Disqualification of Director

Disqualification of Director- Comparison

Provisions under Companies Act, 2013 [Section 164]……...…………………..(I)	Provisions Under Companies Act, 1956 [Section 274]…………………………(II)	Comments
(1) A person shall not be eligible for appointment as a director of a company, if — (a)      he is of unsound mind and stands so declared by a competent court; (b)   he is an undischarged insolvent; (c)      he has applied to be adjudicated as an insolvent and his application is pending; (d)      he has been convicted by a court of any offence, whether involving moral turpitude or otherwise, and sentenced in respect thereof to imprisonment for not less than six months and a period of five years has not elapsed from the date of expiry of the sentence: Provided that if a person has been convicted of any offence and sentenced in respect thereof to imprisonment for a period of seven years or more, he shall not be eligible to be appointed as a director in any company; (e)      an order disqualifying him for appointment as a director has been passed by a court or Tribunal and the order is in force; (f)       he has not paid any calls in respect of any shares of the company held by him, whether alone or jointly with others, and six months have elapsed from the last day fixed for the payment of the call; (g)      he has been convicted of the offence dealing with related party transactions under section 188 at any time during the last preceding five years; or (h)      he has not complied with sub-section (3) of section 152	General Disqualifications (1)The following persons are disqualified to become director: (a)      A person who has been found of unsound mind by a court of competent jurisdiction; (b)      A person who is an undischarged insolvent (c)      A person who has applied to be adjudicated as insolvent (d)      A person who has been convicted by a court of any offence involving moral turpitude and sentenced in respect thereof to imprisonment for not less than six months and a period of five years has not elapsed from the date of expiry of the sentence: (e)      A person who has been disqualified by an order of court under section 203 on the ground of fraud or misfeasance in relation to the company (f)       A person who has not paid any calls in respect of any shares of the company held by him, whether alone or jointly with others, and six months have elapsed from the last day fixed for the payment of the call;	Text in red represents new clauses for disqualification introduced by Companies Act, 2013 Section 164 read with section 167 results in vacation of office of director if any of the clauses from (a) to (h) becomes applicable
(2) No person who is or has been a director of a company which— (a)      has not filed financial statements or annual returns for any continuous period of three financial years; or (b)      has failed to repay the deposits accepted by it or pay interest thereon or to redeem any has failed to repay the deposits accepted by it or pay interest thereon or to redeem any debentures on the due date or pay interest due thereon or pay any dividend declared and such failure to pay or redeem continues for one year or more, shall be eligible to be re-appointed as a director of 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. [Section 164(2)]	(2)Disqualifications for appointment as a director in public company The provision of section 274(1)(g) read with Companies (Disqualification of directors under section 274(1)(g) of the companies Act, 1956), Rules 2003 are as follows: A director of a public company shall be disqualified from being appointed as director in any other public company, if the public company of which he is already a director- (a)      Does not file annual accounts and annual returns for any continuous 3 financial years; or (b)      Fails 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 1 year or more, Such disqualification shall remain in force for a period of 5 years.	In earlier law these disqualifications were applicable to the directors of public companies only i.e. the appointment or reappointment of a person cannot be made as a director in public companies if these disqualifications are attracted. However appointment in private company was possible. But the provisions under Companies Act, 2013 does not make any reference to public companies therefore it can be understood that now these disqualifications are pertinent to directors of both public and private companies. Also, the director to whom disqualifications under section 164(2) has been attracted cannot be reappointed in the defaulting company. Section 164 read with section 167 results in vacation of office of director if any of these default is made by the company.
(3) A private company may by its articles provide for any disqualifications for appointment as a director in addition to those specified in sub-sections (1) and (2) of section 164: Provided that the disqualifications referred to in clauses (d), (e) and (g) of sub-section (1) shall not take effect— (i)        for thirty days from the date of conviction or order of disqualification; (ii)      where an appeal or petition is preferred within thirty days as aforesaid against the conviction resulting in sentence or order, until expiry of seven days from the date on which such appeal or petition is disposed off; or (iii)    where any further appeal or petition is preferred against order or sentence within seven days, until such further appeal or petition is disposed off		Under companies Act, 1956 only general disqualifications as specified in column II point no. 1 above were applicable to directors of private companies, though in addition to that company may provide for additional grounds of disqualification in its articles. Now the disqualifications contained in section 164(2) (which were previously covered under section 274(1)(g) of Companies Act, 1956 & were applicable only to public companies) are also pertinent to directors of private companies. Thus the new Act has increased the scope of disqualifications of director for private companies also.