Remedies for Disqualified Directors
The ROC (i.e. Registrar of Companies) struck off many companies in September 2017 for not filing for a period of two financial years. It was believed that these companies were not doing any business as per section 248(2) of the Companies Act, 2013. Their Directors too were disqualified as per section 164 (2) (a).
Consequences of Disqualification
In a case when a company fails to file it’s Financial Statements and/or Annual Returns for three years in continuation, the Director of that company would be would not be eligible to be appointed as the Director of other companies for a term of five years. Also, his office would be liable to be vacated in all the organizations except the company which is in default.
Here are a few situations to discuss the remedies available to a disqualified Director:-
1.When the name of a company is struck off but the Director is determined to continue with the company and subsequently removes his disqualification-
Under such a situation, a request for the revival of the Company has to be entered with the NCLT (i.e. The National Company Law Tribunal) having administration over the state in which the companies registered office is located. Once, the order of revival is received, it would be required to begin the physical annual filing with the Registrar of Company in order to remove the disqualification. The National Company Law Tribunal would only pass the order of revival if in case it is in public interest. It also needs to be shown that the company was doing business in terms of the number of employees, contracts signed and entered into etc.
In the lack of any provisions in the Companies Act for removal of disqualification by compounding payment of penalties. The only available option is to file a written petition in the High Court.
2. In case the name of the company is struck off but the director doesn’t want to continue with the company and only wants his disqualification to be removed-
Here, the petition for removal of disqualification would be made to the High Court in which the companies registered office is located. Once the stay order is received, the company is required to go for physical annual filing with the Registrar of Company for the removal of disqualification of the director.
3. When all the disqualified directors desire to remove disqualification and the status of the company is active-
There can also be a situation, where the company whose directors are disqualified is not willing to do the annual filing. In this situation, it is advised to appoint new directors whose status would be active. The problem here would be that there is no quorum, thus, the Board Meetings cannot be conducted.
Since the government has come out with the notification, there has been a series of written petitions seeking relief from disqualification. One of the very known cases, M/s. Dr. Reddy’s Research Foundation & Ors. Vs. The Ministry of Corporate Affairs & Anr, it was fought that the latest rules disqualifying if the directors of an organization fail to file the annual returns for a period of three financial years. The court finally orders to restore the DIN number of such Directors in order to enable them to submit the annual returns.
One might have noticed in the previous section that there are multiple reasons why a director of a company can be disqualified and removed from his post. Now, remedies from director disqualification require legal assistance. A director needs an experienced legal professional who can help him/her choose the right way to remove the disqualification. Therefore, all disqualified directors must get in touch with a reputed legal firm to find the appropriate way for the removal of their disqualification and reactivation of DIN.
“There are multiple reasons for which Directors are disqualified. For instance, default in filing of financial statements or faulty annual records. There are stringing measure being taken against them.”
-Shweta Gupta, Founder, and CEO, MUDS