Do You Know Director Disqualifications under the Companies Act 2013?

Directors play a pivotal role in the governance and management of a company. The Companies Act 2013, in conjunction with various rules and regulations, lays down specific qualifications and disqualifications for individuals seeking to become directors of Indian companies. Understanding these disqualifications is essential for both aspiring directors and existing ones to ensure compliance with the law. Here are some key disqualifications of a director as per the Companies Act 2013:

1. Insolvency and Bankruptcy:

If a person is declared as an undischarged insolvent, then it is considered one of the disqualifications for being appointed as a director.

2. Conviction and Imprisonment:

Individuals who have been convicted by a court of any offense involving moral turpitude and sentenced to imprisonment for at least six months are disqualified from directorship. This disqualification lasts for a period of five years from the date of release from prison.

3. Non-Payment of Calls or Default in Repayment:

A person who has failed to pay calls on shares of any company held by them, or who has been found to have defaulted in repayment of deposits accepted by them, is disqualified from becoming a director.

4. Prohibited by SEBI:

If a person has been declared as a willful defaulter by the Securities and Exchange Board of India (SEBI), they are disqualified from directorship in companies.

5. Non-Compliance with Section 165:

A person who is already a director in more than the maximum number of companies allowed under Section 165 (maximum limit for directorship in public companies is 10, and in private companies is 20) cannot be appointed as a director in any more companies.

6. Disqualification by Court or Tribunal:

The court or the National Company Law Tribunal (NCLT) may disqualify a person from acting as a director for various reasons, including fraud, oppression, or mismanagement of a company.

7. Non-Filing of Financial Statements or Annual Returns:

Directors of a company that has not filed financial statements or annual returns for a continuous period of three financial years are disqualified from serving as directors in any other company.

8. Non-Resident in India:

A person who is not a resident in India is disqualified from serving as a director in an Indian company.

9. Unsound Mind:

Individuals declared as of unsound mind by a court are disqualified from being appointed as directors.

10. Non-Resident without a DIN:

Non-resident individuals without a Director Identification Number (DIN) are disqualified from being appointed as directors.

Conclusion:

It’s crucial for individuals holding position of Director to be aware of these disqualifications and maintain compliance with the law. Additionally, existing directors should regularly monitor their eligibility to ensure they do not inadvertently fall into disqualification categories. Non-compliance with these disqualifications can result in significant legal consequences, including fines and disqualification from directorship positions.

To stay in line with the Companies Act 2013 and its provisions, seeking legal counsel or professional advice is advisable when appointing or considering directorship roles in Indian companies.

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