sec 274(1)g

CS Mitesh Mehta (Company Secretary) (17139 Points)
Replied 07 April 2009

According to clause (g), inserted in section 274(1), a person would suffer from the disqualification mentioned in sub-clause (A) and (B) thereof only to the extent of his/her appointment or re-appointment in any public company (including the public company in respect of which either of the two defaults has occurred)

so it means that such director can't be reappointed in the defaulting company

shweta jain (Assisstant Audit Manager) (124 Points)
Replied 07 April 2009

>>he will cease to be reappointed of the defaulting public co. or any other co.
>>he would also not be appointed as director for any other co.
>>this disqualification will last for 5 years.
>>but he can continue in office until the expiry of his tenure.

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CS Asmita Mehta (CS) (308 Points)
Replied 07 April 2009

A director disqualified u/s 274(1)(g) can not be appointed or reappointed in any public company (including defaulting company) but he can be appointed in private companies.

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Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 07 April 2009

Hi everyone,

I have a different opinion regarding this query.

Yes I agree with Nikita that Private Companies are outside the scope of Section-274(1)(g).

As we all know a person who is disqualified to become a director of a public company under section 274(1)(g) does not automatically vacates his office as section-283 is silent in this regard. So in my opinion he can continue to act as a director in all Public Companies (including the defaulting company) until the expiry of his respective term in each company.

Kindly note that he will not be eligible to be freshly appointed as a director of any other Public company.

Now observe carefully: However, the same does not apply in case of the defaulting company as the words used in section 274(1)(g) are: “such person shall not be eligible to be appointed as a Director of any other public company” Hence to conclude I would say he will be eligible to be re-appointed as a director of the defaulting company or any other public company of which he was a director.

In other words or may be other interpretation:

He may be appointed in the same defaulting company. Reason being he is no more a director of the same company. Law says he can not be appointed as a director of any 'other PLC'.

However, if you go by the literal interpretation of the proviso to section 274(1)(g) then you’ll be surprised to know he may be appointed as a director of any other PLC if he leave the defaulting Co. before the default commence. Reason being it is mentioned in the proviso that such person shall not be allowed to appoint in other PLC for 5 years if he is still a director of a defaulting Co. (i.e. still working in the defaulting co. {Present tense}.

In simple words if he leave the company before default then there will be no question of application of the proviso.

Further note that proviso to Rule 3(b) of Disqualification of Director Rules, 2003 provides that both the disqualifications as mentioned in Section 274(1)(g)(A) & (B) would apply to the re-appointment of a director also. Here I would like to add that a rule can not provide a more stringent condition than under the Act and as such this rule is ultra-vires the powers of Government and Act and is bad in law.

Hope that the discussion would be off some help to you. Looking forward for more discussion on this topic. Please share your views.

Best Regards--Ankur Garg ankur_gargcs @ rediffmail.com

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CS Asmita Mehta (CS) (308 Points)
Replied 07 April 2009

So ankur you wanna say that director disqualified u/s 274(1)(g) can be reappointed in defaulting company and director diqualificaion rules doesn't make any difference in this regard ?????????/

Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 07 April 2009

Well, Nikita kindly appreciate i am not saying that Rules are 0 but definitely they are bad in law. Share your views about rules read with section 274(1)(g). Anyways please let me know what do you think about the para mentioned below:

Now observe carefully: However, the same does not apply in case of the defaulting company as the words used in section 274(1)(g) are: “such person shall not be eligible to be appointed as a Director of any other public company” Hence to conclude I would say he will be eligible to be re-appointed as a director of the defaulting company or any other public company of which he was a director.

See Nikita Section 274(1)(g) is really a diecy area of law with various contradictory interpretations.

Finally i would say Yes as per my opinion director disqualified u/s 274(1)(g) can be reappointed in defaulting cvompany.

Looking forward for more specific answer to cross my previous interpretation. Look i am always ready to discuss and change my view as they are totally based on interpretation of law and nothing else. Best Regards

J. Manivannan (Advocate & IP) (242 Points)
Replied 07 April 2009

Dear Ankur Garge,

As per my knowledge, Disqualified director u/s 274 (1) (g) cannot be reappointed in defaulting company. Kindly refer following provsions; If I wrongly mentioned, kindly advised to me.

My opinion based on Companies (Disqualification of Directors under section 274(1)(g) of the Companies Act, 1956) Rules, 2003.

Rule-3. Disqualifications under clause (g) of sub-section (1) of section 274 of the Companies Act, 1956.-

(a) Whenever a company fails to file the annual accounts and annual returns, as described in sub-clause (A) of clause (g) of sub-section (1) of section 274, persons who are directors on the last due date for filing the annual accounts and the annual returns for any continuous three financial years commencing on and after the first day of April, 1999, shall be disqualified.

(b) If a company has failed to repay any deposit, irrespective of the enactment, rules or regulations under which the deposits have been accepted by the companies, or interest thereon, or redeem its debentures, or pay any dividend declared on the respective due dates, and if such failure continues for one year, as described in sub-clause (B) of clause (g) of sub-section (1) of section 274, then the directors of that company shall stand disqualified immediately on expiry of that one year from the respective due dates:

Provided that 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:

Provided further that disqualification on account of the reasons cited under this Rule shall also apply to the reappointment as a director.

thanks

regards

manivannanjayaram

CS Gaurav Jain (Consultant) (63 Points)
Replied 07 April 2009

Hi Members

I am trying to contribute to your discussion regarding Section 274(1)(g) of the Companies Act, 1956.

My views are as under:

(i) Disqualification of Section 274(1)(g) does not applies to defaulting Company .

(ii) Disqualifications stated in Section 274(1)(a) to (g) holds good in case of reappointments also.

Reasoning

(i) For non applicability to Defaulting company

(a) Firstly it is relevant to know the legislative intent to have correct interpretation of Law. The intent and the purpose of this provision has been explained in the Statement of Objects and Reasons appended to the Companies Amendment), Bill 1999 as under :

“(xiv) To provide that in case of a public company which doesnot file Annual accounts and Annual returns continuously for three years, the directors of such company will be debarred from becoming the director of other public companies for Five years. Similarly, in case of any public company which fails to repay its depositors on maturity of deposits amount/debentures, dividend and interest on deposits/debentures on due dates, the whole time directors defaulting companies as on such date will be debarred from becoming a director of any other public company for a period of five years.”

Similar view has been taken by department in its circular no. 8/2002, dt. 22-3-2002 .

(b) Secondly Clause (g) of subsection (1) of Section 274 states as under:

(g) such person is already a director of a public company which –

(A) has not filed the annual accounts and annual returns for any continuous three financial years commencing on and after the first day of April, 1999; or

(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 other 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 returns 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 clause (B).”

Primary requirement is that on the date of appointment or re-appointment the person should be a director of a defaulting public Company.

Example

X is a Director of XYZ limited(Defaulting Company) and is liable to retire by rotation on the date of AGM i.e 30.09.2008. Legally on date of AGM i.e. 30.09.2008 X ceased to be a Director of XYZ Limited. As per Section 256(3) the company may fill up the vacancy by appointing X as Director on 30.09.2008 with the approval of shareholders.

So in the above case the primary condition is not fulfilled.

(c) Thirdly in case of Public Companies Directors are liable to retire by rotation by virtue of Section 256 of the Act. In case disqualification of Section 274(1)(g) is also applicable on a defaulting co, then in case there is no permanent in a defaulting co, one day there will be no director to run the Company .

(ii) For applicability of Section 274(1) to re-appointment of Directors

(a) Firstly Rule 2(b) of Companies(Disqualification of Directors under section 274(1)(g) of the Companies Act, 1956) Rules, 2003 the Definition of “Appointing Company” is the Company in which an individual is seeking appointment as a director, including re-appointment as director.

(b) Secondly second proviso to Rule 3(b) of Companies(Disqualification of Directors under section 274(1)(g) of the Companies Act, 1956) Rules, 2003, states that that disqualification on account of the reasons cited under this rule shall also apply to the reappointment as director.

(d) Thirdly Section 274 (1) states the disqualifications of persons for being appointed as Directors. Relevant text is as under

“A person shall not be capable of being appointed as director of a company, if -

(a) he is of unsound mind; (b) he is an undischarged solvent; (c) he has applied to be adjudicated as an insolvent and his application is pending; (d) he has been convicted by a court for any offence involving moral turpitude; (e) he has not paid any call in respect of the shares of the company held by him; (f) an order disqualifying him for appointment as director has been passed by the Court in pursuance of Section 203 of the Companies Act, 1956 and is in force; (g) such person is already a director of a public company which –

(C) has not filed the annual accounts and annual returns for any continuous three financial years commencing on and after the first day of April, 1999; or

(D) 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 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 returns 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 clause (B).”

Though the word used is “appointed” but logically intent of the legislature could not be to allow reappointment of a person as a director who is of unsound mind or undischarged insolvent or confirm to other disqualifications of serious nature as stated in the Section.

I hope I am able to bring some clarity.

Views of members are solicited.

Regards

CS Gaurav Jain

rsjprofessionals @ gmail.com

Gaurav @ rsj.co.in

+91-9212605990

teena (chartered accountant) (35 Points)
Replied 25 June 2009

Hi,

I have seen so many replies , Before & after seeing that i have an opinion that while drawing interpretation of any section or provision of Companies act intention of the legislature should be seen, so in my opinion Director will be disqualified for appointment in defaulting Co. & any other public company.Intention while bringing this section into existence is to prevent some defaults from happening so that public who is investing in public limited companies are not at loss or not being cheated to some extent by the same people.

Regards,

Teena

ACA, DISA

J. Manivannan (Advocate & IP) (242 Points)
Replied 26 June 2009

Dear Members,

Kindly views the attached file.

regards

Mani Vannan

Attached File : 55 274 1 g .pdf downloaded: 355 times

1 Like

CS MD Osman Akthar (Company Secretary & CA(Final)) (78 Points)
Replied 29 June 2009

Dear Friends,

When the provision of Act is not clear, we need to dig the intent behind the statute. We can clearly with out any dispiute conclude that the provision is introduced to bar director of defaulting public company from reappointment in Public Companies. Meaning of " Other Public ltd Company" in Sec 274(1)(g) is "All Other Public Ltd Companies" i.e INCLUDING the existing Public Ltd Company.

So, Finally Director defaulted u/s 274(1)(g) is not eligible to be appointed in "Any Public Ltd Co"

Eligible to be appointed in "Any Pvt Ltd Companies"

Teena's view is perfectly right.

CS Ankur Srivastava (Company Secretary & Compliance Officer) (17853 Points)
Replied 29 June 2009

Dear All,

First of all 274(1)(g) does not apply to Private Companies thus Private Companies are outside the purview of this discussion. Disqualified directors too be appointed in the Private Companies.

Secondly, these rules apply in case of appointment and /or re-appointment, thus current tenure is outside the purview of this discussion. Disqualifed director has not to drop the current directorship.

Now, in case of defaulting company as he has not to drop his current directorships he is a director upto his tenure to all public companies and, according to the wording of Sec 274(1)(g), he may be re appointed in the defaulting company as he is disqualified from being appointed as a director of any other public company but he will not be re appointed in any other public company whether he is director in that company when he stands disqualified or not..

Thus, disqualified director can only be reappointed in the defaulting company.

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GOPAL AGARWAL (CA (FINAL) CS FINAL STUDENT) (159 Points)
Replied 22 January 2010

Dear all members ,

i m Satisfied with with ankur Sir regarding the query of reaapointment of director in public limited co, recently i have cleared my cs. excecutive examination (inter) .i also have the same query , but going thriugh manish bhandari, and our amit bachhawat sir, i m sure that director can be reaapointed in the same defaulting co. but he can be appointed in any other public co. for 5 years.