Many years ago one Hindu priest told me, those worshipping Laxmi ji (goddess of wealth) before without satisfying Ganesh Ji (god of goodness) may not get good wealth. We need to follow established a procedure to get the desired result. Without understanding utility of Form DIR – 10, its use may not give the desired result. Here, we will have a discussion.
While disqualifications listed in sub-section (1) of section 164 are general in natures, disqualification pointed out under sub – section (2) of section 164 is punitive in nature. These punitive disqualifications need special attention of subordinate legislation to place standard operating procedure.
For ready reference, Section 164(2) reads –
“No person who is or has been a director of a company which—
(a) has not filed financial statements or annual returns for any continuous period of three financial years; or
(b) has failed to repay the deposits accepted by it or pay interest thereon or to redeem any debentures on the due date or pay interest due thereon or pay any dividend declared and such failure to pay or redeem continues for one year or more,
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 fail to do so.”
As mentioned above, Rule 14 of the Companies (Appointment and Qualification of Directors) Rule, 2014 establish an operating procedure.
Intimation of disqualification
According to Rule 14(1), every director shall inform the company concerned about his disqualification under sub-section (2) of section 164, if any, in Form DIR-8 before he is appointed or re-appointed.
There is no need to explain the reason. This is quite necessary to inform the appointing company about such disqualification in case any such proposal comes before such director. This form requires information regarding the name of the company, date of appointment and cessation from that company. I will not discuss the utility of this form where such disqualification is running. Otherwise, this form is a way to information eligibility for appointment as director.
Intimation by defaulting company
According to rule 14(2), whenever a company fails to file the financial statements or annual returns, or fails to repay any deposit, interest, dividend, or fails to redeem its debentures, as specified in sub-section (2) of section 164, the company shall immediately file Form DIR-9, to the Registrar furnishing therein the names and addresses of all the directors of the company during the relevant financial years. According to rule 14(4), upon receipt of the Form DIR – 9 under sub-rule (2), the Registrar shall immediately register the document and place it in the document file for public inspection.
Practically in case of non – filing of financial statements or annual return chances of filing of this Form DIR – 9 are negligible. Therefore a punitive measure is prescribed under rule 14(3). According to Rule 14(3), when a company fails to file the Form DIR – 9 within a period of thirty days of the failure that would attract the disqualification under sub-section (2) of section 164, officers of the company specified in clause (60) of section 2 of the Act shall be the officers in default.
Natural Flow of Process
Once, a company and/director asked for intimation to the government, the general public, other companies; it is logical to have information of removal of their disqualification in public domain. Rule 14(5) and related form DIR – 10 comes into being.
Removal of Disqualification of Directors
This most loved one liner of past few days read –
“Any application for removal of disqualification of directors shall be made in Form DIR – 10. [Rule 14(5)]”
Form DIR – 10 seeks information of “ground of disqualification” not ground for “removal of disqualification” and “detail of application”. Now, we will read this form with Rule 14(5) and its governing Section 164(2).
Section 164(2) does not empower any authority to remove disqualification. Removal of disqualification is nowhere talked in the Companies Act, 2013 except “a period of five years from the date on which the said company fail to do so”. A subordinate legislation may not go beyond legislative intent and wisdom of Parliament.
With minor issues related to wording and nomenclature, DIR – 10 does not seem to be a form for removal of disqualification but an intimation of removal of disqualification after the end of this period of five years mentioned in Section 164(2).
We have several questions before filing Form DIR – 10.
Is it possible to remove disqualifications of directors before the expiry of five years? When such period of five years come to end?
In case of continuous non – filing, the period of disqualification seems to extend every year. In case of strike off companies, at end of five years from date of strike off as default may not make good thereafter.
The issue shall be open for companies, which should not be stricken off for any reason and revived, until revival and compliance. We already discussed here our observations regarding revival as first and only remedy for disqualification of directors before these five years.