How to Remove Disqualification of Directors

March 18, 2019

Registrationwala

MCA has disqualified many directors over the past few years regardless of the degree of non-compliance. However, through the removal of director disqualification, you can get back your position as the director of your company.

Over the past few years, the MCA or Ministry of Corporate Affairs has disqualified more than 3 Lakh directors who weren’t compliant with the rules and regulations of the Companies Act. That is not all, in order to prevent these directors to make any sort of dealings; the MCA deactivated their Director Identification number. Regardless of how moral or “just” this choice was, the truth is several innocent Directors also suffered. Therefore, when the Ministry initiated DIN activation, they moved to the center to ask for help. The result of this is “Condonation of Delay Scheme” that provides relief to the directors by aiding them with provisions to Remove director Disqualification.

Reasons for Director Disqualification

There are two reasons for Director Disqualification:

The Directors haven’t filed the Financial statements and annual returns consecutively for the past 3 years (financial years) or
The director has not repaid the debts he has taken or has failed to do so for 1 year.

Once a Director is disqualified, then under the original plan, he won’t be able to be a director of that company or any other company for the next 5 years (5 years from the date of disqualification). However, the condonation of delay scheme can help.

What is Condonation of Delay Scheme?

According to Section 8 of the companies act, directors of companies are required to file their financial returns each year. The Companies Act of 2013 then introduced that any director failing to these returns for three consecutive years or more shall face disqualification on grounds of non-compliance. The Condonation of Delay scheme (CODS) then became operational courtesy of the appeal of aggrieved directors. Under this scheme, the disqualified directors are given a temporary DIN (Director Identification Number) to file the deferred tax returns over the course of the next few months. If the Companies still do not comply, their directorship is disqualified for the next 5 years.

How Does Scheme Work?

When a director is disqualified, they won’t be able to hold the directorship of that or any other company for the next 5 years. Therefore, under the CODS, the company can appoint temporary directors to execute the resolutions to file and submit the financial statements and annual returns. These directors are given new DIN and DSC for the time being to file all the annual returns. Furthermore, it is these new directors that shall pass the resolution to re-hire the disqualified ones and passing the request to the Registrar of Companies.

Director Disqualification Removal Process

Drafting a Writ application
Filing the director disqualification matter with the High Court
The advocates appear before the High Court regarding director disqualification
Obtaining the Final Order from the High Court
Filing all the financial and annual compliances with the Registrar of Companies
Activation of Director Identification Number and Removal of Director Disqualification

What are the documents required to remove director disqualification?

One thing to remember is this: there is a way to remove Director Disqualification without the condonation of delay scheme (CODS). However, CODS do makes the process quite streamlined.