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De-Flagging of Disqualification of DIN

Updated on :  

08 min read.

The Director Identification Number (DIN) is an identification number allotted by the Central Government to individuals intending to be a director of a new company or an existing director. All the directors of a company must have a DIN. The Registrar of Companies (ROCs) can disqualify the DIN of a director under Section 164(2) the Companies Act, 2013 (‘Act’).

Disqualification of Directors Under Section 164(2)

When the ROCs disqualify a director, he/she cannot be appointed as the director of any company for the period he/she is disqualified. Section 164(2) of the Act has a broad ambit. It brings a director under the purview of disqualification when there is a default committed by a company in which a director holds the directorship.

Section 164(2) states that a director is ineligible to be re-appointed as a director of a company or appointed as a director in another company for five years from the date on which the company of the director fails to comply with the following:

  • Has not filed annual returns or financial statements for a continuous period of three financial years
  • Has failed to repay any deposits accepted by it, pay interest on deposits, to redeem debentures on the due date, pay the interest due on debentures or pay any dividend declared and the failure to redeem or pay continues for one year or more

In 2017, various ROCs published the list of defaulting companies and the disqualified directors as per Section 164(2) provisions of the Act. The ROCs considered the companies that had defaulted in filing the financial statements and annual returns from the financial year 2014-2015 while compiling the list of defaulting companies and flagging the disqualified directors.

Consequences of Disqualification of Directors 

The DINs of all the directors flagged as inactive due to disqualification under Section 164(2) by the ROCs in 2017 were debarred from appointment as directors in any other company for five years. As per the Act, once a director is disqualified under Section 164(2) of the Act, he/she will be eligible to be re-appointed as a director of a company after de-flagging the disqualification of DIN by the MCA. The MCA will de-flag the disqualified DIN after five years from the date of disqualification.

Remedies for Disqualification of Directors

The Companies Act, 2013 does not provide any remedial measure for removal of the disqualification of DIN. In case of DIN disqualification, a director can appeal to the National Company Law Appellate Tribunal (NCLAT) and temporarily ask for a stay order. Under the Act, the order disqualifying a director will not be effective until the next 30 days of passing the order.

As soon as a director initiates an appeal before the NCLAT, he/she will continue to be a director of the defaulting company for the next seven days. Within seven years, a director can file the annual returns to prevent the order of disqualification. However, there exists no procedure to reappoint a disqualified director. A disqualified director can only be reappointed after five years from the date of disqualification.

The directors can also appeal to the High Courts to remove director disqualification. However, different High Courts have different views regarding removing disqualification under Section 164(2). For instance, the High Court of Gujarat, Madras, Karnataka, and Allahabad have granted relief with certain directions and reversed the lists of ROCs, mentioning disqualified directors. In contrast, the Mumbai High Court does not provide relief for removing the director disqualification. 

De-Flagging of Disqualified Directors

The MCA can de-flag the disqualification of the DIN of the directors after five years have passed since the order of disqualification. Accordingly, the DIN of the directors that the various ROCs disqualified in 2017 were eligible for removal of the disqualification in October 2021, i.e. after completion of five years of the disqualification order.

Thus, the MCA issued a public notice on 10th November 2021 mentioning that all the concerned disqualified DIN on 1st November 2016 are eligible for defragging. The MCA is in the process of de-flagging the disqualified DIN and soon will change the DIN of such directors from ‘Disqualification’ to ‘Active’. Meanwhile, all the concerned disqualified directors have to file the form DIR-3 KYC to ensure there are no hassles for their re-appointment as directors.

Disclaimer: The materials provided herein are solely for information purposes. No attorney-client relationship is created when you access or use the site or the materials. The information presented on this site does not constitute legal or professional advice and should not be relied upon for such purposes or used as a substitute for legal advice from an attorney licensed in your state.

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