Disqualification of Directors: A Complete Guide

Directors are the office bearers. They are the most important people in the company. They deal with the daily operations of the company and make all the decisions that are necessary for its operation. Therefore, the directors should possess relevant expertise and qualifications to represent the company. The Companies Act, 2013 does not provide the qualifications of a director. However, it provides provisions for the disqualification of directors.

Every company should consider the qualification and disqualification of directors very seriously, as it can also harm its brand image. Section 164 of the Companies Act, 2013 provides for cases of disqualification of directors.

Who is the Director?

The directors are the employees of the company who are given many duties and powers to conduct the business of the company for the benefit of its shareholders. The shareholders of the company invest their capital in the company and the directors of the company are required to ensure that the wealth of the shareholders is maximized along with the growth of the company.

The directors of the company work under the supervision of the shareholders of the company and discharge their duties subject to the restrictions set by the act and the articles of association of the company.

What are the Different Cases of Disqualification of Directors?

Section 164 of the Companies Act, 2013 provides for the disqualification of directors under the Companies Act, 2013.

A person shall be disqualified from being the director of the company, if-

• He is of an unsound mind
• He is an undischarged insolvent
• He has applied to be adjudicated insolvent and the application is still pending
• He has been convicted by the court of an offense involving moral turpitude and has been sentenced to imprisonment for a term exceeding 6 months.
• An order disqualifying him to be appointed as a director has been passed by any court or tribunal
• He has not paid any calls in respect of any shares held by him and six months have elapsed from the last date fixed for payment of calls.
• He has been convicted of an offense related to related party transactions.
• He has not complied with the provisions of Section 152(3) of the Companies Act, 2013
• He has not complied with the provisions of Section 165(1) of the Companies Act, 2013.

Consequences of Disqualification of Directors

The disqualification of directors can have serious consequences, such as a vacation from office. The directors shall, after their disqualification, vacate their office as directors. However, in cases of disqualification occurring under Section 164(2), the director shall vacate the office in all the other companies except in the company in which the default has occurred.

Period of Disqualification of Directors

It is very important to know the period of disqualification of directors, i.e., until how long the directors cannot be appointed or reappointed.

The period of disqualification can be determined as follows:

Penalty for Non-Compliance

If a person acts as a director of a company knowing that he is disqualified and the office held by him has become vacant, then he shall be punishable with a fine which shall not be less than Rs. 1,00,000/- but which may extend up to Rs. 5,00,000/-.

In case of breach of the provisions of Section 164 of the Companies Act, 2013, the company and every officer in default shall be liable to a penalty of Rs. 50,000/- and in case of continuing default, a penalty of Rs. 500 per day during which the default continues, subject to a maximum of Rs. 3,00,000/-.

Compliances after Discharge from Disqualification

After the director has been set free from the disqualification of directors, his position as a director is not automatically restored. To act as a director, a person is required to file Form DIR-10 with the Registrar of Companies (ROC) to remove the disqualification and to get their name removed from the list of disqualified directors.

Deal with Disqualification of Directors with BizFoc

The disqualification of directors is a complex process because it can harm the reputation of both the directors and the company. But having a compliance partner like BizFoc can help you deal with every part of this situation easily. We can help with:

• Providing helpful insights to avoid the disqualifications of directors
• The way to deal with the disqualification of directors
• Avoid the cost of penalties and save your money
• Protect your reputation from getting harmed by any disqualification
• Restoring your DIN and filing necessary forms after the expiry of disqualification

Conclusion

In conclusion, directors are the stewards of the company. Therefore, it is important to understand the disqualification of directors. The disqualification of directors under the Companies Act, 2013 is provided under Section 164. Disqualification can occur due to an unsound mind, being undischarged insolvent, being convicted by the court, not paying the called-up money, etc. Non-compliance with this section may also cause the imposition of penalties.

The disqualification of directors is a matter that the company should deal with the utmost care. This requires the company to get professional help. BizFoc can be the safest option for every compliance related to the disqualification of directors.

Frequently Asked Questions (FAQs)