Table of Content

• Who are Directors?
• When a director is said to be disqualified?
• Section 164
• What are various Grounds of disqualification?
• What are the defaults made by company which can lead to director’s disqualification?
• Can a Private Limited Company provide additional Grounds for Disqualifications?
• Conclusion

Who are Directors?

A Company is a separate legal entity in the eyes of law. Directors are appointed to manage the affairs of the company. As per the Company Act, 2013 only individuals can be appointed as a Director of the company. Collective bodies of directors are called Board of Directors.

When a director is said to be disqualified?

The companies act doesn’t provide the eligibility criteria for being a director but the companies Act, 2013 provides various grounds for disqualification of Directors. Section 164 of the companies Act states the various grounds for disqualification of directors. If a director is disqualified he will not be eligible for appointment of director of a company. So it is very important to know the grounds for disqualification of directors.

Section 164

Section 164 is divided into three sub section:-

• Sub section (1) provides grounds of disqualification which is attracted because of the default by individual.
• On the other hand sub section (2) provides grounds of disqualification which is attracted because of the default made by the company in which they are appointed as directors.
• Sub section (1) provides that a private limited company may provide additional grounds of disqualifications.

What are various Grounds of disqualification?

As per section 164(1), a person shall not be eligible for appointment as a director of a company, if —

(a) he is of unsound mind and stands so declared by a competent court;

(b) he is an undischarged insolvent;

(c) he has applied to be adjudicated as an insolvent and his application is pending;

(d) he has been convicted by a court of any offence, whether involving moral turpitude or otherwise, and sentenced in respect thereof to imprisonment for not less than six months and a period of five years has not elapsed from the date of expiry of the sentence:

Provided that if a person has been convicted of any offence and sentenced in respect thereof to imprisonment for a period of seven years or more, he shall not be eligible to be appointed as a director in any company;

Analysis of the above point:-

There are three situations possible here. All the three situations are summarized below in the table:

(e) an order disqualifying him for appointment as a director has been passed by a court or Tribunal and the order is in force;

(f) he has not paid any calls in respect of any shares of the company held by him, whether alone or jointly with others, and six months have elapsed from the last day fixed for the payment of the call;

(g) he has been convicted of the offence dealing with related party transactions under section 188 at any time during the last preceding five years; or

(h) he has not complied with sub-section (3) of section 152. He has been appointed without having Director Identification number.

(i) he has not complied with the provisions of sub-section (1) of section 165. Section 165 provides that an individual can be director of maximum 20 companies.

What are the defaults made by company which can lead to director’s disqualification?

As per section 164(2), no person shall be eligible to be re-appointed as a director, if he 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,

He/she shall not 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.

Provided that where a person is appointed as a director of a company which is in default of clause (a) or clause (b), he shall not incur the disqualification for a period of six months from the date of his appointment.

Can a Private Limited Company provide additional Grounds for Disqualifications?

Section 164(3) states that a private company may by its articles provide for any disqualifications for appointment as a director in addition to those specified in sub-sections (1) and (2).  It means that a private limited company may add additional grounds of disqualification but cannot minimize any ground stated in this section by its articles.

Conclusion

If a director is disqualified then he/she will not be eligible for appointment as director in a company. Director can appeal to the National company law Tribunal, if grounds of disqualification are attracted.