Introduction:
A director is considered to be an agent of the company and his/her prime responsibility as a director is towards the efficient conduct of the business of that particular company. The director has a fiduciary relationship with both the company and also the shareholders. If he/she fails to do his/her responsibility properly then they risk disqualification from the company under the Companies Act of 2013.
Every now and then, the Ministry of Corporate Affairs (MCA), strikes off different companies for non-compliance, i.e., those companies that have not filed their financial statement for 3 or more years, and the directors of these particular companies also get disqualified for violating certain rules based on Section 164 of the Companies Act of 2013 (lists regarding disqualification of directors can be found in the official MCA portal).
What is Form DIR-9?
The Form DIR-9 is filed as a report by a company to the Registrar of Company (ROC) for intimating the disqualification of the director. The Form DIR-9 is pursuant to Section 164(2) of the Companies Act of 2013, read with rule 14(2) of the Companies (Appointment and Qualification of Directors) Rules, 2014.
If a particular director is holding directorship in more than one company and has made default in one of those companies as a director u/s 164(2) of the Companies Act of 2013, then the company may or may not get stroked off from the register of ROC, but that particular director remains disqualified. A disqualified director u/s 164(2) is restricted to act as a director during his disqualification period and cannot file any document or application with the Ministry of Corporate Affairs (MCA) as it would be rejected if filed. Therefore, if a director is disqualified u/s 164(2) of the Companies Act, then he/she has to vacate their office from all the companies where they hold their directorship as per u/s 167(1) of the Companies Act of 2013.
The purpose of this particular form DIR-9 is that through informing the ROC of the disqualification of that particular director by the company, the ROC then can restrict those directors from further appointment in another company or incorporation of a new company by deactivating DIN (Director Identification Number) of that particular director.
Laws Governing Form DIR-9
Companies Act, 2013 [S. 164]
Section 164(2) – Section 164 of the Companies Act of 2013 talks about disqualifications for the appointment of a director. Section 164(2) states that a director of the particular company which has failed to file financial statement, annual returns for any continuous period of three financial years or failed to repay the deposits or interests accepted by that particular company, failed to repay any dividend declared, fails to redeem its debentures, failed to pay interests that are due and such failures redeems to continue for one year or more, those directors shall be re-appointed as director of that or any other company for a period of five years from the date on which the said company fails to do so[1].
Companies (Appointment and Qualification of Directors) Rules, 2014 [R. 142]
Rule 14(2) – Rule 14 of the Companies (Appointment and Qualification of Directors) Rules, 2014 talks about disqualification of directors. This particular Rule 14(2) states that a company has to mandatorily file Form DIR-9 to the ROC, in the case when a company fails to file its financial statement, annual return, fails to repay any deposit, dividend, interest, or fails to redeem its debentures as per Section 164(2), then the company has to produce those director’s names with other relevant information during the financial years of default[2].
Procedure for filing for Form DIR-9
Form DIR-9 is considerably shorter in length when compared to other forms. The procedures for filing DIR-9 are:-
- Step one is to download the e-form from the official MCA portal.
- One has to then fill in all the relevant details regarding the registration number of the company, Nominal and paid capital in Rupees, Name of the company, with the address of its registered office.
- Then one has to fill in the full name of and as per the company, address of the director who has failed to file the financial statement, annual returns, etc.
- The final step is to deposit the same form with the concerned ROC.
Meethelaveetil Kaitheri Muralidharan v Union of India
The said case explains the purport, scope, and interpretation of the provisions of the earlier Companies Act, 1956, the Companies Act, 2013, and the Companies (Appointment and Disqualifications of Directors) Rules, 2014.
The list of disqualified directors as putting in the MCA website, published on 1 November 2017, was challenged in the Madras High Court stating that MCA and ROC have wrongly disqualified the directors before the commencement deadline and also wrongly fixed the first financial year[3].
The crucial observations of the Madras court regarding the writ appeals were:
- The company should mandatorily file the Form DIR-9 immediately and should comply with Section 164(2) of the Companies Act, 2013.
- An inquiry and a prior notice would be necessary on the filing of form DIR-9.
- Form DIR-9 should be filed within 30 day period.
- Any proceedings by ROC regarding disqualification should commence after the time period is expired under Rule 14(3) of the Companies (Appointment and Qualification of Directors) Rules, 2014[4].
- As per the Court, neither deactivation nor cancellation is provided for upon disqualification under Section 164(2) of the Companies Act of 2013[5].
- The Divisional Bench of Madras High Court also intimated that the ROC can initiate actions with regard to disqualification subject to an inquiry[6].
Conclusion
It is clear as per the Companies Act, 2013 that a disqualified director cannot continue as a director given his/her disqualification period. As per the above-mentioned case, it is evident that Form DIR-9 is considered important to be filed by the company as soon as the director has made any default regarding anything as mentioned u/s 164 of the Companies Act of 2013. It is also clear that the said director is not disqualified forever from that company or for holding a position of director in any other company, he/she is only disqualified for a time period and after that, they can regain their position as a director of any company.
References:
[1] Companies Act, S.164(2) (2013).
[2] Companies (Appointment and Qualification of Directors) Rules, R.14(2) (2014).
[3] C.V.Shailandhran and Salai Varun, Disqualification of directors under section 164(2) of the companies act, 2013- a trajectory of the litigations, Taxscan, (August. 5, 2021, 1:15 PM), https://www.taxscan.in/disqualification-of-directors-under-section-1642-of-the-companies-act-2013-a-trajectory-of-the-litigations/79465/.
[4] Ibid.
[5] Shailandhran and Varun, Supra note 3.
[6] Ibid.
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