By Ishaan Madaan, Advocate

Each company is required to file its annual financial statements and annual returns with the Registrar of Companies within a stipulated period and non-filing of such reports is an offence under the Companies Act, 2013. The ramification of such non-filing has recently been felt by lakhs of companies and directors across India where mass striking off of the companies has taken place and over 3 lakh directors have been disqualified.

The effect of such disqualification is that if a director has been disqualified because of non-compliance in one company, he has been disqualified to act as a director in any other company.

Why did this happen?

Where a Company defaults in filing of annual returns or financial statements for a continuous period of three years, the Director of such Company is disqualified in terms of Section 164(2) and 167 of the Companies Act, 2013.For your convenience, the relevant sections are reproduced below:

Section 164(2)

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.

Section 167(1)

The office of a director shall become vacant in case—
(a) he incurs any of the disqualifications specified in section 164; 

[Provided that where he incurs disqualification under sub-section (2) of section 164, the office of the director shall become vacant in all the companies, other than the company which is in default under that sub-section.]

Also, Rule 14 of the Companies (Appointment and Qualification of Directors) Rules, 2014 further prescribes that every director shall inform the company concerned about his disqualification, if any, under section 164(2), in form DIR-8 at the time of his appointment. Whenever a company fails to file the financial statements or annual returnsas specified in sub-section (2) of Section 164, the company shall immediately file Form DIR-9informing the Registrar furnishing about the names and addresses of all the directors of the company.

Now, if a company fails to file the Form DIR-9 within a period of thirty days from the due date, the director would be disqualified.

In September 2017, the Ministry identified 3,09,614 such directors associated with the non-compliant companies and they were barred from continuing as directors.

What is my remedy?

The Ministry of Corporate Affairs has notified the Condonation of Delay Scheme 2018 (“CODS”) for the disqualified directors.

The scheme in brief is as follows:

  1. The scheme has been made applicable to all defaulting companies (other than the companies which have been stuck off/ whose names have been removed from the register of companies under section 248(5) of the Act). 
  1. In the case of defaulting companies whose names have not been removed from register of companies-
    • The DINs shall be reactivated during the validity of the scheme to enable them to file the overdue documents.
    • The defaulting company shall file the overdue documents by paying the statutory fee and additional fee payable.
    • After filing documents under this scheme, the defaulting company shall seek condonation of delay by filing form e-CODS attached to this scheme online on the MCA21 portal. The fee for filing application e-form CODS is Rs.30,000/-.
    • Where the defaulting companies do not file their overdue documents, their Directors’ DINs shall be deactivated on the conclusion of this scheme, that is March 31, 2018. These directors shall continue to be disqualified in terms of section 164(2)(a)) r/w 167(1)(a) of the Act.
  1. In cases wheredefaulting companies whose names have been removed from the register of companies under section 248 of the Act and which have filed applications for revival under section 252 of the Act up to the date of this scheme, the Directors’ DINs shall be re-activated only after NCLT order of revival subject to the company having filed all overdue documents. Therefore, the scheme does not provide any form of amnesty to the board of directors of companies that have been struck off.
  1. Filing of only the following documents under CODS, 2018:
    • Form 20B/MGT-7- Form for filing company having share capital. 
    • Form 21A/MGT-7- Particulars of Annual return Annual return by a for the company not having share capital. 
    • Form 23AC, 23ACA, 23AC-XBRL, 23ACA-XBRL, AOC-4, AOC-4(CFS), AOC (XBRL) and AOC-4(Non-XBRL) - Forms for filing Balance Sheet/Financial Statement and profit and loss account. 
    • Form 66 - Form for submission of Compliance Certificate with the Registrar. 
    • Form 23B/ ADT-1- Form for intimation for Appointment of Auditors.
  1. Once compliance is completed under this scheme, the Registrar of Companies shall withdraw the prosecution(s) pending if any before the concerned Court(s) for all documents filed under the scheme. However, this scheme is without prejudice to action under section 167(2) of the Act or civil and criminal liabilities, if any, of such disqualified directors during the period they remained disqualified.

The CODS is operational from 01.01.2018 – 31.03.2018 only. During this period, the DIN of disqualified directors will be re-activated temporarily to facilitate Directors of defaulting companies to file all overdue annual returns. After the end of the three month period, if the Director of a defaulting company fails to utilize the scheme and regularize compliances, his/her DIN will again be deactivated and he/she would continue to remain disqualified for a period of 5 years. Hence, it’s advisable for all disqualified Directors of companies,which have not filed financial statements and annual returns for over 3 years, to utilize this scheme and regularize compliances.

In case of a struck off company, approach the NCLT for restoration of name of the company. To understand more about this, read here.

What if I am a Director in several companies that have been struck off and I have been disqualified?

In the event where you are a disqualified director/promoter of several companies and your company(s)’ name(s)has been struck off, some of which may be functional and operational, and you want only some of these companies to function, you will have to file a Writ Petition before the high court seeking to suspend your disqualification temporarily so that you can approach the ROC to dissolve those companies which you don’t want to exist. Simultaneously, you would have to approach the NCLT under section 252 for restoration of the other companies. Additionally, you would be required to ensure all necessary compliances as may be directed by the ROC and/or the NCLT.

While the last date of filing eCODS has not been specified, it appear that same would be 31.03.2018, however, any delay may keep you disqualified for 5 years altogether?.

All views expressed in this article are of the author and Lawclik assumes no responsibility for any misinformation.