• 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.

In this article, we will understand 

• What was the impact of these new provisions in the act?
• On what grounds directors are disqualified from the organisation?
• What are the ways to remove the director’s disqualification

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

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. 

“Any company can have one or more number of directors working full-time or Part-time. All these directors will fall under the category of OFFICERS and strict actions will be taken against them if their companies fail to abide by the set rules.”

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,

• 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.
• Any director of the company who has 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 offence by the Court and sentenced to imprisonment for more than 6 months. 

How 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 striking 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.

New Ray of Hope! The Condonation of Delay Scheme, 2018

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 the 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 documents with the RoC to get their DIN activated temporarily.
• The documents are submitted with the statutory fee prescribed in the 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. 

What about the Companies not Using CODS?

There were many directors and company owners who did not use 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 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. But this procedure could only be followed if the companies wanted revival in the first place. 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. 

Courts Perspective on Writ Petitions

Let’s understand how filing a Writ Petition can help in the removal of directors’ disqualification and how Kolkata High Court responded to such petition through the case of Mukul Somany v. Registrar of Companies, West Bengal, 2018.

In this case, the petitioner was in the list of disqualified directors released by the RoC. The petitioner’s company was defaulter because of which he was disqualified from directorship. According to the Act, the petitioner could also not continue as director of other companies which were not defaulters. The removal of directorship came as some companies under the directors incorporated in the year 2010 were not filing annual returns for 3 years as they had not received the certificate of commencement of business. Hence, the directors were disqualified from the post of directors in any company they were working with. The order was effective from the 1^st November 2016, under section 164(2) of Companies Act. 

any company they were working with. The order was effective from the 1^st November 2016, under section 164(2) of Companies Act. 

View of Kolkata High Court:

The petitioners contended relying on the case of Arun Seth v. Union of India, that Section 164(2) of the Companies Act came into force since April 1, 2014, and so, it cannot be applied to incidents before the FY 2013-14. The respondents form the government said that the Section was brought to penalize defaulters from any period and not necessarily the defaulters after the Act came into force. Considering both arguments, the Kolkata High Court upheld petitioners’ arguments saying that the retrospective application of the Companies Act is unjustified. Further, the court said that the directors shouldn’t be removed from the directorship of companies which are working according to the guidelines of RoC. The Court in its final order stayed the disqualification of directorship of petitioners from the active company and allowed them to continue in them. However, the relief was not meant for the directorship of companies which were struck off.

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. 

Procedure to File 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 the court for not filing the statutory documents that led to the disqualification of the 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 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. 
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. 

Why Taking Legal Help is Necessary?

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 such cases. 

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

• Retrospective implementation of the Prospective 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 Acts of 1956 and 2013:: 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.
• Ruling orders of RoC are 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. 

Based on these points you can safely assume that a well-drafted writ petition and representation in court by an expert advocate can lead to the removal of disqualification. Now the only problem here is to keep a positive outlook about the case and find a good legal firm to help in disqualification removal. Pick a reliable and trustworthy firm after thorough research to avail services related to disqualification removal.

The post Procedure for Removal of Director Disqualification | Latest Provisions appeared first on MUDS.

DIN surrender has become a heated issue in the present time. The matter became buzzword when Regional Director, Noida issued a show-cause notice to approximately 2.4 lakh directors for surrender of duplicate DINs. Once the directors received show-cause notice, and then was the rise of flames. There were many directors who did not receive show cause notice but they were in possession of multiple DINs, so as a precautionary measure such directors were advised to suo moto surrender the multiple DINs in their possession prior to receving any official Show cause notice for the same.

Before diving directly to the details of surrendering of DIN, there are various facets that need to be known regarding surrender of DIN.

Who is Required to Surrender DIN

The directors if attracts any of the below-listed conditions then in such a situation he would be required to surrender back his DIN mandatorily after following the prescribed procedure for surrendering DIN. The condition which if satisfied would require the director to surrender DIN are as follows:

• Having Multiple DIN’s
• DIN was obtained in a wrongful manner or by fraudulent means
• Death of the concerned individual
• DIN holder is declared as a person of unsound mind by the competent court.
• Concerned Individual has been adjudicated as insolvent
• DIN holder is/was not associated with any company/LLP

How to Surrender DIN

The director who is required to surrender DIN is required to do so by adhering and complying with the procedure prescribed for the surrender of DIN. The Director while surrendering DIN is required to file various eforms which are prescribed in the Companies Act 2013 and the rules made thereunder, which are mandatory for surrendering DIN. Only filing of eforms is not sufficient but the concerned director would also be required to file an application for compounding of offence with the National Company Law Tribunal (NCLT) or Regional Director (RD), as the case may be. The process flow for surrender of DIN is as mentioned below :

Once the above-mentioned process flow is complied by the defaulting director , then the Central Government shall verify the details submitted by the defaulting Director with its electronic records. On successful verification of details with electronics records, the Central Government shall deactivate the concerned DIN .

Recent Updates

The Ministry of Corporate Affairs (MCA) vide public notice dated 21st June 2018 deployed a new eform to be called “E Form DIR 5”. This e form is to be used for surrender of DIN.

After deployment of this eform any director intending to surrender DIN shall file the online DIR 5 eform for surrender of DIN. Through this amendment MCA has waved off the physical DIR 5 form w.e.f 21st June 2018 and has substituted the same with the online version of DIR 5 which shall now be used for surrendering of DIN. Also with the advent of this amendment now eform DIR 5 shall be filed individually no requirement exist for attaching it with RD 1 as was the scenario prior to deployment of electronic version of e form. From 21st June 2018 now three individual e forms are required to be filed for surrender of DIN i.e eforms DIR 5( Application for surrender of DIN) ; RD 1(Intimation to Regional Director); GLN 1 (Application for compounding of offence).

Effect of the Amendment

The effect of this amendment is that this amendment is a big relief granted to the defaulting directors. Prior to this amendment, the surrendering of DIN was a tedious task. At one point of time surrendering of DIN had become a nightmare because of the complexities involved the process of surrendering DIN. Many innocent directors had several sleepless nights particularly during the demonetization period, due to the fear of misuse of their DIN.

After 21st June the process of surrendering DIN has gained robust speed. This is due to the main fact that the essential form for surrendering DIN has now been updated from physical version to electronic version which has in a way provided ease in surrendering DIN and reduced the pendency time in processing of the application for surrender of DIN.

With the amendment becoming effective the process of DIN surrender has become speedy as now no compliances are required to be made in physical form but now following the footsteps of Digital India drive, compliances are being migrated from physical to electronic form. The effect of such transition is that ultimately process will become more transparent, speedy, and contribute to faster disposal of the surrender of DIN.

Therefore the above amendment was a must for directors because with the fast-moving steps of technology and upgradation of central Government offices towards digitalization there arised the need of the hour to roll out the physical compliances and substitute them with an electronic version of the same thereby to facilitate easy and convenience to the directors. In other words, the process of surrendering DIN which was once a tedious task will now become easy and speedy after the advent of this amendment.

Hope this article was informative and served your needs relating to the surrender of DIN. Stay connected with MUDS for more updates

The post E Form DIR 5 : “Ease of surrendering DIN” appeared first on MUDS.

How to Verify DIN – PAN Details of Directors

Once the verification exercise carried out by following the above steps, the image as to possession of DIN shall become clear and transparent. If end result of the verification exercise is positive i.e. no previous record of DIN allotted is found, the road to obtaining DIN is clear and less time-consuming. But if the end result is negative, which is a rare case, then is the start of an alarming time. Where the record of any previous DIN in possession of the applicant is found, then the current application shall be quashed off and no new DIN shall be allotted. If in the records more than one DIN are shown to be in possession of the applicant, then the applicant shall become the focal point of Central Government. The applicant would be ordered to surrender all DIN except one that are in his possession along with the reasons for holding the same and also pay the penalty for violation of the provisions of law.

What if Multiple DIN’s are in Possession

Possession of more than one DIN per director is considered a grave offense as per the provisions of Section 155 of The Companies Act, 2013. The director found to be in possession of multiple DIN’s shall not be bestowed relief and strict action would be taken against him by the Central Government. The director who is in possession of multiple DIN’s shall be issued a show-cause notice and would be ordered to surrender all the DIN’s that are in his possession except retaining one DIN with him. Also, the Central Government shall not grant any option or choice as to which DIN shall be retained. In case of multiple DIN’s the oldest DIN obtained shall only be retained and all other DIN’s would be required to be surrendered. Also, all companies associated with the DIN’s to be surrendered shall be mapped to the oldest DIN that is to be retained.

Recently, it was witnessed that Regional Director, Noida had issued show because notices to more than 2 lakh directors under section 266G of The Companies Act, 1956 ordering them to surrender back the multiple DIN’s that are in their possession. Also, many directors have not issued show-cause notices but were advised to voluntarily surrender the multiple DIN’s, if any in their possession.

“We at MUDS also suggest the directors who are in possession of multiple DIN’s to surrender the multiple DIN’s except one even though they have not received any show-cause notice for the same from Regional Director.”

Who is Required to Surrender DIN

‘Excess of anything is not fruitful and ultimately causes disadvantages’. Following this principle possession of more than one DIN is an alarming situation. The way out to escape is to surrender back all the multiple DIN and retain only one DIN, which is by law permissible.

Now having discussed the solution above, the surrender of DIN may flow through either of the two routes. The director falls under the first case, and then he will have to compulsorily surrender the multiple DIN’s whereas in the second case it is the self-call of the director to do so.

On Order of Central Government :

The Central Government may by order require any director in possession of DIN to compulsorily surrender DIN. The cases under which the central government may pass the order for the surrender of DIN are as follows:

• If duplicate DIN has been issued to the director;
• The allotted DIN was obtained By fraudulent means;
• On the death of concerned DIN holder;
• In the case where the DIN holder has been declared as a person of unsound mind by the Court and
• In the case where the DIN holder has been adjudicated insolvent by the Court.

Voluntarily by DIN Holder :

The DIN holder may voluntarily surrender his DIN suo motto. In such a situation he would be required to file e form DIR 5 attaching with it a declaration that he thought in possession of DIN has never been appointed as a director in any company and that the DIN which is being surrendered has never been used in making any communication to any regulatory authority. On verification by Central Government, the said DIN shall be deactivated. It is not always the scenario that DIN is to be surrender only if the order is received by the Central government but DIN for surrendering DIN, DIN can be surrendered voluntarily by the concerned DIN holder also. Under this route, the process is simple and less time-consuming as against surrendering DIN by Central Government order. The director surrendering the DIN would be required to specify the reason as to why he is surrendering the DIN.

Legal provisions concerning DIN surrender

For surrendering DIN, the director shall be required to comply with the provisions of the Companies Act, 2013 and Rule 11(f) of Companies (Appointment and Qualification of Directors) Rules, 2014.

Section 153: Application for Allotment of DIN

This section states that every individual who intends or wishes to be a director shall have to necessarily obtain DIN from the Central Government prior to becoming a director. The implication to be drawn from this section is that for becoming a director an individual should have DIN allotted to him by Central Government prior to becoming a director. The process for obtaining DIN shall be discussed at a later stage in this article. However vide an amendment made under The Companies Amendment Act, 2017 the Central Government has been assigned power to identify any other identification number to be used or considered as DIN.

Section 155: Prohibition to obtain more than one DIN

This section levies a prohibition on directors from obtaining multiple DIN’S. If an individual is a director in multiple companies then the concerned individual is not required to obtain separate DIN for each company but a single DIN obtained would be sufficient for becoming a director. That single DIN can be quoted for all companies where is or intends to be a director. If an individual obtains multiple DIN’S then in such a situation he would have to retain the oldest DIN obtained and surrender back all other DIN’S in his possession whether they were associated or not with any company, used or not. The companies associated with the surrendered DIN would be mapped to the oldest i.e. Retained DIN.

Section 159: Punishment for contravention

In cases where any individual or directors contravenes the provisions of Section 152, section 155 and section 156, then the concerned individual or director as the case may be shall be liable to the below-mentioned punishment :

I. Imprisonment: For a term which may extend to six months; or
II. Fine: which may extend up to Fifty thousand rupees.

Where the offenses under this section is a continuing one, then further fine which may extend up to five hundred rupees for every day during which such default continues shall be levied.

Rule 11(f)

The rule 11(f) of the Companies (Appointment and Qualification of Directors) Rules, 2014 states that on submission of an application to the Central Government in the prescribed form by the DIN holder annexing therewith a declaration stating that he has never been appointed as a director in any company and the said DIN(s) has not been used for filing any document with any regulatory authority, then on being satisfied the Central Government may deactivate such DIN.

Provided that prior to deactivating DIN, the Central Government shall verify the same with its record and after verification, it may according take any action in this regard.

Process of Surrendering DIN

Procedure for Filing form DIR 5

Any DIN holder intending to surrender DIN may file Form DIR 5 for the same with MCA. While filing the said form the DIN holder shall mandatorily follow the prescribed procedure and provide the following information:

1. Name of the DIN holder: First, Last and Middle name
2. Father’s Name: First, Last and Middle name
3. Reason for surrendering DIN: Reason maybe anyone from below listed-

• Having Multiple DIN’s
• DIN was obtained in a wrongful manner or by fraudulent means
• Death of the concerned individual
• DIN holder is declared as a person of unsound mind by the competent court.
• Concerned Individual has been adjudicated as insolvent
• DIN holder is/was not associated with any company/LLP

4. Whether the DIN holder is retaining any DIN: if yes, in that case, the DIN holder shall provide the number of the oldest DIN which is being retained by him.
5. Number of DIN(s) being surrendered by the DIN holder: Along with the details of DIN number to be surrendered from which Name of DIN holder, Father’s name shall be auto-filled.
6. Contact details of DIN Holder: Contact number and Email id of DIN Holder
7. The digital signature of the DIN holder who is surrendering DIN

Attachments of Form DIR 5

The DIR 5 Form would be considered complete only after the attachment of two compulsory attachments. In the line of the above statement the below mention are the attachments to the form:

• Proof of Identity

The DIN holder may submit a Voter Identity card /Passport/Driving License/Aadhar card/PAN card as proof of identity.

• Proof of Residence

Address proof like Passport/ election card/Ration Card/Electricity Bill/Telephone Bill etc. may be submitted by the DIN holder as proof of residence.

Notes:

• In the case of Indian Applicants, the documents attached should not be older than two months as of the date of filing of the form.
• In the case of a Foreign Applicant, Address proof should not be older than one year as of the date of filing.
• If DIN is surrender on the grounds that the DIN holder is declared insolvent or a person of unsound mind, then in this situation the court order for the same shall also be annexed with the form.
• If DIN is surrender on account of the death of the DIN holder, then the death certificate issued for the DIN holder shall be annexed with the form.
• The proofs required to be attached with the form if are in any language other than English/Hindi then they shall be translated into English/Hindi from a professional translator.

The DIR 5 is a physical form and it is required to be annexed with e form RD 1. Through e form RD 1 an application is made to Regional Director for providing intimation and seeking approval for the surrender of DIN.

Approval of Regional Director: eform RD 1

For seeking approval of the Regional Director, an application is required to be made in e form RD 1. The eform RD 1 is required to be filed in pursuance to the provisions of the Companies Act, 2013. A company or its directors can make an application to Regional Director for carrying out purposes as mentioned under the Companies Act. Earlier e form 24A was required to file for the same purpose under the Companies Act, 1956.

Procedure for filing E Form RD 1

E form RD 1 is required for making and seeking approval of the Regional Director for undertaking any of the listed purposes in the Companies Act. While filing RD 1, the following data is required to be provided mandatorily:

• CIN No of the company in which the concerned person is a director; by the use of Oldest DIN
• The purpose of surrendering DIN
• Brief details of the application made through this form
• Digital signatures of the director filling form for surrendering DIN

The form RD 1 shall be filed with the regional director after attaching the required annexures. The list of annexures that shall form part of RD 1 are as follows:

• Scanned copy of physical DIR 5 form
• Self-attested copy of PAN card
• Self-attested copy of passport
• Affidavit of the surrender of DIN
• Board resolution for the surrender of DIN (if any)

Notes

• The E Form RD 1 shall be processed by the office of the Regional Director (NON-STP).
• The filing fees for RD 1 form shall be as follows:

For calculating the amount of filing fee for RD 1, use the following link:
http://www.mca.gov.in/mcafoportal/enquireFeePreLogin.do

After the surrender of DIN, the concerned director should apply to National Company Law Board (NCLT) under section 441 of the Companies Act, 2013 for compounding of contravention of section 159 of The Companies Act 2013. Prior to commencement of the Companies Act, 2013 the directors had to apply to Company Law Board (CLB) under section 621A of the Companies Act, 1956 for compounding of contravention of section 266G of the Companies Act, 1956.

Who has the Power to compound the offense?

Any offense punishable under the Companies Act, 2013 whether committed by the company or any director thereof which is punishable with fine only, may be compounded either before or after the institution of proceedings by:

• The Tribunal; or
• Regional Director or any officer authorized by the Central Government, where the maximum amount of fine which may be imposed for any offense does not exceed five lakh rupees.

What is Compounding?

The Companies Act 1956 nor The Companies Act 2013 did not attempt to define the meaning of the term “Compounding of offense”.

We at MUDS drew the interpretation that “compounding is nothing but admission of guilt.”

In the process of compounding, the person may either suo moto or on receipt of notice of default or initiation of a prosecution, admit the commission of default and a make application for compounding of the said offense. As a result of compounding, the defaulter agrees to pay the penalty which may be ordered by the Central Government.

Important provisions in relation to compounding

The below listed are the important and crucial provisions related to compounding of offense.

• Any offense which is punishable under the Companies Act, 2013 with imprisonment or fine, or with imprisonment or fine or with both, shall be compoundable only with the permission of Special courts following the procedure as laid down in the act with respect to the compounding of offenses;
• Any offense which is punishable with imprisonment only or with imprisonment and also with fine shall not be compoundable under the Companies Act, 2013.

Process for Compounding

For getting the offense compounded, one needs to follow the below-mentioned procedure.

Effect of Compounding

The offense once compounded shall have the following effects:

Where the offense is compounded before institution of any prosecution, no prosecution shall be initiated either by the registrar or by any shareholder of the company or by any other person authorized by the Central Government, against the offender in relation to whom the offense is compounded.

Where the offense is compounded after initiation of a prosecution, such compounding shall be brought in writing by the registrar, to the notice of the court in which prosecution is pending. On giving notice of compounding of offense, the company or its officers in relation to whom the offense is so compounded shall stand discharged.

Where the offense is compounded either before or after the institution of prosecution, an intimation is required to be given by the company to the registrar within seven days from the date on which the offense is so compounded.

To sum up, the defaulting director needs to comply with the above-discussed requirement for surrendering his DIN. Once these compliances are strictly followed that to sequentially then the way out for surrendering DIN becomes easy and a quick process.

Hope this article was informative and helpful in resolving the queries relating to the surrender of DIN. Stay connected with MUDS for updates.

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