Disqualification of Director Remedy

9 January 2018 • Akshay Kapoor


Disqualification of Director Remedy

9 January 2018 • Akshay Kapoor

The Companies Act, 2013 has been enacted for the purpose of promoting the good corporate practices, greater transparency and effective stakeholder management. In order to achieve the core objectives of the Act, it provides regulators with enormous powers. Recently two major steps have been taken by the Registrar of Companies in this respect. More than 200,000 companies have been struck off to remove the inoperative companies from the Records of the Register of Companies and more than 3,00,000 Directors have been disqualified by deactivation of their DIN (Director Identification Number). In order to understand the Concept of strike-off of Companies and disqualification of Directors, firstly one needs to understand the Connectivity between the two that is the term “Defaulting Companies”.

“Defaulting Company” is nowhere defined under the Act, but in general terms mean a company who has made a default with respect to filling of financial statement or Annual return with the Registrar of Companies under the provisions of the Companies Act 2013 and 1956.

Strike off the Name of the Company

“Strike-off” is an action initiated by the Registrar of Companies by which name of the Company has been struck-off from the Register of Companies and the company shall stand dissolved. Such measure of strike off is taken in cases where Registrar is satisfied that company is not carrying on any business or operation for a period of two immediately preceding financial years. The recent actions with respect to striking-off of the name by the ROC were based on the defaulting status of Companies, prima facie presuming that these Companies are not carrying on any business operations.

Disqualification of Director and Vacation of Office

When a Company defaults in filing its Financial Statements or Annual Return for a continuous period of three years, the Director of such defaulting Companies will not be eligible to be re-appointed in that Company or appointed as Director in other Companies for a term of five years and his office shall be liable to be vacated in all the Companies where he is Director immediately on the occurrence of disqualification (Section 164 read with Section 167 of the Companies Act, 2013).

Following the disqualification by Ministry of Corporate Affairs, disqualified directors have been barred from using their Director Identification Number (DIN) to file any document with ROC. The MCA issued two lists in this regard:

Linkage b/w the strike off of Companies and disqualification of Directors

As explained above, the term defaulting companies is common linkage in both the situations where the name of the companies had been struck-off and de-activation of DIN of Disqualified Director by the Registrar of Companies. Government, through its sources, had reasons to believe that many of these defaulting companies (shell or inoperative companies) were used for money laundering during demonetisation. The Registrar of Companies, to curb the operations of Shell Companies and Money Laundering, struck off 209,032 companies and 309,614 Directors. There has been chaos in the Industry and as a result there have been a spate of representations from industry, defaulting companies and their directors seeking an opportunity for the defaulting companies to become compliant and normalize operations.

Small window to remedy disqualification of Directors

With a view of giving an opportunity to the non-compliant, defaulting Companies to rectify the default, the Ministry had come up with Condonation of Delay Scheme 2018″ [CODS-2018] on 29th December, 2017 which is to be effective from 01st January, 2018.

Condonation of Delay Scheme 2018 [CODS-2018]

The scheme will be effective from 1st January, 2018 and shall remain in force till 31st March, 2018. This scheme is applicable only to the defaulting Companies which fall under one of the following two categories:

  • Companies whose status is still active but DIN of the Directors have been deactivated by the ROC.
  • Companies which have been struck off by the ROC but Restoration applications under Section 252 of the Act were pending before the National Company Law Tribunal (NCLT) up to the date of this scheme. This is however, subject to order of revival by the NCLT.

Procedure for availing the benefits granted under COD scheme

  • DIN of the Disqualified Directors of such Defaulting Companies will temporarily be activated during the validity of the scheme to enable them to file the overdue documents.
  • Companies shall be required to file the overdue documents (financial statements or the annual returns or other associated documents).
  • The defaulting Companies needs to pay statutory filing fee and additional fee payable as payable under the provisions of the Act.
  • Companies after filing overdue Documents needs to file eform CODS and the fees for this form will be INR 30,000/- (Thirty thousand only).
  • Once the COD scheme is over, the companies who have not availed themselves of this Scheme and continue to be in default in filing the overdue documents, the Registrar shall take all necessary actions under the Companies Act, 2013 against them.

We suggest that Directors of the defaulting Companies need to opt for this opportunity and must avail the benefits of CODS-2018.

For Companies not eligible to go for COD Scheme:

The companies which remain untouched or on whom the “Condonation of Delay Scheme 2018″ is not applicable, may get relief from NCLT or High Courts. These Companies will be classified as follows:

  • Companies which have been struck off but were carrying on any business or operation on the date of becoming struck off may approach NCLT for restoration of their name under the provisions of section 252 of the Act. For more information on Restoration of Company, please visit our blog on Restoration Of Name Of A Struck Off Company Under Companies Act, 2013.
  • For Companies which have been stuck off and the Directors have been disqualified but the Promoters of such Companies have no intention of restoring the name of the company. The Directors of such Companies, for removal of Disqualification, may file writ petition in the High Court.



The powers exercised by the ROC by striking off the defaulting Companies and deactivating the DIN of the Disqualified Directors is to alarm the Promoters and Directors who are lax in compliances. This step will definitely help in breaking the robust network of shell Companies and fighting against Black Money.

Recent changes made in the Companies Act 2013 by way of Companies Amendment Act 2017 and other notifications issued by the Ministry, it can be concluded that there will be no scope for the defaulting Companies to remain registered under the provisions of the ACT.




  1. as suggested by you, posting my query. Dear sir, good evening. Need some clarification reg disqualification. 1.one of my client company is a public company and also a subsidiary of a listed company. All the directors were disqualified from 2018 to 2023.the company (subsidiary) has not filed docs from 2015-16 onwards hence directors disqualified.now my quiry is that (a) can the directors sign the balance sheet till 2017 and can v file the returns? (b) if v appoint director from backend, can they sign the backdated balance sheet as they were not associated as directors on that date. Or can v get the sign on the balance sheet with disqualified directors and dsc of new director for filing purpose.(c) as all the 3 directors were disqualified,roc is allowing one director to be appointed from back end with members approval.can v appoint other 2 directors in board meeting or again member’s approval is required after one director is appointed from backend. Thanks in advance.

    1. Dear Sir,

      Please find below our in-line replies to your queries:

      1) As per the provisions of Section 167 of the Companies Act, 2013 (“the Act”), the office of a director shall become vacant if he incurs any of the disqualifications specified under Section 164 of the Act.
      If the Directors are disqualified, they cease to be the directors of the Company and shall not be eligible for re-appointment in that Company. However, they can sign the financial statements of the Company for the period prior to the disqualification.

      2) In case where all the directors have vacated their office due to their disqualification for non-filing of financial statements and annual returns, the Company can appoint a new director on the board from the back end to file the overdue returns and to make the defaults good. Thus, the newly appointed directors can sign the financial statements and file return/forms on behalf of the Company.

      3) Section 167 (3) of the Act, permits a Company to induct required number of directors through back end where all the directors of a company vacate their offices.

      Further, per Section 174 (2) of the Act, provides that if number of continuing directors is reduced below the quorum fixed by the Act for a meeting of the Board, the continuing directors may act only for the purpose of increasing the number of directors to that fixed for the quorum or to summon a general meeting of the company.

      Hence, we can conclude that, after one director is appointed through back end, the other two can be appointed as additional directors by calling a Board Meeting. The additional directors so appointed may be regularized at the ensuing general meeting of the company.

  2. I had incorporated a company in Jan 2015. Bank account was opened, which now has some negative balance due to non maintenance of monthly average balance. The business incurred heavy losses in 2015 itself. Thereafter, I put some more money into it in 2016, which again, went to losses. I have as such been not able to file any roc returns nor any itr since incorporation.
    I just got stk-1 notice from roc kolkata.
    What could be the max possible disaster under this scenario? Penalty for non filing on directors?
    Also, please make it clear- in the stk-1 notice, roc says, failing to reply within 30 days would lead to company name being struck off and in addition, appropriate action might be taken against directors. What does this appropriate action mean? Disqualification for 5 years? Or does it also imply penalty for non filing?

    The assests of the company being not enough for payment of liability to roc, how would the roc pass the stk7 notice?

    Kindly reply to this question at the earliest possible, Sir. I am really at a troublesome situation which I cant see a way out of.

    1. It has generally been seen that If the directors of the company does not reply to the notice (STK-1), the ROC starts the process for strike off the Company and disqualification of the associated directors for 5 Years. There is no further action is taken by the ROC.

      It must be noted that the liability, if any, of every director and of every member of the company dissolved shall continue and may be enforced as if the company had not been dissolved. (It would mean liability to the Stakeholders like dues payable or any other debts.)

      But till now, the ROC has not open 3 fronts against the Company and its Directors (1. Strike off the Company; 2. Disqualification of Directors and 3. Prosecuting the Officers in default for non-filing of Annual Returns).

      Further if anyone aggrieved by the Strike Off, they can file application to NCLT for restoration of the name of the Company. (Creditors or Departments for Payment of Dues).

      If you seek further clarification or information, please contact us.

  3. Just Spoke to Mr BSamrish from hsrlayout and this person is just awesome because he spoke with alot of patience and answered all my queries for 30 Mins on phone , he tried to help me with max details and solutions … i strongly recommend to avail their services , i am really impressed and and happy to have spoken to him.

  4. hi sir,
    i had registered 2 companies in 2009 & 2010 respectively but due to some reason never started the business yet we have filed returns till 2012 therafter nothing has been done as i was not in india , i accept this is careless but now what are the remedies for me , both comapnies are in strike off and my din also is disqualified , me and my wife are the directors…Please help with a solution

    1. As the company had not been into operations and not filed Annual Returns for more than three years, we do not recommend to file an application to NCLT for restoration of the company.
      However for removal of disqualification of director, it seems you may explore your chances of removal of disqualification by way of filing writ petition to jurisdictional High Court.

  5. if company status is active but directors have been disqualified then can the company file STK-2

    1. As per our understanding, if the directors are disqualified, they have vacated the office from the date of incurring the disqualification as per sec 167. Therefore, you cannot file STK-2.

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