The Ministry of Corporate Affairs (MCA) has finally decided to remove the disqualification of DIN. The decision will only benefit directors that have been facing disqualification since 01st November 2016. The ministry notified the above matter through the notification released on 10/11/2021. Section 164 of the Companies Act, 2013 talks about the Disqualification of Director in different scenarios as discussed below.
Rules set out by the Companies Act, 2013 for disqualification of Directors
A registered entity is merely a legal entity, and hence it has no physical existence. It can only operate via the natural person. Such an individual, in legal parlance, is known as Director. Directors essentially deal with frontline affairs of a company that directly impact its growth. They are also recognized as the officers of a company.
A director is bound to address his/her obligations with diligence and good faith. Any non-compliance or breach of pre-determined provisions could trigger the scenario of disqualification. In 2017, the MCA disqualified over 3 00,000 Directors for their non-conformity with underlying conditions cited in Company Act, 2013.
According to the Companies Act, 2013, the scenario of disqualification of Director would come into play in the following events:
- If the Director is dealing with some mental related issues & the court confirms the same.
- If the Director ends up insolvent
- If the Director is confronting the process of declaring insolvency and the application of the same is pending.
- If the Director has been declared convicted by a court for any felony (whether or not involving moral turpitude) and has served a jail term for at least six months
- If the Director is confronting court or Tribunal ban regarding his/her appointment and the order for the same is in effect.
- If the Director is involved with the non-payment of calls w.r.t to any shares held by him, whether solely or jointly with others, and duration of six months from the last days for fixed such payment.
- If the Director has been found to be engaged with a crime related to party transactions at any instance during the last preceding five years
- If the Director fails to acquire the Director Identification Number
Post Disqualification scenario for Directors
As per the Companies Act, Disqualified directors shall stand ineligible to apply for the post of Directorship in any company. This limitation shall remain in effect for five years or as the case may be.
Available Remedies for Disqualification of Directors
- In the disqualification scenario, a director can approach National Company Law Appellate Tribunal (NCLAT) and file an appeal to revive the position in the company. Further, the plaintiff can also seek a stay order.
- The company Act, 2013 affirms that the Disqualification order will only come to effect after 30 days from the date of its issuance. As soon as an appeal is initiated, the applicant can serve the Directorship post for the subsequent seven days.
- During this duration, he has the right to file the annual returns to stay the disqualification’s order. But, as such, there is no remedy like reappointment for such an individual. The reappointment shall only come into play after the completion of five years, tenure for disqualification.
MCA’s decision to get rid of the disqualification of DIN will surely come as a great deal of relief for Directors that have been restrained from performing their undertaking since 10-01-2016. All the defaulting officials can function as normal and even apply for the new assignment in other registered entities.