What should you do if one of your Directors name is appearing in list of disqualified Directors

The recent action of MCA disqualifying Directors has created chaos among the Companies. While the process has started few months back when MCA issued notices and subsequently struck off nearly 2 lakh of Companies. While the initial actions against Shell Companies were in isolation, it has not affected many companies. Considering the fact that MCA started striking off all the Companies which were non active or the Companies which has not done its filing for years.

However, after striking of Companies, now MCA has now issued list of nearly 1 lakh of individuals who are disqualified to be Directors under Section 164 (2) (a) of the Companies Act, 2013. The list contains all the Directors of previously struck off companies. While the move was somewhat expected, its after effects are creating more wobble in the compliance of various Companies.

As per Clause (a) of section 167(1), the office of a director shall become vacant in case, if he incurs any of the disqualifications specified in section 164. Since the list issued by MCA specifies names of Directors who are 'disqualified under Section 164 (2) (a)' of the Companies Act, 2013. It is believed that if a Director whose name is appearing in the list of 'Disqualified Directors', they are bound to vacate the office from all other Companies where they are Director.

Penalty for non compliance?

Penalty on Directors who is liable to vacate his office under Section 167

Penalty for violation of Section 167 (1)
Fine	Rs. 1 lakh to Rs. 5 lakh
Imprisonment	Upto 1 Year
Or Both

Penalty on Company whose Director are liable to vacate office under Section 167 (1) (a):

Since the onus of intimation is on Director, who has incurred disqualification under Section 167 (1), if the Director fails to intimate the Company, the Company is not liable for any penalty. However, recently MCA issued warning to Companies stating that 'Filing of any document or application with ROC/MCA shall be summarily  rejected, if the same are signed by the Directors disqualified under Section 164(2) read with section 167 of the Companies Act, 2013.'

Which means that, though Company, may not be directly liable for any punishment as contravention of Section 167 is treated at individual level only. However, the Company may face consequences of allowing disqualified director to continue on its Board.

Click here to know What next for Directors who are disqualified.

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