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Wednesday, 8 July 2015

CL: Section 164, 165, 167, 168, 169 in simple language



Section 164: Disqualification of Director
According to section 164(1), the following persons cannot be appointed as directors of company:
(a)    A person found by a competent court to be of unsound mind and such finding remains in force.
(b)   An undischarged insolvent.
(c)    A person who has applied to be adjudged an insolvent.
(d)   A person who has been convicted by a court (either Indian court or non-Indian court) of an offence whether involving moral turpitude or otherwise (any offence under Companies Act) and sentenced in respect thereof to imprisonment for not less than 6 months, and a period of 5 years has not elapsed from the date of the expiry of the sentence.
If person has been convicted of any offence and sentenced for period of 7 years or more, he shall not be eligible for appointment as director in any company.
(e)   A person who has been disqualified by a court or tribunal. However, such person can still be appointed a director if permission for his appointment has been obtained from the court or tribunal.
(f)     A person who has not paid any call in respect of shares of the company held by him, whether alone or jointly with other and 6 months have expired from the due date of payment.
(g)    A person who has convicted of the offence dealing with related party transactions u/s 188 at any time during last preceding 5 years.
(h)   Person without DIN (Director Identification Number).


Point to be noted
Disqualifications referred to in above clauses (d), (e) and (g) shall not take effect:
1.       for 30 days from the date of conviction or order of disqualification;
2.       where an appeal is preferred within 30 days as aforesaid against the conviction resulting in sentence or order, until expiry of 7 days from the date on which such appeal or petition is disposed of; or
3.       where any further appeal is preferred against order or sentence within 7 days, until such further appeal or petition is disposed of.

·         According to section 164(2), a person who is or has been director of a company which:
(a)    has not filed the financial statements or annual returns for any continuous 3 financial years; or
(b)   has failed to repay 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.

·         On contravening the provisions of section 164(2), director of defaulting company becomes disqualified to act as director of any other company for 5 years. He can’t be re-appointed as director in defaulting company for period of 5 years. He can continue as director in any other company.

Section 167: Vacation of office of Director
According to section 167, director will have to vacate the office if:
·         He incurs any of the disqualification u/s 164.
·         He is convicted by a court of any offence involving moral turpitude or otherwise and sentenced in respect thereof to imprisonment for not less than 6 months. Provided that office shall be vacated by director even if he has filed an appeal against order of such court.
·         He absents himself from all the meetings of the BOD held during a period of 12 months with or without seeking leave of absence of the Board. Attendance at board meeting may be at board meeting or by audio-visual meeting.
·         He acts in contravention of section 184 of Companies Ac t, 2013.
·          He fails to disclose interest in any contract or arrangement in which he is directly or indirectly interested.
·         He becomes disqualified by an order of court or tribunal.
·         He is removed as per section 169 of Companies Act, 2013.
·         He became director by virtue of his holding any office or other employment in the holding, subsidiary or associate company, ceases to hold such office or other employment in that company.
·         A private company which is not a subsidiary of a public company, by its articles, may provide the additional grounds for vacation of office.
·         Penalty
-> Maximum imprisonment: one year; or
->Minimum fine: Rs. One lakh, Maximum fine: Rs. Five lakh;or
->Both
Point to be noted
In respect of grounds where director has right to appeal which he may prefer within 30 days from the date of adjudication, sentence or order. Hence, on those grounds the office will not become vacant for 30 days from the date of adjudication. Where such appeal has been preferred the office will not become vacant until the expiry of 7 days from the date of disposal of appeal.

Section 169: Removal of Director
According to section 169, ordinary resolution at general meeting is required to remove the director. Following steps should be taken:
-          Special notice must be given by member(s) holding not less than 1% of total voting power or holding shares on which an aggregate sum of not more than Rs. 5,00,000 has been paid as on date of notice.
-          Notice is given at least 14 days before meeting. Notice must disclose the grounds on which the director is proposed to be removed. Notice should be signed by members.
-          Company should notify to its members about notice at least 7 days before meeting and intimate to concerned director immediately.
-          Director concerned is entitled to make a representation in writing against their removal at the meeting. Company is bound to send a copy of the representation to every member. If the representation is received too late or could not be sent, concerned director may request company to read in the GM.
-          Representation made by concerned director is neither required to be send to members nor need to be read out at meeting if on application tribunal has permitted waiver.
-          Proposal is discussed and OR is passed at GM.

Section 168: Resignation by Director
·         A director can resign from his office by giving notice in writing.
·         Director’s resignation does not require company’s acceptance.
·         On receipt of resignation, Board shall:
-          intimate the registrar in form DIR-12 within 30 days;
-          includes the fact of resignation in the Directors’ Report of next GM of the company.
·         The director should also forward a copy of resignation along with detailed reasons for the resignation to the Registrar in Form DIR-11 within 30 days from the date of resignation.
·         The resignation become effective from the date on which the notice is received by the company or the date specified by the director in the notice, whichever is later. The director who has resigned shall be liable even after his resignation for the offences which occurred during his tenure.
·         Resignation shall be effective even when no other director was in office.
·         Where a director has tendered his resignation, he cannot be held liable for liability incurred by said company after date of acceptance of his resignation.
·         Valid resignation must be addressed to the company. A director can resign by writing a letter either to chairman or secretary of company.
·         Where a director has contracted to act for a fixed period, he may resign subject to payment of damages for premature termination.
·         Director cannot withdraw the resignation notice after submitting it.

Point to be noted
If all the directors of a company resign from their office or vacate their office, the promoter or in his absence the CG shall appoint the required number of directors to hold office till the directors are appointed by the company in GM.

Section 165: Number of Directorship
·         A person cannot hold office at the same time as a director in more than 20 companies. Further, person can’t hold directorship at same time in more than 10 public companies and private company which is subsidiary of public company.
·         Alternate directorship is included while counting 20 directorship of person.
·         The members of a company may, by SR, specify any lesser number of companies in which a director of the company may act as director.
·         Any person holding office as director in more than 20 companies immediately before the commencement of the Companies Act, 2013 shall within one year from such commencement:
-          Select not more than 20 of those companies in which he wishes to continue as director.
-          Resign his office as director in the other companies. Resignation will take immediate effect on the dispatch.
-          Intimate the choice to each of the companies in which he was holding the office of director before such commencement, to the Registrar having jurisdiction in respect of each such company.
·         If person is already a director in 20 companies and appointed as director in one or more other companies, all new appointments will not be taken effect and will be treated as void.
·         Penalty for holding directorship in more than 20 companies:
Minimum fine: Rs. 5,000 per day, Maximum fine: Rs. 25,000 per day.  

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