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Error in law practice manual - ch.3 ,pg 3.16 & 3.17?

Maithili (1) (476 Points)

01 April 2015

1) Please refer to Q.19 given on Pg3.16 of Law Practice Manual (Dec,2014 edition)

The Question gives a Case where the Director has attracted Disqualification

Yet the Answer says that "He need NOT VACATE from his Post , ONLY Disqualified for further Appointment"

I feel that As per Section 167, he should VACATE his office as he has been Disqulaified under S.164

Plz reply whether i am correct,

i.e. A) He should VACATE from Office as he has been Disqualified

orB) He should NOT Vacate , he must only be Debarred from Re-Appointment

2) Also , if ur Answer to above Question is option (A) , i.e., Yes 'He should VACATE ' , then should he

C) Vacate from Both Co.s AB Ltd & PQ Ltd.

or D) Vacate from Only AB Ltd. (the Defaulting Co.)

Plz reply , Thanks

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29 Replies

Maithili (1) (476 Points)
Replied 04 April 2015

Someone plz Help soon

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ACA Anurag (Enjoy the little things) (14706 Points)
Replied 04 April 2015

Dear Madhu,

As per section 164(2) if Any company has made default ( i.e not filed Financial statements , Repay deposut etc ) then director will be disqualifed to reappint as director of AB ltd and any other company . Further section 167 will also be attracted and hence he should vacate the office from both companies .

Although deposit from PFI is not covered under 164(2) but compay defaulted in filling FS and failed to repay matured deposit (i.e 1 year from 01.04.2013 already expired )

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Maithili (1) (476 Points)
Replied 05 April 2015

Dear Sir,

So in that case the Director will have to :

A) VACATE Only From the "Defaulting" Co.

B) VACATE From "ALL" Co.s in which he is a Director

ACA Anurag (Enjoy the little things) (14706 Points)
Replied 05 April 2015

Dear Maithili,

As per section 167 he has to vacate from all company where he is director

1 Like

CA Rajat Bajaj (Job) (1042 Points)
Replied 08 April 2015

he need not to vacate office,PM is not wrong, it is right. I was engaged in discussion on this point already had on Caclubindia.

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CA Rajat Bajaj (Job) (1042 Points)
Replied 08 April 2015

https:// indiacorplaw.blogspot.in/2014/12/ disqualification-of-directors-dichotomy

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Nikhil (CA-Final/M.Com) (130 Points)
Replied 10 April 2015

I agree with Rajat..the link provided removes ambiguity towards sec. 164(2)

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Maithili (1) (476 Points)
Replied 10 April 2015

In that case ,then what is the meaning of the provision given under Sec.167(1)

which states that every Director who attracts Disqualification must VACATE his Office ?

ACA Anurag (Enjoy the little things) (14706 Points)
Replied 11 April 2015

Dear Rajat,

KIndly read the section properly before writing any response to the queries . He has to vacate the office .

ICAI will issue the Corrigendum within 3-4 days for the same error.

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(Guest)

@ Maithili - ICAI practice manual is 100% correct. The director in defaulting company need not to vacate his office even though he becomes disqualified. Mr kishore can continue to be a director in AB ltd and PQ ltd. He is disqualified for reappointment or appointment in all companies, AB LTD, PQ LTD or any xyz limited, private companies are also now included. So, conclusion is, whatever given in practice manual regarding this question is completely right. @ Rajat - Agree with you. @ Mr Anurag - kindly refer the section once again, nowhere it is said that the director has to vacate the office in the defaulting company.

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(Guest)

Further -

Your main confusion point is section 167 says that director shall vacate the office if he is hit by any of the disqualifications mentioned u/s 164. But section 164 talks about ineligibility for appointment only.

Please see the following in latest module at page no. 3.24 and 3.25

(i) not eligible for appintment - only for sub clause (a) to (h)

then starts

(ii) not fliling returns etc... -

Detailed clarification: (i) is default of director - i.e. he is incapable to hold the office. in all these sub clauses the director shall vacate the office

(ii) its a default of company - not filing returns etc. for which directors are held liable....

did you noticed the difference? (i) is related to director personally and (ii) is related to company.

the real interpretation of section 167 is that, the director who is disqualified by "his own" defaults shall vacate the office for example if he is of unsound mind / insolvent / convicted by court etc etc. But for company's default the single director is not responsible. There is a team. If we see logically, section can not say like that all directors shall vacate their office if company does not file returns. Let us consider an example, suppose there are 10 directors in ABC Ltd, and company failed to file returns for 3 years. Then as per wrong interpretation director shall vacate the office. offcourse why should we blame single director. If all 10 directors shall vacate the office then who will run the company yar? For not filing returns You cant blame only one director, if one is liable for vacation the others are also liable for vacation. (in practice manual question only name Mr kishor is mentioned that does not mean there are no other director in the said company) The section does not intend to remove the director from office, Companies Act, 2013 just want to put a ban on the directors who enjoy their directorship even after default of company. Hence the only limitation is that he can not be reappointed.

Conclusion: if company has defaulted in filing returns then director SHALL NOT vacate the office, but if director himself is of unsound mind / insolvent / convicted by court / not paid calls etc etc... then he MUST VACATE the office as per section 167.

I hope this clears your doubt..

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ACA Anurag (Enjoy the little things) (14706 Points)
Replied 12 April 2015

Dear Karan.

Kindly wait for 2-3 days for ICAI clarification .

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(Guest)

@ CA Anurag - Rather you should wait, i think you have sent mail to ICAI regarding this, thats why you are so sure that ICAI will issue clarification in 3-4 days. you will get clarification from ICAI that Director shall not vacate the office for not filing of returns and your view is wrong. I request you to go logically. There is no ambiguity in the language used in the section.

Do you think all directors shall vacate the office if company fails to file returns & accounts for 3 years?? Huh?

Section 164 clause (i) results in vacation of office. because director become insolvent / unsound mind etc. However for defaults mentioned u/s section 164 clause (ii) - director is disqualified from reappointment only. If vacation of office is of primary importance section 164 itself would have stated that, Act doesnt need to take help from other section viz 167 to make a primary correction in what has stated in earlier section.

CA Rajat Bajaj (Job) (1042 Points)
Replied 12 April 2015

ICAI has already issued clarification for mistakes that are in Practice manual, no other mistake is there in Practice Manual, and Dear Anurag, you are saying what is need of sec 167 , firstly sec 167 covers many other points, not just about sec 164, and further if director has to vacate office then Parliament has authority to write directly in sec 164, they need not to write in sec 167 about sec 164. Law is very clear about it, you just need to interpret it, and ICAI will not issue any clarification about this unless MCA clarify anything about it, you can wait as much as you want to.