A company has no physical existence, it is merely a legal entity. It can only act through natural persons. The person acting on the company’s behalf is called a Director. They are professional people, hired by the company to direct its affairs. They can also be called – the officers of a company.
Any person can hold the position of Director. Company law in India does not prescribe any qualifications for Directors. Therefore, an Indian company may, in its Articles, lay down qualifications for Directors.
Disqualifications of Directors
Under company law, a director can be disqualified for any of the following reason:
- He is of an unsound mind and is declared so by the right court.
- He is insolvent.
- He is in the process of declaring insolvency and his application is pending.
- He has been convicted by a court of any offence, which may involve immoral behaviour or other, and is imprisoned for at least six months. However, if a person has been convicted of any offence and has served a period of seven years or more, he shall not be eligible to be appointed as a director in any company.
- If an order has been passed disqualifying his appointment as a director by a court or Tribunal.
- He has not paid any calls with respect to any shares of the company held by him, whether alone or jointly with others, and a period of six months has elapsed from the last day fixed for the payment of the call.
- He has been convicted of offences dealing with related party transactions at any time during the last preceding five years.
- He has failed to acquire a Director Identification Number.
- He has failed to file the new DIR-3 KYC form.
New DIR – 3 KYC FORM
The Ministry of Corporate Affairs (MCA) has now made it mandatory for directors across the country to file their annual e-KYC form. This can be done using the new DIR-3 KYC form. Every director who has been allotted a DIN on or before 31st March 2018, would be required to file the form DIR-3 KYC on or before 31st August 2018. The form should be filed by every Director using his own DSC and should be duly certified by a practising professional (CA/CS/CMA). If this form is not filled with the due date, the DIN of the director will get deactivated which in turn may lead to his disqualification.
Effect of Disqualification
Once disqualified, a person is not eligible for being appointed as Director of that company, or any other company. This restriction is imposed for a period of 5 years. The Ministry of Corporate Affairs (MCA) since the year 2017 has begun strictly enforcing these provisions of Companies Act. It has recently published the names of the disqualified Directors on the government website.
Remedies against Disqualification
In case of disqualification a director can appeal to the National Company Law Appellate Tribunal (NCLA). He/She can temporarily ask for a stay the order against the decision of disqualification. Under the companies act, an order disqualifying a Director does not take effect within 30 days it being passed. As soon as an appeal is initiated, the disqualified person continues to be a Director for the next 7 days. Within this period, he can file his Annual returns to stay the order of disqualification.
However, there exists no procedure to reelect a disqualified director. He can only be re-elected after a period of 5 years has passed.