"When And Why Directors Get Disqualified: An In-Depth Look"
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“When and Why Directors Get Disqualified: An In-Depth Look”

June 03, 2024
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When is a Director Considered Disqualified from the Position of a Director?

A company functions as a legal entity via natural beings known as directors. These experts, often known as corporate officials, are in charge of managing the company’s operations.

Unsound Mind: If the court declares a director to be unsound of mind.

Insolvency: When a director turns insolvent or is in the procedure of declaring insolvency, pending an application.

Criminal Conviction: If a director is convicted in court of any offense, with or without moral turpitude, and sentenced to at least six months in prison. Additionally, if a person has served a seven-year term or longer, they are ineligible to serve as a director in any firm.

Court Disqualification: A court or tribunal may issue an order preventing an individual from being appointed as a director.

Nonpayment of Calls: If a director fails to pay any calls pertaining to company shares owned by them six months after the most recent payment date.

Related Party Transactions: If a director has been accused of an offense involving related party transactions within the previous five years.

Failure to Obtain Director Identification Number (DIN): If a director fails to obtain a Director Identification Number when necessary. These disqualifications ensure those individulas serving as directors follow specific criteria and regulations when managing the company’s operations.

Effects of Disqualification

When a director is disqualified, they are disqualified to serve as a director of that or any other corporation for a five years, or as determined by the circumstances. Since 2017, the Ministry of Corporate Affairs (MCA) has strictly enforced these provisions of the Companies Act, and disqualified directors’ names are now publicly available on the government official website.

Remedies against Disqualification

In the event of disqualification, a director has the option to appeal to the National Company Law Appellate Tribunal (NCLAT). They can request a temporary stay order during the appeal process. Under the Companies Act 2013, an order disqualifying a director does not take immediate effect; there is a 30-day grace period from the date the order is passed. During this time, the disqualified person remains a director, and within the next seven days, they can file their annual returns to postpone the disqualification order.

However, there is no established procedure for reappointing a disqualified director. They can only be reinstated after a lapse of five years from the date of disqualification.

 FAQs:

1] What happens when a director is disqualified?

Answer: Once disqualified, a person is barred from serving as a director of any company for a duration of five years, or as specified by the Registrar of Companies.

 2] How is the disqualification removed?

Answer: After being disqualified, a director can file an appeal with the National Company Law Appellate Tribunal (NCLAT) to reinstate their qualification. After filing an appeal, the director has seven days to comply with the legislation, which could potentially save their disqualification. Yet, reappointment as a director is only possible after five years have passed.

DISCLAIMER: The information provided in this article is intended for general informational purposes only and is based on the latest guidelines and regulations. While we strive to ensure the accuracy and completeness of the information, it may not reflect the most current legal or regulatory changes. Taxpayers are advised to consult with a qualified tax professional or you may contact to our tax advisor team through call +91-9871990777 or info@semantictaxgen.in. the appropriate government authority to verify the accuracy of the information and to obtain advice on their specific tax situations.

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