Directors are the managerial personals in the company who act as a link between the shareholder and the company. They run and control the managerial affairs of the company and are the mind and soul of the company as the company is an artificial person who does not have a mind of its own.
The Companies Act of 2013 includes certain circumstances under which the directors of a company could be disqualified. The disqualification of directors is mentioned under section 164 (2) of the Companies Acts. Earlier in the 1956 act disqualifications were mentioned under section 274 which more or less contained the same provisions.
Section 164 lays down certain contingencies where the director of the company has to vacant its office. One of the main criteria mentioned under the section is the non-filing of the financial statements and the annual returns of the company. If the company has not filed the financial returns for any three consecutive years then the liability falls on the director and he is disqualified from its office. As a consequence of which the DIN i.e. the Director Identification Number and the Digital Signature certificate, can be canceled. The provision further states that the director of such a company that has defaulted is not eligible to be the director in any other company as well. Therefore, he seizes to be the director of all the companies in which he holds the position of director.
The Delhi high court in the case of Mukut Pathak and Ors. v. Union of India and anr. (W.P.(C) 9088/2018 &CM Appln. No.35006/2018), has described the application of section 164 (2). In the present case, various directors approached the high court to ask for any recourse which the directors may use against the disqualification under section 164 (2). There were various issues raised before the court such as:
The above-stated questions were answered by the Hon’ble court in the manner that, concerning the first issue the court believed that merely because the section was introduced afterward, it does not act as an excuse for not filing the required documents, as it has been a set procedure which the companies have to follow with or without section 164.
For the second question, the court held that applying section 164 does not violate any principles of natural justice. Section 164 of the act only sets out conditions which if not fulfilled would disqualify the directors from their office and from being re-appointed or appointed as the director. It is a criterion for the appointment or re-appointment of the directors to the board of the company.
The court also held that once a director has defaulted under section 164, it implies that he has disqualified from all the offices meaning thereby, if he is a director in the defaulting company, is disqualified from that company as well as all the other company where he holds the position of director. Further concerning the last question the court said that since by the virtue of being disqualified the DIN and the DSC is canceled one cannot work in other companies as well.
Thus, one must keep in mind the disqualifications and then function accordingly. Section 164 includes various other grounds as well, such as insolvency of the individual or being of unsound mind as a disqualification however, not filing annual returns or financial statements can lead to serious consequences.
This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being.
