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Disqualified Directors Seek Reprieve from Ministry

Disqualified Directors Seek Reprieve from Ministry
Disqualified directors have started knocking on the doors of the Ministry of Corporate Affairs (MCA) seeking reprieve from the debarment ordered by the government last month, with several of them explaining to the government that they have been wrongly disqualified and that they were not associated with the struck-off companies.

The government could consider coming up with some solution for the aggrieved directors since no recourse is currently available under the Companies Act 2013. While companies can approach the National Company Law Tribunal (NCLT), directors have no such option. “The directors have got disqualified by the operation of law. We had sent notices to the companies before we struck off their names. We are seeing what can be done now...discussions will start soon,“ a senior official told ET.

Chartered accountants and company secretaries have also met government officials over the disqualification of directors. Many CAs have also raised the issue of directors not receiving any prior notice before the disqualification. The senior official ET spoke to 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 companies which were found non-compliant.

As far as the struck-off companies are concerned, the government has assured that it will “take all aspects into account and hear the stakeholders to provide some redressal mechanism“.

“Not all companies removed from the Registrar of Companies list are shell but simply non-compliant. We will listen to their cases,“ the senior official explained.

Ministry of corporate affairs has struck off more than 2 lakh companies and disqualified 3 lakh directors as part of an ongoing exercise of cleaning up Corporate India and a crackdown on shell companies. Several public sector companies and their directors have also been named in the list made public by the government.“There's some recourse for public listed companies but not for the directors of those companies,“ another senior official said. Following the disqualification by MCA, 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 of corporate affairs should continue on their boards. As per Section 164 of the Companies Act, 2013, a director in a company which has not filed financial statements or annual returns for three years in a row will not be eligible for reappointment as a director in that or any other company for five years.

ET VIEW Amend The Rule

More legal disputes are avoidable, given that disqualified directors of shell companies can move courts to seek legal recourse. The government can amend the rules to give them a chance, but it should be accompanied by a stern warning that there will no errant conduct in the future. Enforcement agencies must also swiftly complete investigation of shell companies to establish whether or not there has been malfeasance.

The Economic Times, New Delhi, 04th October 2017

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