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.

The much awaited relief to disqualified directors was given by government through Condonation of Delay Scheme, 2018 notified by the MCA on December 29, 2017.

The introductory paras of the Scheme says  that Ministry of Corporate Affairs (MCA) had received numerous representations from industry, defaulting companies and disqualified directors seeking an opportunity to become law compliant and removal of disqualification.

This assumes more importance in the light of the fact that no remedy is provided under companies Act 2013 for removal of disqualification incurred by directors for non filing of financial statements and Annual Return under Section 164(2) of Companies Act 2013, except waiting for five long years and then making application for removal of Disqualification.

Stakeholders were very optimistic about this scheme as this was supposed to be a golden opportunity to remove the disqualification of Director, But as the Scheme is being unfolded, it turns out that this scheme is not for every disqualified director.

For example, the disqualified directors of a Struck off Company can not avail this scheme unless the company is not revived. This assumes more seriousness in the case that if a disqualified directors do not want to revive their struck off company but they are only interested in removal of disqualification.

Even if the disqualified directors want to revive the Company they may not be successful in their endeavors, because defunct companies cannot be revived. Therefore the disqualified Directors are caught in a vicious circle of Revival and removal of Disqualification.

In such cases Role of High Courts assumes more importance. The Disqualified directors can move the high court by filing a writ petition for stay/ removal of disqualification.

Time limit of this Scheme i.e. three months seems very less for those defaulting companies whose names have been removed from the register of companies under section 248 of the Act and which have filed applications for revival under section 252. As per the Scheme the Director’s DIN shall be re-activated only after NCLT Order of revival subject to the company having filing of all overdue documents.

Example suppose a struck off company has been revived and all the default made good by disqualified directors, even after taking efforts for revival, such directors will still continue to remain disqualified, for removal of default such disqualified directors will then have to avail scheme but till the revival order is passed by NCLT the time limit of scheme may have already expired, in such situation the original Sin of disqualification will still remain unpardoned. In the light of above discussions one can only hope that MCA comes out with some relief for disqualified Directors of Struck off Companies which is not improbable considering the need of the hour.

It seems from the above that companies which have been struck off and want to revive themselves should, without wasting even a day’s time, file the application for revival and obtain a favourable order soon enough to have sufficient time to avail benefits under this Scheme. Such revived entities should also be required to file their overdue documents (including e-Form CODS 2018) under this Scheme up till March 31, 2018 only.

Despite all of these limitations, MCA has notified this Scheme with a sole intent to provide an opportunity to non-compliant, defaulting companies to rectify their default by completing their pending annual filings up to 30.06.2017 in a limited window period from January 1, 2018 to March 31, 2018.

FAQ’s of the CODS Scheme 2018:

1. What is the purpose of this scheme?

The purpose of this Scheme is to give an opportunity to the non-compliant, defaulting companies to rectify their defaults pertaining to non-filing of overdue documents.

2. What is the Eligibility to avail the benefits of CODS?

The following are eligible to avail benefits of this Scheme:

• Defaulting companies which are still active for filing but cannot file their financial statements due to disqualification of directors whose DINs are blocked
• Companies which had made or will make application u/s 252 during the validity of this Scheme (subject to NCLT’s order for revival of such companies)

3. Who are Non-eligible to avail the Scheme?

Companies which have been struck off by ROCs by the ROCs shall not be eligible to file documents under this Scheme. Such companies can however, make application to NCLT for revival and upon successful order for revival avail benefits of this Scheme during the period of its validity only.

4. What is the time limit of the Scheme?

The Scheme shall be applicable from January 1, 2018 to March 31, 2018.

5. What is the Position of disqualified DINs after the expiry of Scheme?

The DINs of the disqualified directors shall be temporarily enabled during the period of the Scheme to allow filing of overdue documents. based on verification and scrutiny of documents including e-Form CODS filed with the ROCs under the Scheme, The disqualification of directors shall be extinguished/condoned.

6. What is the Remedy available for disqualified directors who have not filed application before NCLT for revival?

Such disqualified directors shall not be eligible to avail benefits under this Scheme as the Scheme clearly lays down that only companies whose application of revival has been filed before NCLT can avail benefits of this Scheme, subject to favourable order from NCLT for revival. Hence, in order to avail benefit under this Scheme, first application has to be made to NCLT u/s 252 and favourable order for revival is also to be obtained during the validity of the Scheme and thereafter overdue documents to be filed within the prescribed time limit under the Scheme.

7. If NCLT rejects application for revival of company, then how can disqualified directors of such companies avail benefits of this Scheme?

In our view, in such situation, such companies and disqualified directors associated with such companies shall not be eligible to avail benefits of this Scheme. They shall have to move to High Court by making Writ Petitions.

8. Can disqualified directors associated with active companies (non-defaulting) file their overdue documents during the period of Scheme as their DIN will be activated?

In our view, DIN shall be activated for filing only overdue documents of only defaulting companies and therefore, active companies (non-defaulting) shall not be allowed to file any documents (including overdue documents) with DIN of the disqualified directors during the period of this Scheme. Such companies shall continue to appoint new directors through back-end process notified by concerned ROCs.

9. What is the procedure to avail benefits of this Scheme?

The defaulting companies shall file their overdue documents . Thereafter, they shall file e-form CODS for condonation of delay for removal of disqualification of Directors. The ROC may seek some additional Documents forms for further clarification

10. What is the Filing  fees for Condonation  under this scheme?

The filing fee for availing benefits under this Scheme is Rs.30,000/- which is the fee required to be paid at the time of filing the e-Form CODS 2018. However, before filing e-Form CODS 2018, the defaulting companies shall be required to upload all their overdue documents with additional fee for the delayed period for each one of them, as may be levied as per section 403 of the Act read with Companies (Registration Offices and fee) Rules, 2014.

11. Whether the defaulting Company has to pay additional fees for delay in filing the overdue documents?

Yes, additional fee as may be applicable as per section 403 of the Act read with Companies (Registration Offices and fee) Rules, 2014 shall be required to be paid for each form which is pending to be filed upto 30.06.2017.

12. Does the Scheme removes disqualification of directors? If so, how can disqualified directors apply for re-activation of their DIN?

The motive of the Scheme is to provide opportunity to the defaulting companies to complete their filings and subsequently removal of the disqualification imposed upon directors. Although there is lack of clarity as to the procedure  for removal of director disqualification from therefore after filing eForm CODS 2018 one has to wait for Ministry’s response w.r.t. disqualification removal.

13. What are the disclosures required in CODS-2018?

SRN of each document filed during the period of this Scheme needs to be mentioned, besides this there are mainly 3 disclosures required under the CODS-2018. They are:

• Whether any appeal(s) was filed against any notice issued or complaint filed before the competent court for violation of the   provisions under the Act in respect of the above mentioned document(s). lf yes, attach proof of withdrawal of such appeal.
• Whether any prosecution(s) is pending in court against the company and its officers in respect of belated documents filed under the scheme. If yes, provide details thereof as an attachment.
• Whether any director(s) of the company is declared as proclaimed offender or facing criminal case(s) for economic offences. If yes, provide details of such director(s) as an attachment.

14. Is this scheme an immunity from prosecution for defaulting companies?

Yes this Scheme is providing an immunity vide Para 6 against matters related to filing of the overdue documents only. The other acts of default under any other provisions shall equally be liable to action as provided under the provisions of law.

15. Can company file all its overdue documents under this scheme?

A defaulting company can file only its overdue financial statements & Annual Return  documents which were due to filed upto 30.06.2017 under this Scheme. Any other overdue document which was due for filing from 01.07.2017 shall not be allowed to be filed under this Scheme.

16. As per the provisions of section 167(2) every director will attract penalty as per the provision of the Act who is aware of his disqualification and still functions as director. However as per CODS-2018 the DIN of disqualified directors are reactivated for filing of document. Will this attract the penalties of section 167(2)?

The main motive behind the Scheme is to make the default good and not to incur further liability so the disqualified directors shall not attract penalty under the provisions of Section 167(2) The DIN will be re-activated for filing the overdue documents under the Scheme.

17. What will be the status of pending proceedings/prosecution post registering into the scheme?

The pending prosecution proceedings w.r.t. the overdue documents shall be withdrawn by the ROCs. The applicants availing the benefits of the Scheme shall also withdraw their application from all forums w.r.t. the overdue documents and other non- compliances under the Act. Proof of withdrawal of such applications must be attached in e- Form CODS 2018

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