The Registrar of Companies having different jurisdictions since 2017, then in 2018 and again in 2019 has disqualified many Directors under ‘Section 164(2)(a)’ of the Companies Act, 2013. Accordingly, in this article, we shall study about what exactly this particular section says, what happens after disqualification and the solution for it.
WHAT IS SECTION 164(2)(a) OF THE COMPANIES ACT, 2013?
In accordance with the Section 164(2)(a) of the Companies Act, 2013; “no person who is or has been a director of a Company which has not filed financial statements or annual returns for any continuous period of three financial years shall be eligible to be re-appointed as a director of that Company or appointed in other Company for a period of five years from the date on which the said Company fails to do so.”
WHAT HAPPENS WHEN A PERSON IS DISQUALIFIED UNDER SECTION 164(2)(a)?
In simple words, any person who has failed to file financial statements i.e. eForm AOC-4 or annual returns i.e. eForm MGT-7 for a continuous period of three financial years shall not be eligible for being appointed as a Director of that particular Company or any other Company for a period of next five years.
For instance, the list of disqualified Directors in the year 2017 that was published on the Ministry portal, were the Directors disqualified from 2016 to 2020 for non-filing of financial statements or annual returns for the F.Y. 2013-14, 2014-15 and 2015-16. Similarly, the list published in the year 2018 were of the Directors which were disqualified from 2017-2021 for non-filing for the F.Y. 2014-15, 2015-16 and 2016-17.
In many instances, we have faced that the clients have filed either eForm AOC-4 or eForm MGT-7. It is to be notice that the word “or” has been used and accordingly, non-filing of either AOC-4 or MGT-7 shall also make the individual a disqualified Director under Section 164(2)(a).
WHAT IS THE SOLUTION OF THIS PROBLEM?
On disqualification, the Directors disqualified under Section 164(2)(a) of the Companies Act, 2013 has only two following options:
1. Wait for five years for ROC to remove the disqualification
2. Move a write petition to Hon’ble High Court having jurisdiction for removal of disqualification
In case the Director opts for option no. 1, then the professional guidance required shall only be at the time when the period of five year has been elapsed. Whereas, in case the option no. 2 is opted by the individual to remove the disqualification on an urgent basis, a write petition with the Hon’ble High Court having respective jurisdiction shall be filed.
It is pertinent to note that every High Court has different opinions on removal of Director disqualification and thereby, it is very important to go through the precedents (i.e. previous judgements) in similar cases and then only move the petition.
Further, it is also important to check the High Court jurisdiction before moving any petition as otherwise, the time and energy of the applicant would be an utter waste. Like for example, the jurisdiction for Directors disqualified by ROC Rajasthan would be Hon’ble High Court Jaipur. Also, the directors disqualified by ROC, Delhi and Haryana but the Company is having registered office address of Haryana, then they need to apply to the Hon’ble High Court, Chandigarh for removal of disqualification.
Once we have received the order (i.e. interim or final, whatsoever as may be considered by the Court) from the Court, the same needs to be submitted to the Registrar of Companies either physically or via email so as to enable them to approve and further, process the application to the Ministry for removal of disqualification.