Newspapers, blogs, websites are flooded with the news
regarding the disqualification of about 3 lakh directors across the country.
Even more there is speculation that, a new list of disqualified directors would
be released anytime soon. The Ministry’s stand is very clear “Comply or
Perish”. Disqualified directors would never have thought that, something
like this would ever happen to them and the ministry would become so stringent
overnight. We understand the intention of the Government is to curb the black
money and put an end to the parallel economy, if not then atleast to control
and supervise it, because no economy in this world is free from it, but in all
of this there are directors who are in a soup just because they were directors
in a company which they didn’t know existed or had filed resignations which
were not uploaded or intimated to ROC for reasons unknown.
We are in support, of this noble initiative taken by the
government but one should also provide some relief to the persons genuinely
affected by such disqualification. The Ministry has come up with the CODS
scheme, 2018, wherein the defaulting company can file its returns and the
disqualification is lifted on its directors. On analyzing the scheme, only
defaulting companies and directors associated with such defaulting companies
are given an opportunity and not to directors who are disqualified because of
being associated with struck off companies.
In one of the practical cases, a person is a director in a
company and the company has been compliant in filing its timely returns until 2016.
But since the carnage began in 2017, the person suddenly came to know he is
disqualified because a company is struck off in which he was a director in the
year 19XX, from which he had resigned. The MCA went online somewhere in 2005 or
2006 and hence there are no records of such resignation and the business of
such person has come to a standstill. Yes we do agree that, one should be
absolutely aware of their actions and cannot escape their responsibility, but
what is the solution?
Looking at the technicality, a directors is disqualified by
virtue of section 164 read with section 167 of the Companies Act, 2013. Sec 164
(2) states that, No person who is or has been a director of a company which—
(a) has not filed financial statements or annual returns for any
continuous period of three financial years; or
(b) has 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,
shall 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 fails to do so.
The ROC on the instructions of the Ministry had started
insertion of new director name on the board of the company through physical
filing of documents providing some relief to the companies but on careful
reading of the above provision i.e Sec 164 it becomes evident that, even if a
new director is appointed then even the newly appointed director stands
disqualified. Sec 167 authorizes the shareholders to appoint the minimum number
of directors required as per the act in case all the directors are
disqualified, however the ROC allows appointment of only one director.
In such a scenario how will the company function? How will
board meetings be conducted without the necessary quorum? How will the
resolutions be passed by having only one non-disqualified director? The private
limited company in such a scenario would be similar to a one person company
which entirely defeats its existence. And lastly what about the amendments in
the Companies Amendment Act, 2017 which would levy additional fees of Rs. 100/-
per day in case of delay in filing of financial statements which would be a big
hit for small businesses and is ready to see the light of the sun as soon as it
is published in the Gazette Notification.
While writing this article we hope that, the
Ministry comes up with some circular or notification to address such issues and
provide the much needed clarity going forward and also end the misery of the
directors who unknowingly fell prey to such stringent action by the Ministry.
Until then we will just have to wait and watch as to what will be the
Ministry’s stand on this entire issue.
Authors: CS. Ashish & CS. Sadanand
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