Furthermore, the stringent enforcement adopted by the Ministry of Corporate Affairs (MCA) since 2017, including the publication of disqualified directors’ names, has set a precedent for transparency and accountability. With these names in the public domain, companies are more vigilant in their appointments, and the disqualified individuals bear the repercussions of reduced trust and credibility. A person can be disqualified from being a director, if a company on which the person is a Director has not filed MCA annual return for a continuous period of three years. Hence, it’s important for all private limited company, one person company and limited company to file MCA annual return on time and maintain compliance under Companies Act, 2013.

Under the Companies Act 2013 a director must see to it that his company submits the financial statements and returns within 28 days of the financial year’s end. In the event that the company does not comply with this provision, the company could be penalized by law, and the RoC will never be late to give a few suggestions as well. If you’ve got any personal interest in a deal, it’s like finding a treasure map – you need to share it with your crew, or in real terms, declare it to your board of directors. Misconduct Allegations are as damaging as a tainted reputation in your local community.

Q3: Can a disqualified director continue to hold shares in the company?

Where a director holds shares of company and is a registered member of company, disqualification of a director will not impact the shareholding even if he has vacated the office of director. (iii) where any further appeal or petition is preferred against order or sentence within seven days, until such further appeal or petition is disposed off. Yes, a director has the right to defend themselves against disqualification proceedings in court. They can present evidence and argue their case to contest the allegations. Acting as a director while bankrupt is a criminal offence and can lead to further disqualification. To protect yourself, always prioritise the company’s interests over your own, declare any potential conflicts of interest, and seek approval for any actions that might be seen as self-serving.

Closing a Company

Disqualification of directors restricts a person from becoming a director or determining the conditions under which they cannot be appointed as a company director. The Insolvency Service may investigate your company (or you personally as a director of your company) if it’s involved in insolvency proceedings or if there’s been a complaint. You’re not usually allowed to be a company director if you’re under restrictions from bankruptcy or a Debt Relief Order. Once the period of disqualification expires or the event that has triggered disqualification has been removed such as undischarged insolvent, unsound mind then disqualification of director shall come to end. Then any person who is or who has been been a director of such company shall be disqualified from being appointed as director. Company is an artificial person having a separate legal entity from its directors.

Common Grounds for Director Disqualification

• Directors’  personal disqualification declarations and disclosures hold significant importance in corporate governance.
• To avoid being labelled unfit, always act in the company’s best interests, maintain transparency in your dealings, and seek professional advice if you’re unsure about your responsibilities.
• In this article, we have analyzed the provisions related to disqualification like conditions of disqualification, consequences, how to restore the same etc.
• There are certain legal breaches that could have you waving goodbye to your director’s seat faster than you can say “board meeting.”

Within 24 hours of the money being paid into disqualification of directors the company’s bank account, the director submitted paperwork to close the company. He did not notify the bank that funded his BBL that he was doing so, a criminal offence. If you are facing possible disqualification as a director, it is always advisable to seek independent legal advice as to the best way to proceed to minimise the impact on your business and your future. Yes, the disqualified director may seek a waiver from disqualification from the Ministry of Corporate Affairs or may approach the courts for relief.

a. Vacation of Office of Director in Existing Company

For the company, this means loss of operations, damage to reputation and regulation attention. Therefore, companies need to maintain constant compliance with legal standards and directors need to be cautious in order not to get disqualified and maintain proper corporate governance. The Companies Act 2013 explicitly outlines procedures for lifting the disqualification of a director, thereby restoring the individual’s eligibility to become a director. Disqualification arises under section 164 either due to the failure to file statutory documents or due to financial defaults. However, several legal and regulatory measures are present to deal with or mitigate this disqualification.

• Struggling businesses have restructuring options such as Company Voluntary Arrangements (CVAs), administration, and receivership, which aim to reorganize the company’s debts and operations to improve financial stability.
• After the end of his disqualification period, a person may be appointed as a director of his previous company or even incorporate a new company.
• Kulwinder Singh Sidhu, director of haulage company Wavylane Ltd, made a fraudulent application for a BBL and then dissolved his company as soon as the money was received.
• However, do check to see if the Insolvency Service intend to apply for a compensation order against you, and if the answer is ‘yes’, factor that into your decision as to whether you want to offer an undertaking.

Other reasons for disqualification include being an undischarged bankrupt or violating a prior disqualification order. Resignation takes place when a director voluntarily chooses to step down from their role as a director. On the other hand, when a company initiates the departure of a director, it is commonly referred to as removal. Directors who contravene section 184 of the Companies Act 2013 by not disclosing their interests can face a penalty of Rs. 1 lakh, imposing a financial burden and potential legal consequences.

A disqualified company director is also banned from directing someone else to act on their instructions or directing a company by proxy. This can result in prosecution not only for the disqualified director but also for the third party who acts on their direction. There is a further risk that the third party could incur personal liability for company debts by getting involved in company affairs in this way. Yes, if a director is disqualified, any board decisions taken in which he/she participated may be challenged in court. This is because the disqualification renders the director’s appointment as invalid.

Legal Framework for Director Disqualifications

He then put his company into liquidation, at which point the Insolvency Service started an investigation. The director pleaded guilty to a range of charges under the Companies Act 2006 and the Fraud Act 2006. He repaid the loan prior to sentencing, when his six-month sentence was suspended for 18 months. A director who is aware that he/she is likely to be disqualified may choose to resign from his/her position. However, resignation does not absolve the director from liability for any acts or omissions that occurred during his/her tenure.

Anyone who attempts to become a company director while their bankruptcy is undischarged will be breaking the law. Once a bankruptcy has been discharged, an individual can become a director. Similar disqualifications apply to directors who fail to redeem debentures or pay declared dividends within specified periods. These provisions ensure that directors cannot ignore their company’s fundamental obligations to debenture holders and shareholders without facing personal consequences. When aspiring to join a company’s board of directors, it’s crucial to understand that not everyone can hold this prestigious position. The Companies Act, 2013, under Section 164, establishes clear legal barriers that prevent certain individuals from becoming directors.

How to remove a director in a public company

It’s a cautionary tale that reinforces the ideology that directorship is not a position to be taken lightly — it’s a post of responsibility, where every action or inaction holds considerable weight. Not only will you unlock access to valuable resources like this, but you’ll also join a vibrant community where you can enhance and nurture your corporate governance and ESG skills. Don’t forget that if you carry out a company’s business for someone who is disqualified, you can also be prosecuted and liable for what happens, including any debts that occur. Also, in most cases, you cannot be a director of a company if you are under bankruptcy or debt relief restrictions. MSA is a trusted financial advisory firm offering expert solutions in taxation, compliance, auditing, and business consulting for domestic and international clients.