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:
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 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:
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.