Disqualifications of Directors : Non-filing of B/s and Annual Returns

7 April 2014 • CS Samrish Bhanja

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7 April 2014 • CS Samrish Bhanja

In this excerpt, the focus is on disqualification because of non-filing of Balance Sheets and Annual Return or similar such non-compliances (Sec 164(2) of the Companies Act, 2013)..

The following persons shall not 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 –.

  • Failed to file financial statements or annual returns for any continuous period of three financial years; or
  • Failed to repay the deposits accepted by it or pay interest thereon or to redeem any debentures on the due date or pay interest due thereon or pay any dividend declared and such failure to pay or redeem continues for one year or more

Every director shall inform to the company concerned about his disqualification under sub-section (2) of section 164 in Form DIR-8 before he is appointed or re-appointed (Rule 14(1) of Companies (Appointment and Qualification of Directors) Rules, 2014).

Now, it has been made the duty of the company to mandatorily intimate ROC (in e form DIR 9) about its failure, and if it fails to intimate within a period of thirty days, the Directors and officers of the company shall be the officers in default. These are far reaching consequences. Regarding Officer who is in Default, we will discuss it very soon..

Also, it has been made the duty of the Auditors to state in its Auditors Report whether any director is disqualified for non-compliances as stated above.

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23 comments

  1. Sir can a director sign on chg-4 in case all directors are disqualified due to non filling of annual return and if not then what will the process to file CHG 4.

    1. A director amongst the disqualified directors of the Company cannot sign or file any document with ROC.
      In case directors are disqualified due to non-filing of annual return, then they are liable to vacate their office u/s 167.
      Further, an Active Company can appoint new director from back end u/s 167(3) i.e. the promoter or, in his absence, the Central Government shall appoint the required number of directors who shall hold office till the directors are appointed by the company in the general meeting. Therefore in the case enumerated, form CHG-4 shall be signed by the new director appointed from back end.

  2. Dear Sir,
    my director is disqualified u/s 164(2), but still on the Board of 2 more Companies, not acting as director but not resigning.
    1. Are the two companies required to take any action i.e. reporting to RoC etc as per CA 2013.
    2. How do these Companies know that director is disqualified if DIR 8 is not annula and portal show his DIN As active.
    3. CAn they file Inc 22A with him as director?? pl. advise.

    1. If the Director is disqualified under section 164(2) of the Companies Act, 2013 and not acting as a director then the Company has an option to remove him under the provision of section 169 of the Companies Act, 2013.

      1. The Company who fails to file the Financial Statement and Annual Return or fails to repay any deposit, interest, dividend, or fails to redeem its debentures, shall have to immediately intimate to the ROC in DIR-9.
      2. This might be checked from the report submitted by the Statutory Auditors of the Company.
      3. No, if the status of the Director is showing Disqualified then the Form INC-22A cannot be filed.

  3. Sir all the directors were disqualified since Nov 2014 but signed Balance sheet for 31.05.2015 and 31.03.2016. No filing was done from 2011. Can now all the pending filing be done under CODS Scheme 2018. Can Balance sheet signed by the directors while they were disqualified shall be validated under this scheme.

    1. Yes, you can avail the benefits of CODS 2018. There will be no issue in case disqualified directors have signed balance sheet for 31.05.2015 and 31.03.2016. The DINs of the concerned disqualified directors de-activated are temporarily activated during the validity of the scheme to enable them to file the overdue documents

  4. Dear Sir,
    In a company (assume ABC Pvt. Ltd.) in which 2 directors (also shareholders) disqualified due to non filling of annual returns with RoC for other company (assume XYZ Pvt. Ltd.).

    Further, rest 1 director of ABC Pvt. Ltd. appointed another director by digitally submit DIR-12 and now the company have 2 disqualified directors and 2 active directors.

    Now the company ABC Pvt. Ltd. wants to file the annual return with RoC. Is this possible and what is the way to do so?

    1. Since the directors of ABC Pvt. Ltd are disqualified u/s 164 and they further appointed new directors as per section 152 and hence there are 2 active directors on the board of the company. So, active directors of the company can file its annual return (MGT.7).

  5. how to file overdue annual return of a company. the directors are still shown as disqualified though date of effect of relief is 01/01/2018

    1. There was some initial technical issues.Kindly note that the process for ‘reactivation’ of the DINs in respect of disqualified Directors has been completed and the status of the relevant DINs has been activated w.e.f 12-01-2017.

      About CODS: 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:

      1. Companies whose status is still active but DIN of the Directors have been deactivated by the ROC.
      2. 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.

  6. A & B are two directors in X company who are also the same directors in Y company. A and B have been disqualified under Sec 164 (2) (A) from 2016 to 2021. Can A & B still resume office / enjoy the directorship in Y company or the disqualification would also trigger the automatic vacation in Y company as well ? Are they entitled to any immunity under any provisions ? Can they hold office in Y company and draw remuneration and other benefits ?

    1. Sorry for the delayed response. Please find below the reply to your query:
      Section 164(2)(a) provides that if a person who is a director in a company which had failed to file annual returns for a continuous period of three financial years shall not be reappointed in that company or he cannot be appointed in any other company during the period of disqualification.
      As per Section 167(1)(a) States that the office of the director is automatically vacated if he is disqualified under Section 164. It means that, such a disqualified director vacates his office from not only the company which defaulted in filing annual returns but also from other companies in which he is a director.
      1. No, A & B cannot resume/enjoy the directorship in Y or any other company due to disqualification under Section 164(2)(a) as they shall liable to vacate their office from Y as per Section 167(1)(a).
      2. The Act doesn’t specify any immunity for disqualified directors.
      3. No, they can’t hold office in Y or any other companies in which they are directors and cannot be appointed in any company as directors during the period of their disqualification. Furthermore they can’t draw any remuneration in the capacity of directors during the said period of disqualification.

  7. Annual Accounts & Board Report has been signed by 2 Directors. Later it comes to known that one of the directors was disqualified before the approval date as per Companies Act 2013. whether the Board Report is valid. ?

    1. Apologies for the delay in reverting with the solution to your query. Please find the answer to your query as follows:
      A disqualified director is required to vacate his office from the date of disqualification. As per the MCA notification on disqualification, the disqualified director shall not act as directors and he should not sign any documents in the capacity of Director. The Board Report cannot be treated as valid if it is known after signing that one the directors was disqualified.

    1. In a circular of ROC Hyderabad “ROCH/SEC 167(3)/2017” dated 17.10.2017, the promoters can appoint a new director under section 167(3) of Companies Act 2013. Physical DIR 12 and other necessary documents along with requisite fee manually signed shall be submitted.
      Thereafter, the new appointed directors can file with ROC and conduct an AGM.

  8. Sir, but when all the directors of the company are disqualified, how can they make good the default of the company by filing annual return and annual accounts. I think, certain forms can still be filed, else default cannot be made good.

    1. Also in some cases, the status of the company is shown as struck off and in some, it is shown as active on the portal of MCA. There is no uniformity and everything seems to be messy and complicated. ONE MORE THING, IN CASE THE PAID UP CAPITAL OF THE COMPANY IS SHOWN AS SAY RS.1 LAKH AND STILL THE COMPANY HAS BEEN STRUCK OFF THE ROC, DOES IT MEAN THAT IT IS NOT THE COMPANY WHICH HAS GOT ITSELF STRUCK OFF THE ROC BUT THE ROC OFFICE WHICH HAS STRUCK OFF THE NAME OF THE COMPANY.

    2. As per Sec 167(3) of CA, 2013, where all the directors of the company vacate their office due to disqualification u/s 164, promoters or their absence, the Central Government (Power Delegated to ROC) shall appoint the required number of directors who shall hold office till the directors are appointed by the company in the general meeting

  9. Sir if the company has not filed Financial statements and Annual Returns which director will become disqualified means all the director will becomes disqualified.

    1. As per the provisions of the Companies Act, 2013, if the company has not filed financial statements OR annual returns for a continuous period of 3 years then ALL the directors of the company who were directors of the company at the time of the default of third year shall be disqualified.

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