No Director in Company!! #APPOINT!!


“Disqualified directors are not directors in any Company”, this is fact under Section 164 and 167. In another word, A Company with all directors disqualified under Section 164 and 167 has no director at all. Such companies need new a set of directors immediately. The Companies Act, 2013 presume two situations where a company may be without Directors. We will discuss these two situations here.

Situation 1: Full Board Disqualification

Full board disqualification is not imposed by the Government but achieved by Directors themselves. Irrespective of the list prepared by the Government, any continuation of a director disqualified under Section 164 and 167 is against the law. The situation of full board disqualification is foreseen by Section 167(3):

“Where all the directors of a company vacate their offices under any of the disqualifications specified in sub-section (1), the promoter or, in his absence, the Central Government shall appoint the required number of directors who shall hold office till the directors are appointed by the company in the general meeting.”

In this situation (Situation 1) company show the door to disqualification directors. This is not an honourable situation, but to save companies from embarrassment and further action this is the only option left out.

Situation 2: Full Board Resignation

Full Board resignation may resign for numbers of reasons though seems distant imagination in a country with family-run firms. This situation of full board disqualification is foreseen by Section 167(3):

“Where all the directors of a company resign from their offices or vacate their offices under section 167, the promoter or, in his absence, the Central Government shall appoint the required number of directors who shall hold office till the directors are appointed by the company in general meeting.”

No doubt resignation or vacating their offices is an honourable option and a welcome situation for respectable directors. Only a director with; (a) Over Confidence; (b) ignorance of facts or laws; and (c) arrogance may choose not to vacate or resign.

The Process

Section 167(3) or 168(3) does not have connected procedure prescribed in relevant Rules. The appointment under this section shall be as per RoC practices.

Appointing authority

The appointing authority shall be –

  1. Majority of promoter/shareholders (A disqualified or resigned directors may be counted as appointing authority in their capacity of one of the shareholder.); and
  2. Central Government, in absence of a promoter or shareholder (Here, the absence of promoter/shareholder is the trigger point and be mentioned in the application for appointment.)

Steps:

  1. Majority of shareholders (in value, preferably) should find out suitable directors to appoint.
  2. Obtain –
    1. DIN number of proposed director;
    2. Consent of proposed directors in Form DIR – 2;
    3. Address and Address Proof of proposed directors;
    4. Notice of interest by proposed directors in Form MBP – 1;
    5. Intimation of Disqualification from proposed Director in Form DIR – 8 (NIL);
  3. Prepare a resolution of appointment along with explanatory statement, note person who is in favour of appointment and get their signature on the resolution;
  4. Prepare a formal appointment letter;
  5. Proof of shareholdings of the signing/supporting appointment – Register of Member or Share certificates;
  6. A certificate from the Professional (CS/CMA/CA), stating that he has verified the Register of Members and other records and certify that the applicant/s are the majority shareholder/s
  7. A request letter for back-end insertion of new director signed by the all applicants shareholder/s of the company explaining the facts;
  8. Fill Form DIR – 12 and attaché copies of all these documents except signature (digital signature certificate) [i],
  9. Copies of resignations or vacation of office of the director should be kept on record.
  10. Print copies of all above documents and submit along with a soft copy of Form DIR – 12 duly filed.

Exceptional Situation: Full Board Death

Students of corporate laws know instances where such situations have been raised. Though the Companies Act, 2013 do not expressly discuss such situation, the same process will be followed.

Additional Point

Newly appointed Board, in its first formal meeting, should consider ratification of all decision of the Board of Directors while it was improper.

Not an ease of Doing Business

Compliance with the law is foremost. Law must be clear. To make this procedure known to general shareholders, the procedure should be in the Companies (Appointment and Qualification of Directors) Rules, 2014.

 

  1. [i] where the company has a company secretary, he may sign the form and submit it with all these documents as attachments.

 

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3 responses to “No Director in Company!! #APPOINT!!

  1. Pingback: A BOARD BELOW THE QUORUM | AishMGhrana

  2. Sir,if there is no Company Secretary in any company, say a small private company, then whose DSC will be affixed in form DIR-12?

    Although MCA has given a notification regarding this that any promotor may make application to RD to register his DSC with MCA to get filed DIR-12 only…but the procedures are not clear!

    Liked by 1 person

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