.
• Convene General Meeting as per section 96, 100, and SS-2.
• Filing of Returns with the ROC.
• Obtain from MBP-1 from the Appointed Director.
• Making Necessary entries in the Register of Directors.
• File necessary Amendment Application to GST, Tax authorities, and other regulators.

Necessary configurations are required to appoint a director and those are –

• The nominated individual shall have an Active DIN as per section 152(3).
• As per section 164(1), a person shall not be eligible for appointment as a Director of a company if he is disqualified from being appointed as Director in any particular establishment.
• A director who has not filed financial statements or annual returns for any continuous period of three financial years or has not repaid the deposits accepted by it or pay interest thereon or pay any dividend declared and such failure to pay or redeem proceeds with one year or more shall not be eligible to be re-appointed as a director of the company for five years from the date on which the company fails to do so as per section 164(2)(a).
• A person who isn’t a retiring director according to regulations of section 152 is eligible for appointment as a director at any General Meeting after fulfilling the following constraints –

1. He or some member who intends to propose him for directorship has less than 14 days left at the registered office of the company before the meeting, a notice in his handwriting signifying his candidature as a director
2. As the case may be, the intention of such member proposing him as a potential candidate for that office, with the deposit of one lakh rupees or such higher amount which shall be refunded to such person or the member, if the person proposed gets elected as a director or gets more than twenty-five percent of the total valid voted cast either on a show of hands or on the poll in such resolution.

What is this Disqualification of the director? What are the circumstances faced by director after disqualification? Can it be removed?

Since 2017, the MCA has been strictly enforcing these provisions of the company act. Directors disqualification can take place for the following explanations under the company statute :

• If the person is of an unsound mind.
• If he/she is insolvent.
• If the person is in the procedure of declaring insolvency and his application is pending.
• If the person has been convicted by a court of any offense.
• If an order has been passed disqualifying him/her from being appointed as a director by the court or Tribunal.
• If the person had not paid any attention to calls concerning any shares of the company held by him/her.
• If the person has failed to acquire a Director Identification Number(DIN).
• If the person had been sentenced for an offense dealing with a related party transaction at any time during the last preceding five years.

Removal of Directors – The following violations lead to the process of the removal of directors.

THE COMPANY IN PERIODIC GENERAL MEETING – A Company can remove directors from the board before their term expires. It can pass a resolution in upon special notice. However, there are certain expectations –

• This does non-applicable on a director appointed by Government.
• This does not apply to companies who have adopted two-thirds of their directors by the principle of proportional representation.
• Directors appointed by financial institutions under their respective acts.
• Directors appointed by the Board designated for Industrial and Financial Reconstruction.

REMOVAL BY GOVERNMENT – The Central Government chooses to use its power on recommendation of Company Law Board/NCLT to remove a director for misconduct.

REMOVAL BY COMPANY LAW BOARD/NCLT – The company law board or the NCLT may remove a director, if found guilty of any inappropriate conduct. The terminated director is exiled from the position for the next five years.

 How to remove Director Disqualification –

Circumstance I: The company is struck off and the Director wants his company revival to remove disqualification.

Circumstance II: The company is struck off but director just wants to remove disqualification without reviving the company.

Circumstances III: When company status is active but all the Directors are disqualified and want to remove the disqualification.

Strike off means temporary closure of Companies following the provisions of The Companies, 2013 are a substitute for winding up the company where the company can get the company revived for twenty years from the date of the strike-off of the company.

What are the grounds on which NCLT does the revival of Companies?

• Immovable properties of the company.
• Apart from ROC, if the company has met all additional compliance norms.
• If there are evidencing the company to be an ongoing one of active transactions in the bank statements of the company’s account.

What is this DIN?

DIN is a unique Identification Number for directors allocated by the Government to any individual aiming to be a Director or an existing director of a corporation. Director Identification Number (DIN) was introduced in India by the Company Amendment Act, 2006.

What does this Section 164 Act mean?

• Section 164 of the Companies Act 2013 states the provisions for the disqualification for the application of the director. In accordance with the Companies Act 2013, Section 164 is applicable in the direction of disqualification for an appointment of director. As per sub-section 164(2)(a), an individual who has been a director with a corporation that has not to field financial statements or annual returns for 3 consecutive financial years shall face disqualification.
• Section 162 (2) states that no individual who is or has been a Director or a corporation which (a) has not filed financial statements or annual returns for any continuous period of 3 fiscal years shall be eligible towards being reappointed as a director of that corporation or appointed in other corporations for 5 years from the date on which the said corporation fails to do so.
• Section 164(2)(a) deals with the directors disqualification. It states that when the company has not filed financial statements or annual returns, for any three consecutive years, it will return on the disqualification of its directors for five years.

Effects of Directors Disqualification – Once a person is disqualified, then he/she is not eligible for being all need as Director of that or any other company. This restriction is valid for five years.

Recently, the disqualified Directors’ names are been published on the government website. The Honorable Delhi High court in November 2019 clarified the position on the disqualification of directors in the case of Mukut Pathak and Ors. V. Union of India. This judgement has come in resonance with other similar judgments passed by Honorable high courts if Gujarat, Madras, and Karnataka, on Section 164(2)(a)  of the Companies Act, 2013.

Directors of many companies together approached the Honorable Delhi High Court for disqualification removal and wanted stay on MCA’s decision of debarred them from being appointed/reappointed as directors.

Liability of Directors under Companies Act 2013 and its Materiality –

Violation of the following norms of Section 166 (relating to codified duties) is punishable offence with a fine ranging from Rs.1 Lakh to Rs.5 lakhs. Further, penal provisions under 2013 Act have been made stringent and suggest increased penalties compared to the Companies Act, 1956. On average, the minimum fine imposed under certain Sections of the 2013 Act is Rs. 25,000/- which in certain cases extends to Rs.25 crores or even more. Below is the list of few offenses where the penalties are more than or equal to one crore.

1. Violating provisions related to not-for-profit companies.
2. Violation related  to subscription of securities on private placement.
3. Issuing  duplicate share certificates to someone with an intent of fraud.
4. Failure in repayment of deposits within specified time.
5. Violation of provisions related to insider trading.

Apart from these penalties, certain offences could attract imprisonment too. The offences leading to imprisonment are non-cognizable (would need an arrest warrant). There are certain offences which are considered cognizable and won’t require an arrest warrant. These offences are connected to either fraud or the intent to defraud. Some of these offenses are as follows:

(a) Section 7(6) – Furnishing of any false or incorrect particulars regarding any information or suppressed any material information, in any of the documents filed with the Registrar of Companies about the registration of a company.

(b) Section 34 – Any untrue or misleading statement included in the prospectuses.

(c) Section 36 – Fraudulently inducing people to invest money.

(d) Section 56 – Default under Section 56 related to transmission of shares with an intended defraud;

(e) Section 66 – Offences related to reduction of share capital.

(f ) Section 53- Prohibiting issue of shares at discount

Fine on Company – Rs.1 lakh to Rs.5 lakhs.

Officer in default- Max. imprisonment of 6 months or a fine of 1 to 5 lakhs or both.

(g) Section 57 – Punishment for impersonation of shareholder

Min. 1 year to max. 3 years imprisonment or a fine of Rs.1 lakh to Rs.5 lakhs.

(h) Section 58(6) – Refusal of registration to transfer after the order of the tribunal

Mini. 1 to Max. 3 years imprisonment or a fine of Rs.1 lakh to Rs.5 lakhs.

(i) Section 59(5) – Non-rectification of the register of members as per the order of the tribunal

Fine on Company – Rs.1 lakh to Rs.5 lakhs

Officer in default– Maximum imprisonment of 1 year or a fine of Rs. 1 lakh to Rs.3 lakhs or both.

(j) Section 68(11) – Power of Company to purchase its securities

A fine on Company of Rs.1 lakh to Rs.3 lakhs.

Officer in default- Maximum imprisonment of 3 years or a fine not less than Rs.1 lakh which may extend to Rs.3 lakhs or both.

(k) Section 71(11) – Debentures

Officer in default- Maximum imprisonment of 3 years or a fine not less than Rs.2 lakh which may extend to Rs.5 lakhs or both.

(l) Section 86 – Failure to Register Charge

A fine on Company not less than Rs.1 lakh which may extend to Rs.10 lakhs.

Officer in default- Maximum imprisonment of 6 months or a fine of Rs. 25,000 to Rs.1 lakh or both.

(m) Section 92(5) – Not filing annual returns.

A fine on Company not less than Rs. 50,000/- which may extend to Rs.5 lakhs.

Officer in default – Maximum imprisonment of six months or a fine not less than Rs. 50,000/- which may extend to Rs.5 lakhs or both.

(n) Section 118(12) – Tampering with the minutes and agenda of meeting of board of directors  or in the proceedings of general meeting.

Max. imprisonment for 2 years and a fine of Rs. 25,000/-  to Rs.1 lakh.

(o) Section 128(6) – Failure to keep Books of accounts.

Officer in default- Maximum imprisonment of 1 year or a fine of Rs. 50,000 to Rs.5 lakhs or both.

(p) Section 185(2) – Passing loan to directors in violation of section 185 of the act.

A fine on Company of Rs.5 lakhs to Rs.25 lakhs.

Officer in default– Maximum imprisonment of 6 months or a fine not less than Rs.5 lakhs which may extend to Rs.25 lakhs or both.

(q) Section 186(13) – Investment and loan by Company.

A fine on Company of Rs. 25,000/- to Rs.5 lakhs.

Officer in default- Max. imprisonment of two years or a fine of Rs. 25,000/- to Rs.1 lakh or both.

(r) Section 187(4) – Keeping investment in own name.

A fine on Company of Rs. 25,000/- to Rs.25 lakhs.

Officer in default- Max. imprisonment of 6 months or a fine of Rs. 25,000/- to Rs.1 lakh or both.

Conclusion: So, we can say a director is an important organ of the company. As a company only exists in the eye of the law and does not have any physical existence, a director is a person who manages the affairs of the company.  All the directors collectively i.e., the Board of Directors is responsible for executing transactions in the interest of the company and its members. Powers are vested in a director to assist him in working for the benefit of the company. One of the vital requirements appointment as a director is getting a DIN, this is an identification number allotted to a person nominated as a director in a company. Companies act 2013 has introduced director disqualification so that only competent persons are eligible for appointment as director of the company. The directors are appointed in different ways like by the shareholder in general meeting, by the state or central government, memorandum or article, etc. A Director is entrusted with wide powers. Therefore, he is also liable for any act such as abuse of his power, breach of his duty, ultra-vires acts, money laundering, etc. Thus, it is evident that in order to maximize the profit and ensure good corporate governance we need an experienced and skillful director.

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RoC or Registrar of Companies has become strict towards the directors of non-compliant companies in recent years. Since September 2017, based on the relevant rules and provisions mentioned in the Companies Act, 2013 the RoC working under Ministry of Corporate Affairs (MCA) has disqualified more than 2 lakh company directors that failed to file their annual returns and other relevant documents. MCA had also published the names of the disqualified directors on its website. The disqualification from being appointed as a director to a company is mainly dealt by Section 164 of the Indian Companies Act, 2013. According to this Section, any one or more than one of the following reasons can disqualify a director in India from their position in a company.

Reasons for Disqualification

• Conviction of any offence which involved imprisonment up to Seven Years or More.
• Any offence or delinquency committed by the person in connection with the Related Party Transactions (RPTs) during the preceding five years.
• If the person or his/her company has not filed, the Financial Statements or Annual Returns for any continuous period of three financial years.
• Found guilty of any irregularities of delinquencies related with the repayment of accepted deposits, redemption of any debentures, payment of due interest on the deposits or debentures, etc. For One Year or More.
• Non-compliance with the provisions stipulated in Part I of the Schedule V of the Indian Companies Act, 2013.
• And, any clauses of disqualification for appointment as a director, given in the Articles of the employing private company.

According to Section 274 of the Companies Act, Any person facing director’s disqualification will not be eligible for being appointed as a Director in any company for a time period of 5 years.

How to Become a Director Again after Disqualification

As stated in the Sub-Section (3) of Section 164 of the Companies Act of 2013, any disqualifying conviction or order does not take effect within 30 Days. Hence, the concerned director can file the overdue annual returns and appeal to the NCLT within those 30 days, to stay the proceedings. Once, an earnest appeal is initiated, the concerned director can continue to hold their post until the expiry of seven days counted from the date on which the appeal/petition is disposed of.

The company must replace the existing disqualified directors by appointing new directors, who will then sign the returns and other compliances digitally under the MCA, Income Tax Act, etc. Thereafter, a director should file an application to the NCLT (National Company Law Tribunal) for rendering the current status of the company ‘Active’. The directors can also approach their respective High Courts by filing a writ petition to remove disqualification and get their DIN reactivated. By Court’s orders, the director’s disqualification can be removed, and the director can be reappointed in any other company. Taking legal help for such proceedings is necessary and a director should opt for a reputed legal firm to file a writ petition for the removal of director disqualification.

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Have you ever thought if not disqualified how good your career as a director would have been? Or how to remove this speed breaker from your career without letting it slow you down? One question that every director have in their mind is, if facing disqualification, what is the best way to deal with it or what can be the best way to get the director disqualification REMOVED?

The answer to this question depends on the choices made by the director: whether he just wants to continue his career as a director, or he wants to be the director in the old company? If he chooses the latter one, he might need to revive the company first, and if he chooses to continue with his directorship in other firms, then there are other ways, to get his disqualification removed. We will discuss those other ways in detail in this blog.

Before understanding how to remove the disqualification lets first understand the concept of it:

Under the Companies Act Of 2013, every registered company is required to provide annual returns or financial statements of the company to ROC for three years consecutively. If any company fails to do so, then the director of that company gets disqualified for the period of five years from being a director in that company or any other companies.  

The new version of Companies act has a stricter policy for defaulters than the previous ones, as the director is held responsible for the smooth and regular functioning of any company. Hence, they are considered responsible for the actions taken on the behalf of the company that leads to the failure in complying with the directions of the government, and strict actions are taken against them.

As we discussed earlier, there could be two types of removal of disqualification, one where the revival of the company is required and one where the only the disqualification of any director is removed. It is essential to understand that these two follow different procedure and they fall under jurisdictions of different regulatory bodies, i.e. the power of reviving the companies lies with the National Company Law Tribunal (NCLT) and the power to decide upon cases of removal of director disqualification lies with Hon’ble High Courts.

Grounds on Which Director Might Get Disqualified

• If a person has been declared of unsound mind by any competent court.
• Any director who has undischarged insolvent can be disqualified by the court and if that insolvency has been applied for but the application is still pending.
• If that person has already declared disqualified by court/tribunal.
• If a person is sentenced to imprisonment for not less than six months or has been convicted by a court in an immoral offense.
• When the director fails to obtain Director Identification Number (“DIN”).
• When the company in which that person is director fails to file their annual returns or financial statements to ROC for a running period of three years.
• When the company fails to pay a dividend that was declared for over a year.
• If the company for over a year fails to redeem debentures or pay interest on debentures.
• When the company for over a year fails to pay interest on/ repay the deposits.
• If any director holds shares in any company be it alone or in collaboration and he fails to inform about it.

Different Ways of Seeking Relief from Director Disqualification:

In the beginning, when the new companies act was just introduced there were no such remedies available for directors who were disqualified by the ROC, according to them the only way was to wait for five years exile period before resume directorship. Though one way available to directors was to revive the company from ROC and then they could also apply for their directorship.  

Ministry of Corporation Affairs [MCA] axed around 2.4 companies in 2017. At that time there was no such way of reviving the companies without paying heavy penalties and directors started looking for the ways in hope of getting their DINs reactivated.

In 2018 MCA came up with a scheme, i.e. CONDONATION OF DELAY SCHEME 2018, it was a chance for the directors to revive their companies and to then apply for removal of their disqualification without paying heavy penalties.

This year again MCA launched another scheme Companies Fresh Start Scheme, 2020 or CFSS, this scheme gives an opportunity to the struck-off companies to get another chance. Let’s understand CFSS in detail,

This scheme came into force on 01-04-2020. Under this scheme company that was at default will be permitted to file documents that it failed to file for three consecutive years.

Benefits of Companies Fresh Start Scheme, 2020

• For the Defaulting Companies:

• No additional fee is required to be paid and only a nominal amount is charged to the companies for miscellaneous expenses.

• Gets immunity against any prosecution or proceedings that arose due to delay in filing of documents.

• Six months’ immunity is given to the company (with an immunity certificate) from 30-09-2020 i.e. the date of closure of CFSS.

• Directors can apply for the removal of their disqualification once the company has revived.

• MCA also provided extended time from 01-04-2020 to 30-09-2020 to directors, to reactivate their DIN, filing DIR-3KYC/DIR-3KYC-Web and the filing fee i.e. Rs 5000 will not apply.

• For Inactive Companies:

• Defaulting inactive companies can use the benefit of CFSS 2020 to file the due documents.

• Under section 455 of the Companies Act, 2013 an application for Dormant status can be submitted.

• ‘Active non-compliant companies can file e-form ACTIVE in the extended period of 01-04-2020 to 30-09-2020 provided by MCA.

• An application to strike off the name of the company from ROC can be submitted.

OTHER IMPORTANT REMEDIAL MEASURES

                Many directors failed to take advantage of CODs and that is why they missed the chance they had to revive their company and revive their career as directors by the removal of their disqualification. So now the question that comes to our mind is what are the other remedies by which any director can get their disqualification removed and how can they avoid that speed breaker of their career? So there are 2 options available with the directors and those are as follows:

• The first option that is available with directors is to consult NATIONAL COMPANIES LAW TRIBUNAL and hopefully get a revival order for the company. Once the company is successfully revived, directors can then apply for removal of their disqualification and for reactivation of their DINs. RoC verifies the order and all other relevant documents, once NCLT has passed the order before reactivating the DINs. But in this case, whether directors’ disqualification can be removed or not depends upon their choice to revive the company.

• Another option available with directors that do not depend upon whether they want to revive the company or not is filing a writ petition. If any director only wants his/her DIN to be reactivated without reviving his/her company, then he/she will have to file a writ petition in the high court. The filing writ petition in the high court is a constitutional right under Article 226 of the constitution.

How to file a WRIT PETITION?

1. Any disqualified director can undertake his/her constitutional right of filing a writ petition in high court under Article 226 of the constitution. The high court in which writ petition is to be filed must be decided or chosen according to the area of the company and it comes under which jurisdiction. Here is the information a petitioner needs to provide in the application,

• The dates and events of disqualification are to be listed.
• With a notice of motion and urgent application is to be affixed.
• Reasonable justification for not filing the statutory documents to ROC on time due to which the company got disqualified needs to be mentioned to court.
• Provide the court with the current status of the company and about its director seeking relief.
• Companies in which the petitioner plays the role of director should be listed out to the court.
• The list of the names of the disqualified directors issued by ROC in the press release or by notice.
• Personal information of petitioner such as name, address, and designation of each memo of parties.
• The petitioner should attach a prayer cause requesting the court to dismiss the publication issued by ROC under Companies Acts’ Section 164(2). 

1. High court after hearing the options for reactivation of DIN of directors, issues orders and the copy of that orders along with other statutory documents needs to be filed by directors to RoC and it then continues with the process of registration.
2. Petitioner requires to provide documents and pay some penalties and once he/she does that that RoC starts with the process of reactivation of DIN.

Delhi High Courts’ view on Director Disqualification:

Case no. W.P. (C) 5490/2020 & CM APPLs 1977-80/2020

Decided on 02.09.2020

SANDEEP AGARWAL & ANR vs. UNION OF INDIA

In this case, there were 2 directors who were working in 2 companies as directors and on 30th June 2017, one of those companies was struck off from the register of companies.

Considerations for Judgement:

In this case, there were two companies involved, one was struck off and the other was still active as the petitioners were directors of two companies. So here. availing remedies under the CFS scheme in respect of the active company might get hindered by the disqualification of another company or cancellation of DINs.

The Companies Fresh Start Scheme was launched by MCA while considering the situation of pandemic (COVID-19) out there so it needs to be given full effect. It is common for directors to be part of different companies holding the same position, of the director. In this case, permanent cancellation of DINs and disqualification could render the scheme itself nugatory.

JUDGEMENT:

In order to enable the directors of an active company i.e. the petitioner herein, to continue the business of the active company considering, it was not at default and also considering the judgement in Mukut Pathak (Supra) the disqualification of the petitioners i.e. directors were set aside and DINs/DSCs of petitioners were directed to be reactivated within three working days.

Why do you need legal help?

As we know one needs to file a writ petition to get disqualification removed and it is not easy for any normal person or a businessman to have knowledge of working of law or courts. To draft a writ petition for filing in the high court one would need legal help. By hiring a representative from a legal firm would make it easy for you to file the writ petition as prescribed under law and he can also represent you in court. If you hire a professional from a reputed firm, he/she will give arguments in court accordingly making it easier to ask for relief from disqualification. Once he has helped you out in getting the relief and the court has passed the order, the expert can help you file the required necessary documents to RoC.

It is very common for people to think, it is not easy to file a writ petition and get the disqualification removed but as you have seen in the earlier case and in many other cases the judgement has been in favor of the directors and disqualification has been removed easily by filing a writ petition and with the help of legal firms or professionals.

On some points court is in general agreement with the petitioners, they are as follows:

• In the previous act of companies act and the new act some contradictions are found as the companies act of 156 did not have the regulations for private companies and their directors, so imposing new act on them in 2017 is objectionable in the eyes of the high court.
• In many cases, directors were not given any notice before the order about the director disqualification which took away their chance of clarifying the reason to the High Court for not being able to submit the financial statements or annual return. This is against the constitutional rights of the petitioners as one should be allowed to show the cause of his/her actions and this is why sometimes orders of RoC are against natural justice.
• It has been noticed in some cases that the act is being applied retrospectively for the disqualification of directors and has not been entertained by the court

So, you can understand how the judiciary gives favorable decisions to directors who provide valid reasons for defaulting. Considering this in mind the directors who are confused related to filing a writ petition might get hope and understand that filing a writ petition with professional help can work in their favor and can help them in getting their director’s disqualification removed.

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Have you ever contemplated what could be the best way to remove directors’ disqualification? if you are a director, then you must be wondering what you can do to remove your disqualification and what will be the most suitable way? 

Of course, it depends on what you want out of your career. If you want to remain a director of the old company, then you might need to revive the company first. if you just want to remove disqualification and continue directorship in other firms then there are other ways. Let us find out what is the most suitable way to remove director disqualification for any director. 

Rules for Directors’ Disqualification

The Companies Act of 2013 required companies to furnish documents related to their finances and operations every year. Defaulting on submission of these documents for a continuous period of three years had stricter provisions of punishment compared to the previous version of the Companies Act. The act considered the director of the company responsible for the actions of the company and so, has a policy of strict actions against them in case their company defaults. 

The directors of the company are responsible for the smooth operation of the company and therefore they are responsible for any action taken by the company that leads to failure in complying with the directions of the Government. The following points will give information on rules or issues which can lead to directors’ disqualification,

• Any directors of the company who have been convicted under section 188 by the Court regarding party transactions during the last five years. 
• The Court also has the authority over the disqualification of directors’ who are undischarged insolvent. 
• If any court or tribunal has earlier ordered the disqualification of the director. 
• If the directors fail to inform about their respective shares in any company held by them alone or in collaboration. 
• If the director is convicted in any offense by the Court and sentenced to imprisonment for more than 6 months.
• If the organization fails to redeem any debentures on their due date or fails to pay the interest due.
• If the company of the director has not filed its financial statements and annual returns for three years consecutively. 
• Failure to pay the declared dividend and continuing so for one year or more could also lead to disqualification of the company’s director. 
• If the company has failed to repay the deposit made to it or pay interest on those deposits. 

• If any director has applied for his/her adjudication as an insolvent or if the directors’ application for the same is still pending. 
• If any Court confirms that the director is not of sound mind. 

Analysing Court’s View on Writ Petitions through a Case

Let’s understand how filing a Writ Petition can help in the removal of directors’ disqualification and how Karnataka High Court responded to such petition through the case of Yashodhara Shroff v. Union of India, WP No. 52911 of 2017.

In this case, the High Court Said, “the directors of the struck-off companies under Section 248 of the Act do not per se get disqualified. But, if the said company has also not complied with Section 164(2)(a) of the Act, then the said company being a defaulting company, the directors of such a company get disqualified.”

Order of Karnataka High Court:

• Where the disqualification of the petitioners is based on any financial year “before 01-04-2014 as well as subsequent thereto” while reckoning the continuous period of three financial years under Section 164(2)(a) of the Act, irrespective of whether the petitioners are directors of public companies or private companies, such a disqualification was considered bad in law, and the Writ Petitions are allowed in such cases.
• For cases whose disqualification occurred under the provisions of Companies Act 1956 for directorship in Public Companies, the disqualification stands. 
• The DINs of directors whose disqualification has been removed by the court should be reactivated. 
• If the director is disqualified by considering financial years before 2014 and for private companies only, the disqualification will not be removed.

This case paved the way for other directors to file for relief in the High Court if they want to remove disqualification without the revival of their company. Even after the CODS was over, filing of the Writ petition to remove directors’ disqualification is still the proven way to end the exile for directors. 

Remedies for Directors’ Disqualification

During the initial few years of introduction of the new Companies Act, it was a common understanding that there was no remedy available for directors who are disqualified by RoC.  It was thought that waiting for the five years exile period to end is the only way to resume directorship work. However, there was another option which encompassed the revival of the disqualified company after struck off from RoC. Once the company is revived, its directors could also apply for the revival of their role. There were about 2.4 companies that were axed by the Ministry of Corporate Affairs (MCA) using the Companies Act in 2017. These companies started exploring the options for their revival and the directors hoped to get their DIN reactivated. When the MCA came up with the Condonation of Delay Scheme 2018, the company’s directors hoped to get their company revived without paying heavy penalties and apply for their disqualification removal.

This year, the Ministry of Corporate Affairs (MCA) has introduced Companies Fresh Start Scheme, 2020 or CFSS  The scheme offers companies struck off from RoC a one time opportunity of applying for condonation of their failure to comply by the norms (delay of filling the various documents, forms, returns, etc. with the Registrar). Let’s understand the benefits offered under this scheme,

Benefits to Avail in Companies Fresh Start Scheme

Revival of any struck-off company with a complete fee waiver on the application and no penalty for non-compliance.

An immunity period of 6 months (with Immunity Certificate) for the company from the date of closure of CFSS, 2020 i.e., 30 September 2020.

The companies will only have to pay the normal fees prescribed by Companies Rules, 2014 to file for the MCA-21 registry.

Once the company is revived, its disqualified directors can apply for removal of disqualification and reactivation of their DINs. This is currently the most preferable method for directors’ disqualification removal for those who also want to restart their old company. 

Other Remedies

There were many directors and company owners who could not get advantage from the CODS Scheme to revive their business and thus, their directors also missed the chance at the revival of their careers. The directors’ who failed to use this scheme for the removal of disqualification were left with two options.  Either they should apply in the National Companies Law Tribunal and hope to get a company revival order. Once the company was revised, they could apply for the removal of their disqualification and reactivation of DIN. In this case, when the NCLT passed the order of company revival, then RoC used to verify this order and relevant documents of the directors. But this procedure could only be followed if the companies wanted revival, the other option for directors who just wanted to activate their DIN without applying for the revival of their company was to apply for removal of disqualification in the respective High Court through a Writ Petition. The option of writing a Writ Petition to High court is attributed to constitutional rights conferred by Article 226 of the constitution to seek relief. 

How to Draft an Impeccable Writ Petition?

1. The disqualified director must undertake to use his constitutional right to file the Writ Petition under Article 226 of the Constitution in the respective High Court. The High Court should be chosen according to the area of jurisdiction of the company. In the application, the petitioner should include the following information,

• List of date and events of disqualification.
• Affix an urgent application with a Notice of Motion. 
• Should give reasonable justification to court for not filing the statutory documents that led to the disqualification of company and removal of its name from RoC. 
• Inform Court about the current status of the company and its directors seeking relief. 
• List out the companies in which the petitioner is serving as a director. 
• File a copy of the impugned Press Release or Notice issued by the RoC that lists out the names of the disqualified directors. 
• Personal information such as name address and designation of each Memo of parties should be mentioned in the petition. 
• A prayer cause should be attached to dismiss the publication issued by the RoC under Companies Act’s Section 164 (2).

2. After this, the High Court issues orders after hearing the option for reactivation of the DIN of directors. The directors need to file the copy of the order and all other statutory documents to the RoC to continue with the process p0f registration. 
3. Once the defaulter petitioner fulfils all the required documents and completes payment of all the penalties, the RoC will start the process of reactivation. 

Hire an Experienced Representative 

Taking legal help to file a Writ Petition in the High Court is necessary considering the technicalities involved in the process. There are lots of details that should be considered before drafting the petition and only an experienced professional can handle this kind of job. Also, an expert professional from a legal firm will not only help you in the filing of the petition but also help in representing your case in the Court. An advocate from a reputed firm will attend all the hearing of the Court and put arguments effectively to ask for relief from disqualification. Once the Court grants a favourable order, the expert will help you in following the complete procedure mentioned in the order. He will also help you file all the necessary documents in RoC before activation of DIN. 

If you are worried about the outcome of filing a Writ petition in high Court or confused whether it will bring positive results, then this should serve as good news to you. There have been many instances across High Courts from all over the country where the director’s disqualification has been removed after hearing a Writ petition filed by them. The judiciary has granted interim relief to many directors and quashed orders of RoC in some cases. 

The Court is in general agreement with the aggrieved petitioners on the following points:

• Retrospective Application of Companies Act: In some cases, the Court also found the act being applied retrospectively for disqualification of directors. The Courts deemed this kind of application to be unjustified. 
• Contradictory Provisions in the Previous and New Act: The High Court finds it objectionable that the provisions of the Companies Act of 1956 did not have these regulations for the private companies and their directors, and so the new Act should not impose it on them in 2017.
• Order of RoC is Against Natural Justice: In most cases of directors’ disqualification, the aggrieved petitioners have mentioned that they never got any notice regarding their removal from RoC before the orders. Therefore, they never had a chance to clarify to RoC why they were not able to meet all the compliance standards of RoC. This is against the constitutional right of any individual as it doesn’t allow one person to show the cause of their actions and passes the order unilaterally. 

So, you can safely assume that the judiciary generally gives a favourable decision to directors who give valid reasons for defaulting. This should serve as a ray of hope for disqualified directors who are sceptical of filing writ petition for disqualification removal of their directorship. Just select an experienced legal firm that can represent your case efficiently and hope for a positive outcome.

The post What Is the Most Effective Solution to Directorship Disqualification by ROC? appeared first on MUDS.

The Delhi High Court recently passed an order for the removal of directors’ disqualification of multiple directors. In the hearing of Yatin Wadhwa v Ministry of Corporate Affairs & ANR, The bench of Justice Naveen Chawla considered the role of the Companies Fresh Start Scheme 2020 (a scheme allowing the revival of struck-off companies without penalties) and the results of Mukut Pathak & Ors. v. Union of India & Others (2019) to order the removal of disqualification. The Court observed that the directors must be allowed to avail the benefits of Companies Fresh Start Scheme 2020 (CFSS) and for removal of directors’ disqualification is necessary.

What Did the Court Say in Its Judgement?

The petitioners, in this case, were directors who faced disqualification by the RoC. After approaching the Court to put stay on their disqualification, they managed to get an order of stay on their disqualification. But after the stay, the RoC approached the court to remove the stay and let the disqualification commence. In a recent hearing via video conferencing, the petitioners argued that they wanted to avail the CFSS 2020 but could not do so until the disqualification is in place. Therefore, their disqualification must be removed so they can take advantage of the scheme and give a fresh start to their companies and career. The court used the case of Mukut Pathak & Ors. v. Union of India & Others (2019) that had stated that such disqualification under the Companies Amendment Act, 2018 shall not have a retrospective effect and shall only apply from 07th June 2018 onwards. The Court also favored the petitioners on the argument that there is no use of Companies Fresh Start Scheme if the stay on the director’s disqualification is removed. The court observed that the disqualification should be removed to ensure that the directors are able to avail the benefits of CFSS 2020 and do not get affected by the Retrospective effect.

The Companies Fresh Start Scheme was launched by the Government to give a respite to companies who have defaulted in filing financial documents and statements for three years and hence been struck off from RoC. These companies have been allowed to file their requisite documents and regularize their operations. The directors of such companies could also apply for DIN reactivation once their company is revived by this scheme. The Scheme also envisages non-imposition of penalty or any other charges for belated filing of the documents.

The court clarified that the intent and purpose of the CFSS is to allow a fresh start for defaulted companies and the directors of these companies should be allowed to avail the scheme to ensure its effectiveness. The Court observed that in light of the COIVD-19 Pandemic, the scheme should be given full effect and the disqualification of directors could render the scheme useless. 

Finally, the Court relied on the judgment given in Mukut Pathak Case and ordered the Ministry of Corporate Affairs to take the necessary steps to remove the disqualification of petitioners. The hearing also affirmed why taking legal help in the removal of director disqualification is important. The technicalities of such cases can only be handled by a legal professional. 

The post Great News! Delhi High Court Removes Director’s Disqualification Considering the CFSS 2020 appeared first on MUDS.

With the implementation of the Companies Act 2013 the Ministry of Corporate Affairs applied strict norms on companies defaulting on the set compliances mentioned in the act. The Companies Act 2013 had many changes compared to the old Act of 1956. The new Act comprised of strict provisions for non-complying companies which included directors; disqualification. The Act says if any company fails to meet the compliance standards set by the government, then the Registrar of Companies can remove their names from its list of regularised and also, order disqualification of directors for five years. 

In this article, we will understand 

• The situations in which companies are considered defaulters.
• Why and for how long the directors are disqualified?
• What are the ways to remove the director’s disqualification?
• Judiciary’s perspective on cases of removal of director’s disqualification thorough a case from Allahabad High Court. 

We will also understand the process of removal of a director from the perspective of a directors’ disqualification removal case in Allahabad High Court. This will help us understand the general viewpoint od judiciary on cases related to the removal of directors’ disqualification. 

Rules for Companies to fall in Defaulter’s List

The Companies Act of 2013 required companies to furnish documents related to their finances and operations every year. Defaulting on submission of these documents for a continuous period of three years had stricter provisions of punishment compared to the previous version of Companies Act. The act considered the director of the company responsible for actions of the company and so, has a policy of strict actions against them in case their company defaults. 

Grounds for Disqualification of Directors

The directors of the company are responsible for the smooth operation of the company and therefore they are responsible for any action taken by the company that leads to failure in complying with the directions of Government. The following points will give information on rules or issues which can lead to directors’ disqualification,

• Any directors of the company who has been convicted under section 188 by the Court regarding party transections during last five years. 
• The Court also has the authority over the disqualification of directors’ who are undischarged insolvent. 
• If any court or tribunal has earlier ordered the disqualification of the director. 
• If the directors fail to inform about their respective shares in any company held by them alone or in collaboration. 
• If the director is convicted in any offence by the Court and sentenced to imprisonment for more than 6 months.
• If the organisation fails to redeem any debentures on their due date or fails to pay the interest due.
• If the company of the director has not filed its financial statements and annual returns for three years consecutively. 
• Failure to pay the declared dividend and continuing so for one year or more could also lead to disqualification of the company’s director. 
• If the company has failed to repay the deposit made to it or pay interest on those deposits. 

• If any director has applied for his/her adjudication as an insolvent or if the directors’ application for the same is still pending. 
• If any Court confirms that the director is not of sound mind.  

Ways to Remove Directors’ Disqualification

During the initial few years of introduction of the new Companies Act, it was a common understanding that there was no remedy available for directors who are disqualified by RoC.  It was thought that waiting for the five years exile period to end is the only way to resume directorship work. However, there was another option which encompassed the revival of the disqualified company after struck off from RoC. Once the company is revived, its directors could also apply for the revival of their role. There were about 2.4 companies that were axed by the Ministry of Corporate Affairs (MCA) using the Companies Act in 2017. These companies started exploring the options for their revival and the directors hoped to get their DIN reactivated. When the MCA came up with the Condonation of Delay Scheme 2018, the company’s directors hoped to get their company revived without paying heavy penalties and apply for their disqualification removal.

It is the responsibility of the company’s director to file all the financial details of the company with the Ministry of Corporate Affairs every year as per the Companies Act. If the directors fail to submit these details for three consecutive years, then the Ministry could go on to remove the company from RoC and deactivate its directors’ DIN for five years. In the year 2018, the Central Government came up with Condonation of Delay Scheme (CODS) where directors could file the relevant document to get their DINs reactivated. The scheme involved the payment of a moderate fee and condonation of hefty penalties due to defaulting on a payment. Many companies at that time used this scheme for revival and removal of directors’ disqualification. This is how this scheme worked:

• The disqualified directors were needed to submit all the statutory document with the RoC to get their DIN activated temporarily.
• The documents are submitted with the statutory fee prescribed in Section 403 of the Companies Act. 
• The small fee needed was only 30000 Rs. With an e-CODS form and so saved companies form hefty penalties. 

Remedies Applicable for Directors’ Disqualification Cases after CODS 

There were many directors and company owners who could not get advantage from CODS Scheme to revive their business and thus, their directors also missed the chance at the revival of their careers. The directors’ who failed to use this scheme for the removal of disqualification were left with two options.  Either they should apply in the National Companies Law Tribunal and hope to get company revival order. Once the company was revised, they could apply for the removal of their disqualification and reactivation of DIN. In this case, when the NCLT passed the order of company revival, then RoC used to verify this order and relevant documents of the directors. But this procedure could only be followed if the companies wanted revival, the other option for directors who just wanted to activate their DIN without applying for the revival of their company was to apply for removal of disqualification in the respective High Court through a Writ Petition. The option of writing a Writ Petition to High court is attributed to constitutional rights conferred by Article 226 of the constitution to seek relief. 

Drafting a Concise Writ Petition

1. The disqualified director must undertake to use his constitutional right to file the Writ Petition under Article 226 of the Constitution in the respective High Court. The High Court should be chosen according to the area of jurisdiction of the company. In the application, the petitioner should include the following information,

• List of date and events of disqualification.
• Affix an urgent application with a Notice of Motion. 
• Should give reasonable justification to court for not filing the statutory documents that led to the disqualification of company and removal of its name from RoC. 
• Inform Court about the current status of the company and its directors seeking relief. 
• List out the companies in which the petitioner is serving as a director. 
• File a copy of the impugned Press Release or Notice issued by the RoC that lists out the names of the disqualified directors. 
• Personal information such as name address and designation of each Memo of parties should be mentioned in the petition. 
• A prayer cause should be attached to dismiss the publication issued by the RoC under Companies Act’s Section 164 (2).

2. After this, the High Court issues orders after hearing the option for reactivation of the DIN of directors. The directors need to file the copy of the order and all other statutory documents to the RoC to continue with the process p0f registration. 
3. Once the defaulter petitioner fulfils all the required documents and completes payment of all the penalties, the RoC will start the process of reactivation. 

Understanding Judiciary’s View on Writ Petitions through a Case

Let’s understand how filing a Writ Petition can help in the removal of directors’ disqualification and how Allahabad High Court quashed cancellation of DIN of 161 directors by RoC Uttar Pradesh.  

In this case, the petitioners were directors of companies which defaulted on submitting their yearly financial statement continuously for a period of three years. The resulted in RoC applying Section 164(2) of the Companies Act leading to company’s name being struck off from RoC and disqualification of their directors. The directors were also disqualified from the directorship of other companies (which were not defaulters). The petitioners also alleged that no show-cause notice was served to them before disqualification and RoC didn’t verify any facts before ordering the cancellation of their DINs for five years. It was argued by petitioners that the ruling of Section 164(2) that disqualifies directors from the directorship of other non-defaulter companies is an irrational and unreasonable violation of the fundamental rights mentioned under Article 19 (1) (g). With these and other arguments, the petitioners asked for the removal of disqualification from directorship and also asked the court to order RoC to reactivate their DIN numbers. 

Order of Allahabad High Court (Disqualification of Directors)

In its orders, the Allahabad High Court’s bench of Justice Rajeev Mishra and Justice Sudhir Agrawal quashed cancellation of DINs of directors and allowed writ petitions partly. The court said,

“The above discussion leads to the consequence that all writ petitions have to be allowed partly and action of respondents in deactivating DIN of petitioners is to be quashed. We accordingly allow writ petitions partly. We also quash the list published by ROC, declaring petitioners in all these writ petitions as disqualified to be Directors of companies and debarment of being Director for a period of five years. Uttar Pradesh ROC, now, shall be at liberty to give notice to petitioners to verify and establish the facts whether disqualification alleged to have been suffered by petitioners-Directors so as to attract Section 164 (2) of Act, 2013, actually exists or not. After giving them the opportunity and being satisfied that such disqualification has occurred, it will proceed further in accordance with the law.”

The above order is a welcome sign for all the directors who are looking for removal of their disqualification from Allahabad High Court. This order could pave the way for other directors to file for relief in the High Court if they want to remove disqualification without the revival of their company. The case has also led the way for directors who were working in multiple companies but removed from directorship just because one of their company defaulted. 

Why Do You Need an Experienced Representative?

Taking legal help to file a Writ Petition in the High Court is necessary considering the technicalities involved in the process. There are lots of details that should be considered before drafting the petition and only an experienced professional can handle this kind of job. Also, an expert professional from a legal firm will not only help you in the filing of the petition but also help in representing your case in the Court. An advocate from a reputed firm will attend all the hearing of the Court and put arguments effectively to ask for relief from disqualification. Once the Court grants a favorable order, the expert will help you in following the complete procedure mentioned in the order. He will also help you file all the necessary documents in RoC before activation of DIN. 

If you are worried about the outcome of filing a Writ petition in high Court or confused whether it will bring positive results, then this should serve as good news to you. There have been many instances across High Courts from all over the country where director’s disqualification has been removed after hearing on Writ petition filed by them. The judiciary has granted interim relief to many directors and, quashed orders of RoC in some cases. So, you can safely assume that the judiciary generally gives a favourable decision to directors who give valid reasons for defaulting. This should serve as a ray of hope for disqualified directors who are sceptical of filing writ petition for disqualification removal of their directorship. Just select an experienced legal firm that can represent your case efficiently and hope for a positive outcome.  

The post A Case Study Explaining Directors’ Disqualification Removal through Writ Petition appeared first on MUDS.

• On what grounds directors are disqualified from the organization?
• Kerala High Court’s perspective through a recent case law
• What are the remedies for disqualified directors?

As per the provisions mentioned in the Companies Act 2013, an director of a company can be disqualified for five years from the directorship of his/her company and also banned to join any other organization as a director if his/her current organization fails to submit their financial statement for a period of three years consecutively. Now the obvious question is whether this disqualification can be removed or not? And if it can be removed what are the ways to do it. To answer all these questions we have explored various aspects of the relief from director disqualification in different sections of this article. By the end of the article, you will be able to understand,

We will also understand the perspective of Kerala High Court which recently granted an order in favor of the petitioner. This will help us understand the general viewpoint of judiciary on cases related to the relief from director disqualification. 

Different Grounds for Removal of Director Disqualification

The following points will give information on rules or issues which can lead to directors’ disqualification,

• Any directors of the company who has been convicted under section 188 by the Court regarding party transections during last five years. 
• If the directors fail to inform about their respective shares in any company held by them alone or in collaboration. 
• If any director has applied for his/her adjudication as an insolvent or if the directors’ application for the same is still pending. 
• If the director is convicted in any offence by the Court and sentenced to imprisonment for more than 6 months.
• If the organisation fails to redeem any debentures on their due date or fails to pay the interest due.
• If the company of the director has not filed its financial statements and annual returns for three years consecutively. 
• If the company has failed to repay the deposit made to it or pay interest on those deposits. 
• Failure to pay the declared dividend and continuing so for one year or more could also lead to disqualification of the company’s director. 

• If any Court confirms that the director is not of sound mind. 
• The Court also has the authority over the disqualification of directors’ who are undischarged insolvent. 
• If any court or tribunal has earlier ordered the disqualification of the director. 

Analysis of Kerala High Court’s Order 

Ever since the norms for director disqualification have come into place the high Court’s throughout India are using flurry of writ petitions being filed for relief. Recently during the hearing of a case, the Kerala High Court’s Judge Justice Nagaresh emphasized that,

“This Court is of the firm opinion that in order for the Scheme to be effective, Directors of the Companies ought to be given an opportunity to avail of the Scheme”.

Through this order, the Kerala High Court directed the Registrar of companies to reactivate the cancelled DINs of directors with their digital signatures to let them avail the Companies Fresh Start Scheme 2020to revive their struck off companies. 

Ways to Seek Relief from Director Disqualification

During the initial few years of introduction of the new Companies Act, there were about 2.4 companies that were axed by the Ministry of Corporate Affairs (MCA) using the Companies Act in 2017. These companies started exploring the options for their revival and the directors hoped to get their DIN reactivated. When the MCA came up with the Condonation of Delay Scheme 2018, the company’s directors hoped to get their company revived without paying heavy penalties and apply for their disqualification removal.

Present Day Remedies for Relief

There were many directors and company owners who could not get advantage from CODS Scheme to revive their business and thus, their directors also missed the chance at the revival of their careers. The directors’ who failed to use this scheme for the removal of director disqualification were left with two options.  

• Apply in the National Companies Law Tribunal and hope to get company revival order. Once the company was revived, they could apply for the removal of director disqualification and reactivation of DIN. In this case, when the NCLT passed the order of company revival, then RoC used to verify this order and relevant documents of the directors. This procedure could only be followed if the owners of the companies wanted to revive it. 
• The other option for directors who just wanted to activate their DIN without applying for the revival of their company was to apply for Removal of director disqualification in the respective High Court through a Writ Petition. The option of writing a Writ Petition to High court is attributed to constitutional rights conferred by Article 226 of the constitution to seek relief. 
• With the Order of Kerela High Court in place, the directors can also apply for DIN reactivation to take advantage of the latest Companies Fresh Start Scheme 2020 brought by the government to revive struck off companies without paying heavy non-compliance fees. 

However, this way would make it compulsory for a director to apply for the company revival. So, to get the DIN reactivated without reviving the company, filing a writ petition is still the most preferred way. 

How to Draft a Writ Petition?

1. The disqualified director must undertake to use his constitutional right to file the Writ Petition under Article 226 of the Constitution in the respective High Court. The High Court should be chosen according to the area of jurisdiction of the company. In the application, the petitioner should include the following information,

• List of date and events of disqualification.
• Affix an urgent application with a Notice of Motion. 
• Should give reasonable justification to court for not filing the statutory documents that led to the disqualification of company and removal of its name from RoC. 
• Inform Court about the current status of the company and its directors seeking relief. 
• List out the companies in which the petitioner is serving as a director. 
• File a copy of the impugned Press Release or Notice issued by the RoC that lists out the names of the disqualified directors. 
• Personal information such as name address and designation of each Memo of parties should be mentioned in the petition. 
• A prayer cause should be attached to dismiss the publication issued by the RoC under Companies Act’s Section 164 (2).

1. After this, the High Court issues orders after hearing the option for restoration of the DIN of directors. The directors need to file the copy of the order and all other statutory documents to the RoC to continue with the process p0f registration. 
2. Once the defaulter petitioner fulfils all the required documents and completes payment of all the penalties, the RoC will start the process of reactivation. 

Court’s Perspective on Writ Petition

The Court is in general agreement with the aggrieved petitioners on the following points:

• Retrospective Application of Companies Act: In some cases, the Court also found the act being applied retrospectively for disqualification of directors. The Courts deemed this kind of application of act as unjustified. 
• Contradictory Provisions in the Previous and New Act: The High Court finds it objectionable that the provisions of the Companies Act of 1956 did not have these regulations for the private companies and their directors, and so the new Act should not impose it on them in 2017.
• Order of RoC is Against Natural Justice: In most cases of directors’ disqualification, the aggrieved petitioners have mentioned that they never got any notice regarding their removal from RoC before the orders. Therefore, they never had a chance to clarify to RoC why they were not able to meet all the compliance standards of RoC. This is against the constitutional right of any individual as it doesn’t allow one person to show the cause of their actions and passes the order unilaterally. 

Hire an Experienced Representative 

So far we have understood that the Court generally have a favorable opinion on writ petitions filed by petitioners. If your company is struck off and you want to restart your business, then taking advantage of CFSS 2020 would be the best way to go for it. The added advantage of CFSS is that you can easily get your DIN reactivated, Removal of director disqualification and use this scheme to restart your business. Saving a huge sum of money from penalties is also an advantage of this scheme. Although if you just want to reactivate your DIN then, applying for disqualification removal through writ petition is the perfect option. All these processes are a bit complicated for a common businessman and thus, we suggest that one should always take help of a legal expert to draft the petition or to apply for company revival through CFSS scheme. An expert professional from a legal firm will not only help you in the filing of the writ petition but also help in representing your case in the Court. An advocate from a reputed firm will attend all the hearing of the Court and put arguments effectively to ask for relief from director disqualification. Once the Court grants a favourable order, the expert will help you in following the complete procedure mentioned in the order. He will also help you file all the necessary documents in RoC before activation of DIN. 

The post Seek Relief from Director Disqualification by Filing a Writ Petition in High Court appeared first on MUDS.

As per the provisions mentioned in the Companies Act 2013, an director of a company can be disqualified for five years from the directorship of his/her company and also banned to join any other organization as a director if his/her current organization fails to submit their financial statement for a period of three years consecutively. Now the obvious question is whether this disqualification can be removed or not? And if it can be removed what are the ways to do it. To answer all these questions we have explored various aspects of the removal of director disqualification in different sections of this article. By the end of the article, you will be able to understand,

• On what grounds directors are disqualified from the organisation?
• Hyderabad High Court’s perspective on such cases
• What was the impact of these new provisions in the act?
• What are the remedies for disqualified directors?

We will also understand the process of removal of a director from the perspective of a directors’ disqualification removal case in Hyderabad High Court. This will help us understand the general viewpoint od judiciary on cases related to the removal of directors’ disqualification. 

Different Grounds for Directors’ Disqualification

The Companies Act of 2013 required companies to furnish documents related to their finances and operations every year. Defaulting on submission of these documents for a continuous period of three years had stricter provisions of punishment compared to the previous version of Companies Act. The act considered the director of the company responsible for actions of the company and so, has a policy of strict actions against them in case their company defaults. 

The directors of the company are responsible for the smooth operation of the company and therefore they are responsible for any action taken by the company that leads to failure in complying with the directions of Government. The following points will give information on rules or issues which can lead to directors’ disqualification,

• Any directors of the company who has been convicted under section 188 by the Court regarding party transections during last five years. 
• If the directors fail to inform about their respective shares in any company held by them alone or in collaboration. 
• If any director has applied for his/her adjudication as an insolvent or if the directors’ application for the same is still pending. 
• If the director is convicted in any offence by the Court and sentenced to imprisonment for more than 6 months.
• If the organisation fails to redeem any debentures on their due date or fails to pay the interest due.
• If the company of the director has not filed its financial statements and annual returns for three years consecutively. 
• If the company has failed to repay the deposit made to it or pay interest on those deposits. 
• Failure to pay the declared dividend and continuing so for one year or more could also lead to disqualification of the company’s director. 

• If any Court confirms that the director is not of sound mind. 
• The Court also has the authority over the disqualification of directors’ who are undischarged insolvent. 
• If any court or tribunal has earlier ordered the disqualification of the director. 

Analysis of Hyderabad High Court’s Order 

Ever since the norms for director disqualification have come into place the high Court’s throughout India are using flurry of writ petitions being filed for relief. Let’s understand how filing these Petitions have helped the petitioners in their cases through a case study of M/s. Dr Reddy’s Research Foundation & Ors. Vs. The Ministry of Corporate Affairs & Anr. 

“In this case, it was argued by the sides that the action of disqualification was considered due to non-filing of financial statements from April 01, 2014. The three years from 2014 were about to be completed only on 31 March 2017 but the date for filing of annual financial returns for the said years was 30 October 2017. The court thus, director the MCA to reactivate the DINs of the directors and allowed them to file their financial statement of their defaulting company from 2011 to 2016.”

This case paved the way for other directors to file for relief in the High Court if they want to remove disqualification without the revival of their company. Even after the CODS was over, filing of the Writ petition to remove directors’ disqualification is still the proven way to end the exile for directors. 

Ways in which Directors Can Seek Relief from Disqualification

During the initial few years of introduction of the new Companies Act, there were about 2.4 companies that were axed by the Ministry of Corporate Affairs (MCA) using the Companies Act in 2017. These companies started exploring the options for their revival and the directors hoped to get their DIN reactivated. When the MCA came up with the Condonation of Delay Scheme 2018, the company’s directors hoped to get their company revived without paying heavy penalties and apply for their disqualification removal.

It is the responsibility of the company’s director to file all the financial details of the company with the Ministry of Corporate Affairs every year as per the Companies Act. If the directors fail to submit these details for three consecutive years, then the Ministry could go on to remove the company from RoC and deactivate its directors’ DIN for five years. In the year 2018, the Central Government came up with Condonation of Delay Scheme (CODS) where directors could file the relevant document to get their DINs reactivated. The scheme involved the payment of a moderate fee and condonation of hefty penalties due to defaulting on a payment. Many companies at that time used this scheme for revival and removal of directors’ disqualification. This is how this scheme worked:

• The disqualified directors were needed to submit all the statutory document with the RoC to get their DIN activated temporarily.
• The documents are submitted with the statutory fee prescribed in Section 403 of the Companies Act. 
• The small fee needed was only 30000 Rs. With an e-CODS form and so saved companies form hefty penalties. 

Present Day Remedies for relief

There were many directors and company owners who could not get advantage from CODS Scheme to revive their business and thus, their directors also missed the chance at the revival of their careers. The directors’ who failed to use this scheme for the removal of disqualification were left with two options.  

• Apply in the National Companies Law Tribunal and hope to get company revival order. Once the company was revived, they could apply for the removal of their disqualification and reactivation of DIN. In this case, when the NCLT passed the order of company revival, then RoC used to verify this order and relevant documents of the directors. This procedure could only be followed if the owners of the companies wanted to revive it. 
• The other option for directors who just wanted to activate their DIN without applying for the revival of their company was to apply for removal of disqualification in the respective High Court through a Writ Petition. The option of writing a Writ Petition to High court is attributed to constitutional rights conferred by Article 226 of the constitution to seek relief. 

How to Create a Writ Petition?

1. The disqualified director must undertake to use his constitutional right to file the Writ Petition under Article 226 of the Constitution in the respective High Court. The High Court should be chosen according to the area of jurisdiction of the company. In the application, the petitioner should include the following information,

• List of date and events of disqualification.
• Affix an urgent application with a Notice of Motion. 
• Should give reasonable justification to court for not filing the statutory documents that led to the disqualification of company and removal of its name from RoC. 
• Inform Court about the current status of the company and its directors seeking relief. 
• List out the companies in which the petitioner is serving as a director. 
• File a copy of the impugned Press Release or Notice issued by the RoC that lists out the names of the disqualified directors. 
• Personal information such as name address and designation of each Memo of parties should be mentioned in the petition. 
• A prayer cause should be attached to dismiss the publication issued by the RoC under Companies Act’s Section 164 (2).

2. After this, the High Court issues orders after hearing the option for reactivation of the DIN of directors. The directors need to file the copy of the order and all other statutory documents to the RoC to continue with the process p0f registration. 
3. Once the defaulter petitioner fulfils all the required documents and completes payment of all the penalties, the RoC will start the process of reactivation. 

Hire an Experienced Representative 

Taking legal help to file a Writ Petition in the High Court is necessary considering the technicalities involved in the process. There are lots of details that should be considered before drafting the petition and only an experienced professional can handle this kind of job. Also, an expert professional from a legal firm will not only help you in the filing of the petition but also help in representing your case in the Court. An advocate from a reputed firm will attend all the hearing of the Court and put arguments effectively to ask for relief from disqualification. Once the Court grants a favourable order, the expert will help you in following the complete procedure mentioned in the order. He will also help you file all the necessary documents in RoC before activation of DIN. 

If you are worried about the outcome of filing a Writ petition in high Court or confused whether it will bring positive results, then this should serve as good news to you. There have been many instances across High Courts from all over the country where director’s disqualification has been removed after hearing on Writ petition filed by them. The judiciary has granted interim relief to many directors and, quashed orders of RoC in some cases. 

The Court is in general agreement with the aggrieved petitioners on the following points:

• Retrospective Application of Companies Act: In some cases, the Court also found the act being applied retrospectively for disqualification of directors. The Courts deemed this kind of application of act as unjustified. 
• Contradictory Provisions in the Previous and New Act: The High Court finds it objectionable that the provisions of the Companies Act of 1956 did not have these regulations for the private companies and their directors, and so the new Act should not impose it on them in 2017.
• Order of RoC is Against Natural Justice: In most cases of directors’ disqualification, the aggrieved petitioners have mentioned that they never got any notice regarding their removal from RoC before the orders. Therefore, they never had a chance to clarify to RoC why they were not able to meet all the compliance standards of RoC. This is against the constitutional right of any individual as it doesn’t allow one person to show the cause of their actions and passes the order unilaterally. 

So, you can safely assume that the judiciary generally gives a favourable decision to directors who give valid reasons for defaulting. This should serve as a ray of hope for disqualified directors who are sceptical of filing writ petition for disqualification removal of their directorship. Just select an experienced legal firm that can represent your case efficiently and hope for a positive outcome.  

The post 5 Reasons Why Removal of Directors’ Disqualification is Necessary appeared first on MUDS.

• On what grounds directors are disqualified from the organisation?
• Hyderabad High Court’s perspective on such cases
• What was the impact of these new provisions in the act?
• What are the remedies for disqualified directors?

We will also understand the process of removal of a director from the perspective of a directors’ disqualification removal case in Hyderabad High Court. This will help us understand the general viewpoint od judiciary on cases related to the removal of directors’ disqualification. 

Different Grounds for Directors’ Disqualification

The Companies Act of 2013 required companies to furnish documents related to their finances and operations every year. Defaulting on submission of these documents for a continuous period of three years had stricter provisions of punishment compared to the previous version of Companies Act. The act considered the director of the company responsible for actions of the company and so, has a policy of strict actions against them in case their company defaults. 

The directors of the company are responsible for the smooth operation of the company and therefore they are responsible for any action taken by the company that leads to failure in complying with the directions of Government. The following points will give information on rules or issues which can lead to directors’ disqualification,

• Any directors of the company who has been convicted under section 188 by the Court regarding party transections during last five years. 
• If the directors fail to inform about their respective shares in any company held by them alone or in collaboration. 
• If any director has applied for his/her adjudication as an insolvent or if the directors’ application for the same is still pending. 
• If the director is convicted in any offence by the Court and sentenced to imprisonment for more than 6 months.
• If the organisation fails to redeem any debentures on their due date or fails to pay the interest due.
• If the company of the director has not filed its financial statements and annual returns for three years consecutively. 
• If the company has failed to repay the deposit made to it or pay interest on those deposits. 
• Failure to pay the declared dividend and continuing so for one year or more could also lead to disqualification of the company’s director. 

• If any Court confirms that the director is not of sound mind. 
• The Court also has the authority over the disqualification of directors’ who are undischarged insolvent. 
• If any court or tribunal has earlier ordered the disqualification of the director. 

Analysis of Hyderabad High Court’s Order 

Ever since the norms for director disqualification have come into place the high Court’s throughout India are using flurry of writ petitions being filed for relief. Let’s understand how filing these Petitions have helped the petitioners in their cases through a case study of M/s. Dr Reddy’s Research Foundation & Ors. Vs. The Ministry of Corporate Affairs & Anr. 

“In this case, it was argued by the sides that the action of disqualification was considered due to non-filing of financial statements from April 01, 2014. The three years from 2014 were about to be completed only on 31 March 2017 but the date for filing of annual financial returns for the said years was 30 October 2017. The court thus, director the MCA to reactivate the DINs of the directors and allowed them to file their financial statement of their defaulting company from 2011 to 2016.”

This case paved the way for other directors to file for relief in the High Court if they want removal of director disqualification without the revival of their company. Even after the CODS was over, filing of the Writ petition to remove directors’ disqualification is still the proven way to end the exile for directors. 

Ways in which Directors Can Seek Relief from Disqualification

During the initial few years of introduction of the new Companies Act, there were about 2.4 companies that were axed by the Ministry of Corporate Affairs (MCA) using the Companies Act in 2017. These companies started exploring the options for their revival and the directors hoped to get their DIN reactivated. When the MCA came up with the Condonation of Delay Scheme 2018, the company’s directors hoped to get their company revived without paying heavy penalties and apply for their disqualification removal.

It is the responsibility of the company’s director to file all the financial details of the company with the Ministry of Corporate Affairs every year as per the Companies Act. If the directors fail to submit these details for three consecutive years, then the Ministry could go on to remove the company from RoC and deactivate its directors’ DIN for five years. In the year 2018, the Central Government came up with Condonation of Delay Scheme (CODS) where directors could file the relevant document to get their DINs reactivated. The scheme involved the payment of a moderate fee and condonation of hefty penalties due to defaulting on a payment. Many companies at that time used this scheme for revival and removal of director disqualification. This is how this scheme worked:

• The disqualified directors were needed to submit all the statutory document with the RoC to get their DIN activated temporarily.
• The documents are submitted with the statutory fee prescribed in Section 403 of the Companies Act. 
• The small fee needed was only 30000 Rs. With an e-CODS form and so saved companies form hefty penalties. 

Present Day Remedies for relief

There were many directors and company owners who could not get advantage from CODS Scheme to revive their business and thus, their directors also missed the chance at the revival of their careers. The directors’ who failed to use this scheme for the removal of director disqualification were left with two options.  

• Apply in the National Companies Law Tribunal and hope to get company revival order. Once the company was revived, they could apply for the removal of their disqualification and reactivation of DIN. In this case, when the NCLT passed the order of company revival, then RoC used to verify this order and relevant documents of the directors. This procedure could only be followed if the owners of the companies wanted to revive it. 
• The other option for directors who just wanted to activate their DIN without applying for the revival of their company was to apply for removal of director disqualification in the respective High Court through a Writ Petition. The option of writing a Writ Petition to High court is attributed to constitutional rights conferred by Article 226 of the constitution to seek relief. 

How to Create a Writ Petition?

1. The disqualified director must undertake to use his constitutional right to file the Writ Petition under Article 226 of the Constitution in the respective High Court. The High Court should be chosen according to the area of jurisdiction of the company. In the application, the petitioner should include the following information,

• List of date and events of disqualification.
• Affix an urgent application with a Notice of Motion. 
• Should give reasonable justification to court for not filing the statutory documents that led to the disqualification of company and removal of its name from RoC. 
• Inform Court about the current status of the company and its directors seeking relief. 
• List out the companies in which the petitioner is serving as a director. 
• File a copy of the impugned Press Release or Notice issued by the RoC that lists out the names of the disqualified directors. 
• Personal information such as name address and designation of each Memo of parties should be mentioned in the petition. 
• A prayer cause should be attached to dismiss the publication issued by the RoC under Companies Act’s Section 164 (2).

2. After this, the High Court issues orders after hearing the option for reactivation of the DIN of directors. The directors need to file the copy of the order and all other statutory documents to the RoC to continue with the process p0f registration. 
3. Once the defaulter petitioner fulfils all the required documents and completes payment of all the penalties, the RoC will start the process of reactivation. 

Hire an Experienced Representative for Removal of Director Disqualification

Taking legal help to file a Writ Petition in the High Court is necessary considering the technicalities involved in the process. There are lots of details that should be considered before drafting the petition and only an experienced professional can handle this kind of job. Also, an expert professional from a legal firm will not only help you in the filing of the petition but also help in representing your case in the Court. An advocate from a reputed firm will attend all the hearing of the Court and put arguments effectively to ask for relief from disqualification. Once the Court grants a favourable order, the expert will help you in following the complete procedure mentioned in the order. He will also help you file all the necessary documents in RoC before activation of DIN. 

If you are worried about the outcome of filing a Writ petition in high Court or confused whether it will bring positive results, then this should serve as good news to you. There have been many instances across High Courts from all over the country where director’s disqualification has been removed after hearing on Writ petition filed by them. The judiciary has granted interim relief to many directors and, quashed orders of RoC in some cases. 

The Court is in general agreement with the aggrieved petitioners on the following points:

• Retrospective Application of Companies Act: In some cases, the Court also found the act being applied retrospectively for disqualification of directors. The Courts deemed this kind of application of act as unjustified. 
• Contradictory Provisions in the Previous and New Act: The High Court finds it objectionable that the provisions of the Companies Act of 1956 did not have these regulations for the private companies and their directors, and so the new Act should not impose it on them in 2017.
• Order of RoC is Against Natural Justice: In most cases of directors’ disqualification, the aggrieved petitioners have mentioned that they never got any notice regarding their removal from RoC before the orders. Therefore, they never had a chance to clarify to RoC why they were not able to meet all the compliance standards of RoC. This is against the constitutional right of any individual as it doesn’t allow one person to show the cause of their actions and passes the order unilaterally. 

So, you can safely assume that the judiciary generally gives a favourable decision to directors who give valid reasons for defaulting. This should serve as a ray of hope for disqualified directors who are sceptical of filing writ petition for disqualification removal of their directorship. Just select an experienced legal firm that can represent your case efficiently and hope for a positive outcome.  

The post Can Director Disqualification Due to Non-Filing of Financial Statement be Removed? appeared first on MUDS.