Director Disqualification: How to Restore DIN?

As per company law any person is eligible to become director of the company however the person can be disqualified as a director if at any time the director holds the office is found not to qualify as a director of the company or if the company they are director in has not completed the annual compliance procedure with MCA.

If you are elected as a director of a company you are expected to act on behalf of the company and complete all the compliances and management of the business, directorship brings legal obligation for the director to act in a proper manner when undertaking company business and if it is found that the director was working in any unfit conduct he has to face disqualification and in some instances penalties as well.

Note: The company has the power to lay down qualification for the directors in its AOA.

Reasons of Disqualification of Director

A director of a company can be disqualified for the reasons listed below.

  1. The director has become insolvent, and in order to protect the interest of the company the shareholders and creditors can file for disqualification of the director
  2. If the director of the company is declared of unsound mind by the court.
  3. The tribunal or court has passed an order for disqualifying a director.
  4. If the director has been convicted of any offence or if he has served imprisonment for a period of seven years.
  5. Has failed to obtain Director Identification Number (DIN) or has not completed the compliance of DIR-3 KYC form with MCA.
  6. Six months have passed from the last payment call concerning any shares of the company held by the director.
Note: A private company can list down its disqualification  conditions in the  Article of Association

Effects of Disqualification of Director

MCA with its notification has cancelled certification of many companies(Shell companies) that were not filing an annual return, and with the cancellation of the companies, the ministry of commerce has also asked banks to freeze any business activity of such companies.

After the cancellation of companies, the directors of those identified companies were to be disqualified from the master data, and the following restriction imposes a 5-year ban from being appointed as a director in any company. If you have received an order from the MCA regarding disqualification of your Director Identification number you should leave the post as a director and stop all the actions that were being performed by him.

The lawmakers intended to tighten down the noose around the defaulters and to strike down all the defunct and shell companies from the MCA rooster for non-filing of financial reports annually.

DIR-3 Form Compliance

It is mandatory for all the directors in India to file their annual e-KYC form with MCA. The KYC for the directors can be completed using DIR-3 KYC Form using the director Identification number allotted to the director of the company.

Every director will be required to submit the form on or before 30th April every financial year; using their own DSC which should be certified by a practising director. If the KYC of the director is not completed within the prescribed time, then the director DIN will get deactivated, and the director will be charged penalty and can also be disqualified.

 

What does it actually mean for a director to be disqualified?

As per MCA notification director that has been disqualified cannot take office as a director in any other company until the period of 5 years although they do not have any restrictions about taking a job in any other company unless the court has stopped you from undertaking the same role.

Ministry of corporate affairs have now started making the list of disqualified directors public across the nation, and anyone can look into the list of all the disqualified directors.

Remedies Available to Disqualified Director

The Companies Act,2013 provides a chance to all the disqualified directors to appeal within 30 days of disqualification. The director can appeal against disqualification in NCLT; the appeal can be filed for obtaining stay upon the disqualification.

Once the appeal is filed the director will continue to be the director for next 7 days, and within this period, the director can file his annual returns so that he can be re-elected as a director of the company.

Remember: Once a director is disqualified he cannot be re-elected as the director of the company for the next 5 years.

Concluding

Director role in a company is the most crucial for the continued smooth operation of the company. The director has to act on behalf of the entire organisation and is also responsible for effective management and good governance within the organisation and hence it is essential that the director completes all the compliances and obliges with all the laws.


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