Disqualification of Directors u/s 274(1)(g)

The provision of Section 274(1) (g) was inserted by the Companies (Amendment) Act, 2000 w.e.f. 13-12-2000. The provision states as follows:

Provision:

A person shall not be capable of being appointed director of a company, if such person is already a director of a public company which-

(A) Has not filed the annual accounts and¹ annual accounts for any continuous three financial years commencing on and after 1^st day of April 1999;

(B) Has failed to repay its deposit or interest thereon on due date or redeem its debentures on due date or pay dividend and such failure continues for one year or more.

Provided that such person shall not be eligible to be appointed as a director of any other² public company for a period of five years from the date on which such public company, in which he is a director failed to file annual accounts and annual return under sub clause (A) or has failed to repay its deposit or interest or redeem its debentures on due date or pay dividend referred to in sub clause (B)

Rules

On October 21, 2003 the Central Government made the a set of rules to carry out the purpose of clause (g) of sub-section (1) of section 274 of the said Act, namely Companies (Disqualification of Directors under section 274(1)(g) of the Companies Act, 1956) Rules, 2003

Guidance Note

The Institute of Chartered Accountants of India came out with a guidance note on disqualification of Directors in the month March 2005.

Notes

• ¹Under sub clause (A), disqualification attracts when both annual account and annual return are not filed in due time for consecutive period of three years, i.e. if either of them is filed within due time in any one year in a block of three years then no disqualification attracts.
• All the directors who have been directors in the relevant year, from the due date to the expiry of one year after the due date, will be disqualified
• The provision and rules shall also apply to the reappointment of a director
• ²The Rules have made distinction between ‘disqualifying company’ and ‘appointing company’. A Director is disqualified from being appointed or reappointed in appointing company but he can be reappointed in disqualifying company.
• The provision of Section 274(1)(g) does not apply to Government Company.
• Statutory Auditors responsibility to report the disqualification of Directors u/s 227(3)(f)
• Company to intimate disqualification of Director in Form DD-B to Registrar of Companies

For any detailed opinion in the matter, please contact neha@nehasinghi.com or call at +91-33-40083385