Remedy for ‘Disqualified Directors’
Ministry of Corporate Affairs (MCA) has
announced the ‘Condoning of Delay Scheme – 2018’ which now allows defaulting
companies to make good their irregularities, especially in terms of failure to
file their financial statements of account for a continuous period of three
financial years. This is a one-time settlement scheme that shall remain in
force from January 1, 2018 through March 31, 2018.
announced the ‘Condoning of Delay Scheme – 2018’ which now allows defaulting
companies to make good their irregularities, especially in terms of failure to
file their financial statements of account for a continuous period of three
financial years. This is a one-time settlement scheme that shall remain in
force from January 1, 2018 through March 31, 2018.
In
September 2017, MCA had disqualified 309,614 Directors associated with companies
that had failed to file Financial Statements or Annual Returns for a continuous
period of three financial years from 2013-14 to 2015-16 in terms of provisions
of Section 164(2) read with Section 167(1)(a) of the Indian Companies Act,
2013. A list of such Disqualified Directors was published on the website of
MCA.
September 2017, MCA had disqualified 309,614 Directors associated with companies
that had failed to file Financial Statements or Annual Returns for a continuous
period of three financial years from 2013-14 to 2015-16 in terms of provisions
of Section 164(2) read with Section 167(1)(a) of the Indian Companies Act,
2013. A list of such Disqualified Directors was published on the website of
MCA.
Consequently,
there has been a spate of representations from industry, defaulting companies
and their directors seeking an opportunity to become compliant and normalize
their operations.
there has been a spate of representations from industry, defaulting companies
and their directors seeking an opportunity to become compliant and normalize
their operations.
Certain
affected persons have also filed writ petitions before various High Courts
seeking relief from the disqualification. The High Courts of Delhi and Madras
have given notices to the Ministry of Corporate Affairs and the Registrar of Companies
in lieu of petitions challenging disqualification of these directors.
affected persons have also filed writ petitions before various High Courts
seeking relief from the disqualification. The High Courts of Delhi and Madras
have given notices to the Ministry of Corporate Affairs and the Registrar of Companies
in lieu of petitions challenging disqualification of these directors.
Section 274 of the Indian Companies Act of 1956 was
limited to dealing with disqualification of Directors of Public Limited Companies.
However, the Act was amended bringing in its purview Private Companies as well
in 2014 through the Indian Companies Act of 2013.
limited to dealing with disqualification of Directors of Public Limited Companies.
However, the Act was amended bringing in its purview Private Companies as well
in 2014 through the Indian Companies Act of 2013.
Legal Angle
Section
92 of the Indian Companies Act 2013 provides that every company shall prepare
an annual return in the prescribed form containing the particulars as they
stood on the close of the financial year within sixty days from the date on
which Annual General Meeting (AGM) is held.
92 of the Indian Companies Act 2013 provides that every company shall prepare
an annual return in the prescribed form containing the particulars as they
stood on the close of the financial year within sixty days from the date on
which Annual General Meeting (AGM) is held.
Section 164(2) provides that no person
who is or has been a Director of a company which has not filed financial
statements or annual returns for any continuous period of three financial years
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.
who is or has been a Director of a company which has not filed financial
statements or annual returns for any continuous period of three financial years
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)(a) provides that the office of a Director shall become vacant in case he
incurs any of the disqualifications specified in section 164.
167(1)(a) provides that the office of a Director shall become vacant in case he
incurs any of the disqualifications specified in section 164.
Therefore,
failure to file annual returns for any continuous period of three financial
years would lead to vacancy of office of Director.
failure to file annual returns for any continuous period of three financial
years would lead to vacancy of office of Director.
Further,
Rule 14 of the Companies (Appointment and Qualification of Directors) Rules,
2014 provides that every director shall inform the company concerned about
his disqualification, if any, under section 164(2) in Form DIR – 8.
Rule 14 of the Companies (Appointment and Qualification of Directors) Rules,
2014 provides that every director shall inform the company concerned about
his disqualification, if any, under section 164(2) in Form DIR – 8.
Relief
In
December 2017, MCA announced the ‘Condoning of Delay Scheme – 2018’ which
now allows defaulting companies to make good their irregularities, especially
in terms of failure to file their financial statements of account for a
continuous period of three financial years. This is a one-time settlement
scheme that shall remain in force from January 1, 2018 through March 31, 2018.
December 2017, MCA announced the ‘Condoning of Delay Scheme – 2018’ which
now allows defaulting companies to make good their irregularities, especially
in terms of failure to file their financial statements of account for a
continuous period of three financial years. This is a one-time settlement
scheme that shall remain in force from January 1, 2018 through March 31, 2018.
Applicability
This
scheme is available for all defaulting companies which have failed to file
their financial statements or annual return as required under the Indian Companies
Act, 1956 or the Indian Companies Act, 2013, as the case may be, and the Rules
made there under, for a continuous period of three years.
scheme is available for all defaulting companies which have failed to file
their financial statements or annual return as required under the Indian Companies
Act, 1956 or the Indian Companies Act, 2013, as the case may be, and the Rules
made there under, for a continuous period of three years.
Only those financial statements or the
annual returns or other associated documents which were due for filing till
June 30, 2017 shall be eligible for filing under this scheme.
annual returns or other associated documents which were due for filing till
June 30, 2017 shall be eligible for filing under this scheme.
This scheme shall apply only to the
following documents:
following documents:
- Form 20B/MGT-7: Form for filing Annual Return by a company having share capital
- Form 21A/MGT-7: Particulars of Annual return 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.
Procedure
- The Director Identification Number (DIN) of the disqualified directors shall be
temporarily activated during the validity of the scheme to enable them to file
the due documents. - The defaulting company shall file thedue documents in the respective prescribed
eForms paying the statutory filing fee and additional fee payable as per
section 403 of the Act. - The defaulting company after filing documents under this scheme, shall seek
condoning of delay by filing form e-CODS 2018 attached to this scheme along
with a fee of Rs. 30,000/- (Rs. Thirty Thousand only) as prescribed under the
Companies (Registration Offices and Fee) Rules, 2014 well before the last date
of the scheme.
Conclusion
This
is a very good one-time opportunity for ‘Disqualified Directors’ and defaulting
companies to make good their default. This scheme is expected to benefit over
three Lakh disqualified directors.
is a very good one-time opportunity for ‘Disqualified Directors’ and defaulting
companies to make good their default. This scheme is expected to benefit over
three Lakh disqualified directors.
For Directors who fail to take advantage of
this amnesty scheme, their disqualification will be made final for a period of
five years and other penalties as prescribed under the Indian Companies Act,
2013 will be attract.