Have you heard about director disqualification? Do you know what it means? In 2017, the Ministry of Corporate Affairs disqualified around 3,00,000 directors under section 248 of the Companies Act.
The companies which were not filing returns for the three consecutive financial years were struck off by the Companies Act. Additionally, it marked the directors of these companies as disqualified directors. Further, it blocked the DIN of all the disqualified directors.
There were only two reliefs available to these directors. The first one was to avail the CODS scheme, and second, which is still available is approaching the Court. All the disqualified directors can activate their DIN and remove director disqualification with the help of legal proceedings.
Disqualification of Directors
Under section 164 of the Companies Act, it mentions that no person can become the director of the company in case of the following-
Failure to file financial statements/ returns for three years continuously.
The director has moreover failed to repay the deposits or pay interest or redeem debentures for a continuous period of one year or more.
It furthermore mentions that they are not eligible to become a director for a period of 5 years.
The government disqualifies the directors who don’t comply with the above procedure. The only reason for disqualifying such a large number of directors was because the government wanted to curb the issue of black money. According to the government, there was a large number of shell companies dealing with black money. Hence, the directors of these companies were disqualified.
What was the Condonation of Delay Scheme?
In India, it is necessary to file financial returns every financial year. If a director fails to file the same, he could be disqualified. The company will get the status of strike off, and the director will become disqualified.
The government held a mass wipeout of the directors who failed to fulfill the above criteria. To address the issue of disqualification, the government came up with the condonation of delay scheme (CODS) in 2018. It opened a window for helping the directors to revive their company. Additionally, the aggrieved directors were also given the right to appeal to National Company Law Tribunal.
The scheme was in force from 1.1.2018 to 31.4.2018. Additionally, the same was applicable to all the defaulting companies who did not file their annual return and balance sheet. Under CODS, the DIN was activated temporarily, and the director has to submit all the required documents. If the director fails to avail of this scheme, it will lead to the disqualification of the director for 5 years. Therefore many directors took advantage of this scheme. Many directors who could not avail the scheme approached the Courts for legal recourse. Most of the Courts are granting interim relief to disqualified directors. Because of this, the directors are able to activate their DIN.
How can one become a director again after disqualification and activate DIN?
Follow the below procedure for becoming a director again after a disqualification in no time. In order to become the director again, one has to approach the Court and file a writ petition. Hence, one needs an expert lawyer who can handle this complex case. We at LawyerINC will help you get the DIN activated in no time and help you with the removal of director disqualification.
The Right to Appeal
If you are a disqualified director, you have the right to file the appeal within 30 days of notice to temporarily stay the order.
Section 164(3) of the Companies Act, 2013 states, that disqualification shall not take effect for thirty days from the date of disqualification. Once the appeal is preferred within 30 days, the person will continue to be the director until the expiry of 7 days from the date of appeal is disposed off. Hence, it gives the person the last opportunity to file the return and appeal within 30 days to put a stay on the order of director disqualification.
Appointment of Temporary Directors
All the promoters have to file the overdue return. But after the disqualification, the directors cannot file any overdue return with MCA. Hence, the existing directors have to make a resolution and appoint new directors. The directors can't sign the application for appointing new directors. Therefore, they have to approach the Registrar of the company for the appointment of the director.
Application
Once the temporary director is appointed, the company can file all the pending returns. After this, the application has to be filed before the National Company Law Tribunal for changing the status of the company. For this, you require expert lawyers to represent your case.
Remedies available for director disqualification
If you are a director and are facing disqualification, end your worries now. Taking legal recourse through Court is the best available option for you. Opt for our services at LawyerINC for director disqualification and activation of DIN
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Conclusion
The MCA took a very stringent step by disqualifying the director who didn't comply with the requirements of Companies Act, 2013. Additionally, it did a tremendous job by enforcing the CODS scheme and giving the last chance to the directors. The government also gave the directors an option to approach the Court.