SHORT SUMMARY:
In this Flash editorial, the author referring the provisions relating to Struck Off Companies, Disqualification of Director cessation of Bank Accounts, and Responsibility of Directors due to struck off name of Companies.
Introduction:
During the month June - August ROC has struck off the 200,000 (Two Lakh) Companies from its record. List of Companies struck off from record of ROC available on the website of the ROC. Even Our Hon'ble Prime Minister Mr. Narendra Modi in his speech at ICAI on CA day has confirmed that scrutiny of 300,000 (Three Lakh) Companies are going on, which can be struck off u/s 248(1).
On Tuesday 5th September, 2017 Ministry of finance restricted directors of around 200,000 Shell Companies from accessing their firms' bank accounts.
MCA has issued notice on the home page of its website i.e. in relation to disqualification of Directors.
MCA Important Notice
Any person disqualified under section 164(2) of the Companies Act, 2013 [the Act] 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.
However, this shall be without prejudice to the liability of the said person for violation of section 164(2) read with section 167 of the Act including the action under section 448 r/w 447 of the wherever warranted.
After reading the above 'notice' of MCA. There are many questions arise in the mind of the professionals and the Corporates i.e.
(i) Whether director of companies struck off by
ROC shall be disqualify to incorporate new Company
(ii) Shall be disqualify for appointment in another Companies
(iii) Shall have to vacant his office from the all other Companies
(iv) Shall not able to file forms of other companies in which he is director
with his DSC etc.
Legal Language: Section 164(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 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.
Legal Language: Section 167(1):
167. (1) The (1) The office of a director shall become vacant in case
-
(a) he incurs any of the disqualifications specified in section 164;
Analysis:
Section 164(2)
Sub-section (2) of Section 164 renders a person ineligible for re-appointment as a director of the defaulting company and for appointment in other company.
What sub-section 164 (2) seeks to do is to
Prohibit re-appointment of a director of the defaulting company and His appointment in any other company, i.e. new appointment. (it might include new incorporations also)Sub section (1) states about disqualification like: unsound mind, undercharged insolvent, court has passed order for non appointment etc. Sub section (2) states about Company fails to file financial statements or annual return or failed to repay the deposit.. Etc. Hence one can opine that, in case of any disqualification under Section 164(1) which disqualification is relating to person (i.e. director). Any person disqualify u/s 164(1) shall vacant his office from all the Companies in which he is director pursuant to provision of 167(1)(a).
Hence one can opine that, disqualification u/s 164(2) is disqualification relating to Company and non compliances. In such case he is not allowed to become re-appointment in such Company because he has done non compliance in such company and for appointment in any other Company. But he is still sound mind to become work for the other company in which he has not made any non compliance as mentioned in 164(2). Therefore, one can opine that he shall continue in such companies as director.Whether director of company struck off by ROC shall be disqualify to incorporate new Company or appointment in any other Company.Whether vacation u/s 167(1) shall be applied only in case when director disqualified u/s 164(1)? Whether such director eligible to file the forms of other Companies in which he has directorship? Whether such person shall be eligible to sign the financials of other Company in which he has directorship?
CESSATION OF BANK ACCOUNTS
Steps Against Black Money
In a major clampdown against black money, the government has directed freezing bank accounts of more than 2.09 lakh companies whose names have been struck off from the records. The move is a precautionary measure aimed at preventing misuse of the bank accounts.
A large section of these companies may have failed to comply with the requirement of submitting annual reports and other filings as their businesses had failed to take off. Some of them have come under the scanner of the income-tax department for suspected money laundering and stock price manipulation.
The companies have been removed from the records of the Registrar of Companies (RoC) under section 248 of the Companies Act for reasons including not commencing operations within a year of incorporation or for not carrying out any business in the preceding two fiscal years
In his Independence Day speech, Prime Minister Narendra Modi had said the drive against black money had led to the discovery of a vast number of shell companies.’
Department of Financial Services (DFS) directors (ex-) or their
authorised signatories had been restricted from operating bank accounts of such companies and cannot siphon off money from the accounts of these "struck off" companies. However, even prior to such action, if they have siphoned off any money, strict action would still be taken against them, an official release from the Centre stated.
These individuals will therefore not be able to operate bank accounts of such companies till such companies are legally restored under Section 252 of the Companies Act by an order of the National Company Law Tribunal. The restoration, as and when it happens shall be reflected by change in the status of the company from ‘struck off ’ to ‘active’.
Hence, all the Companies which have struck from the records of the ROC due to notice of ROC u/s 248 shall not to manage its Bank Account onwards until they get order for restoration from the NCLT.
"In case the director or authorized signatory of any 'struck off' company tries to unauthorisedly siphon-off money from its bank account, he/she may attract punishment of imprisonment of not less than six months extendable to 10 years," an official release said.
The government also said that if the fraud involves public interest, the punishment would not be less than three years of imprisonment and the quantum of penalty would be three times the amount involved.
Conclusion:
All the Directors of Struck off Companies u/s 248 by ROC shall not be eligible for incorporation of new Company for the 5 financial years and shall not be eligible to appoint in any other Company. Even this disqualification doesn’t prejudice the liability of the said person for violation of section 164(2) read with section 167 of the Act including the action under section 448 r/w 447 of the wherever warranted. They are still liable for the non compliances and penal provision under such sections.
However, Directors disqualified under Section 164(2)(a) of the Companies Act, 2013 and who are associated with struck off companies (S.248) are advised not to make any application for Name Availability(INC-1), Incorporation of Companies (INC-7/SPICe-INC-32/URC-1/INC-12). Forms filed by such Directors shall be rejected summarily by the Central Registration Centre (CRC).
Efforts are also being made by the government to identify the actual beneficiaries and persons behind such shell companies.
Identification of more shell companies is also in progress. Additionally, the professionals, chartered accountants, company secretaries and cost accountants associated with such companies involved in illegal activities have been identified in certain cases and the remedial action by professional institutes such as ICAI, ICSI and ICAoI are being monitored.
Exercise of weeding out shell companies would not only help in checking the menace of black money, but would also promote an ecosystem of 'Ease of Doing Business' and enhancing investors' confidence to which the present government is fully committed.
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