How to Remove Disqualification of a Director in India

Introduction

In recent years, the Ministry of Corporate Affairs (MCA) has intensified its actions against non-compliant companies and their directors. One of the most significant outcomes of this crackdown is the disqualification of directors under the Companies Act, 2013.

Directors can be disqualified for several reasons ranging from non-filing of annual returns to financial mismanagement or even fraud. While this disqualification has serious consequences, it is not the end of a director’s career. Indian law provides remedies to challenge or remove disqualification and restore a director’s position.

This blog provides a detailed guide on the reasons for disqualification, its consequences, and the remedies available to remove it.

Reasons for Director Disqualification

Under Section 164 of the Companies Act, 2013, a director may be disqualified for the following reasons:

1. Failure of a company to file annual returns and financial statements for three consecutive financial years.
2. Default in repayment of deposits, debentures, or interest thereon.
3. Conviction for fraud, moral turpitude, or other offences, resulting in imprisonment of six months or more.
4. Being declared insolvent or of unsound mind by a competent court.
5. Holding directorships in more than the permissible limit of companies. Consequences of Disqualification

Disqualification is not just a procedural setback; it carries both legal and reputational impacts:

1. The director cannot be reappointed in the defaulting company.
2. The director is barred from appointment in any other company for five years.
3. The DIN (Director Identification Number) and DSC (Digital Signature Certificate) may be deactivated, preventing statutory filings.
4. The director’s credibility with investors, lenders, and regulators is adversely affected.

 How to Remove Director Disqualification

If a director has been disqualified, the following remedies are available:

1. Filing a Writ Petition with the High Court

A disqualified director can challenge the MCA order by filing a writ petition under Article 226 of the Constitution of India before the jurisdictional High Court.

Process:

1. Engage a professional (Advocate/Company Secretary) to prepare the petition.
2. File the writ petition citing reasons such as:
   • Lack of notice or opportunity 0to be heard,
   • Retrospective application of provisions, or
   • Errors in the MCA order.
3. Seek interim relief for reactivation of DIN/DSC.
4. Upon a favourable order, the ROC/MCA will restore the director’s active status.

 Case Reference: In Yashodhara Shroff vs Union of India (2019), the Karnataka High Court quashed director disqualification orders, ruling that directors should not be penalized for retrospective defaults.

• Restoration through the National Company Law Tribunal (NCLT)

If the company itself has been struck off by the ROC, the director can apply for its restoration.

Process:

• File an appeal under Section 252 of the Companies Act, 2013 with the NCLT within 3 years of the company being struck off.
• On restoration, directors can apply to the ROC for revival of their DIN.
• Complete pending statutory filings and compliances immediately.
• Compounding of Offences

Under Section 441 of the Companies Act, 2013, directors may choose compounding as a remedy. This involves payment of prescribed penalties to settle defaults without prolonged litigation.

Preventive Measures for Directors

Prevention is always better than seeking legal remedies later. Directors can avoid disqualification by:

• Filing annual returns (MGT-7) and financial statements (AOC-4) within due dates.
• Maintaining statutory records, registers, and board minutes.
• Conducting regular compliance audits with the help of a Practising Company Secretary (PCS).
• Applying for voluntary strike-off in case of inactive companies instead of leaving them non-compliant.

Conclusion

Director disqualification is a serious compliance issue with long-term professional and financial consequences. However, Indian law provides effective remedies through High Courts, NCLT, and compounding of offences to remove disqualification and restore a director’s standing.

For directors and companies alike, the focus should be on timely compliance to prevent disqualification in the first place. Engaging a Practising Company Secretary (PCS) ensures proper governance, reduces risks, and safeguards the future of both the director and the company.