DISQUALIFICATION OF OVER 300000 DIRECTORS MCA Calls Meet to Examine Grey Areas in Cos Act

DISQUALIFICATION OF OVER 300000 DIRECTORS  MCA Calls Meet to Examine Grey Areas in Cos Act

Ministry officials to also frame govt response as several debarred directors have moved court After several directors went to courts against their debarment by the government, the ministry of corporate affairs has called an urgent meeting to discuss if there are “grey areas“ in the Companies Act that need to be addressed.

A meeting of senior officials has been called on Monday to not just frame government response to these litigations but also to address any such grey area.The ministry in September cancelled registration of over 200,000 defaulting companies and, by extension, it had also debarred over 300,000 directors of companies.The amended Companies Act that came into effect in 2014 has provision for deregistering companies that fail to file returns.

Moreover, Section 164 of the Act provides that any person who is or has been a director in a company which has not filed financial statements or annual returns for any continuous period of three financial years shall not be eligible for reappointment as a director in that company or appointed in other company for a period of five years from the date on which the said company fails to do so.

With many such directors approaching courts, the government will review the provisions.“There are grey areas we have to get a clarity on,“ a senior official said. If the government finds merit in the arguments against the clarity in law, it can bring in a clarification in the form of a circular. “We do not want to unnecessarily burden the judicial system with endless litigations if some of the matter can be sorted out by issuing a clarification.But we still have to discuss this,“ the official added.

The high courts of Delhi and Madras have given notices to the corporate affairs ministry and the registrar of companies (RoC) on petitions challenging the disqualification of more than 300,000 directors.

Various corporate bigwigs including Pawan Goenka, managing director of Mahindra & Ma hindra Ltd, have managed to get an interim relief from court following their disqualification.Section 274 of the Companies Act of 1956 was limited to dealing with disqualification of directors of public limited companies. However, the Act was amended bringing in its purview private entities as well in 2014 through the Companies Act of 2013.

Another senior government official clarified that since a director gets disqualified “under the operation of law“, no notices were required to be sent to them but only to the non-compliant companies.Following the disqualification by corporate affairs ministry, directors have been barred from using their digital signature to sign any document.

The National Stock Exchange, taking note of the development, has also asked about 200 listed companies to consider whether directors who have been disqualified by the ministry should continue on their boards.Any person disqualified under Section 164(2) of the Companies Act, 2013 is advised not to act as director during the period of the disqualification and not to file any document or application with MCA as the same shall be summarily rejected, the corporate affairs ministry had said in a notice.

The Economic Times, New Delhi, 30th October 2017