Section 164 of the companies act, 2013

P C Agrawal (Registered independent director Past Chairman of Aurangabad Chapter of ICSI Practicing Company Secretary at Aurangabad) (8229 Points)
Replied 14 April 2014

1) No cushion period has been provided in the Section to existing companies. Hence even past period of default will be considered for the purpose of Sec.164(2). However, such disqualification will arise only at the time of reappointment and not before that.

2) No. Sec.164(2) says that he will not be eligible to be appointed in other company. It does not say that he will cease to be a director in other companies also.

3) No.

4) You have to file return with ROC on his ceasing to be a director and make entry in register of directors. You can take steps for filling vacancy in the Board.

Honey Sharma (Executive-CS) (51 Points)
Replied 15 April 2014

Dear Sir,

Many Thanks for making effort to resolve the query.

However, as you have mentioned in :

(i) Point no.1 that disqualification shall arise only at the time of re-appointment and not before that and

(ii) Point no.2 that the director shall continue to hold office in other companies in which he holds office as director and he shall not be appointed as director in any new company,

Section 167 requires the immediate vacation of office of such a director who have incurred disqualification as such under Section 164.

The relevant extract is reproduced below:

167. (1) The office of a director shall become vacant in case—

(a) he incurs any of the disqualifications specified in section 164;

Please explain as to whether he would vacate office from all the companies in which he holds office as director including the company for default of which he has incurred the disqualification (non-filing of accounts or annual returns).

Thanks and Regards,

Honey Sharma

P C Agrawal (Registered independent director Past Chairman of Aurangabad Chapter of ICSI Practicing Company Secretary at Aurangabad) (8229 Points)
Replied 15 April 2014

Sec.164(2) puts restriction on reappointment as a director of defaulting company. It does not provide that he will immediately cease to be a director. Hence in my view disqualification will arise only at the time of reappointment and not before that. Accordingly, Sec.167(1)(a) will also get attracted at the time of reapppointment only.

1 Like

Pavan (CA) (76 Points)
Replied 22 August 2014

Dear Sir,

WIll the disqualification applies to all types of companies i.e. Public Limited Companies & Private Limited Companies ?

Raju (Eployee) (21 Points)
Replied 11 March 2015

Yes, disqualification u/sec.164 applies to both public company and private. However, a private company may specify additional diqualification in its AOA.

Biren Nagia (Corporate Lawyer) (34 Points)
Replied 21 March 2015

Dear Sir,

I too have a bit similar query to this. Kindly give your valueble inputs on my below mentioned query:

Facts:

Company ABC (India) has issued 8% compulsory convertible debentures (CCDs) to its parent company XYZ (Israel) in Jul-12.

As per the agreement, Company ABC (India) accrued the interest at regular interval of time but failed to pay the same to the Company XYZ (Israel) periodically.

The same CCDs was later on converted on fully paid equity shares in Mar-2014.

Total interest accrued on CCDs from the date of issuance till their conversion into fully paid equity shares was paid in a singly instalment to VeriFone Israel in Jan-2015.

Issues:

As per provision of section 164 (2) of Companies Act, 2013,

A Director shall be disqualified for reappointment/ appointment if the following default continues for a year or more

failed to repay the deposits accepted, or interest thereon

failed to redeem any debentures on the due date, or interest thereon

So the basis of plain reading of this section 164 (2), since the payment of interest on CCDs was delayed beyond due date and the default continued for more than 1 year, so it appears that all the directors of VeriFone India cannot be reappointed or appointed in any other company.

Also there is another section 167 of companies act, 2013, which says that if any director incurs disqualification under section 164, then shall required to vacate the office.

I guess the question that I really need an answer for is that whether the default period should be considered to be commenced from 2012-13 or from 1st Apr 2014 since when new Companies Act 2013 came into existence since there were no such disqualification in Companies Act, 1956

Thanks & Regards.

Dipak S Kapadia (properitor) (26 Points)
Replied 03 April 2015

Mr Honey Sharma...please check the provision once again..it was mandatory before to file annual return and annual accounts.."and" is replaced by "or".Thanks

Aravindh K (CA) (164 Points)
Replied 08 June 2015

Dear Learned,

Kindly clarify on the difference between the tern RESIGNATION and VACATION of office.

I understand that form DIR-11 has to be filed by a director who is RESIGNING from a company under section 168(1) pursuant to Rule 16 of the Companies (Registration Offices and Fees) Rules, 2014.

Does a vacation of office under Section 167 tantamount to resignation and imply filing of DIR-11 or is it enough if the concerned comapny can file the DIR-12 alone and the director be advised not to file DIR-11.

The issue in filing DIR-11 is that the director being a DEFAULTING DIRECTOR, is not able to affix his signature in the form.

Thanking you in advance.

ALLIED SECTIONS - 164,167,168 of the CA 2013 & Rule 16 of the Companies (Registration Offices and Fees) Rules, 2014

Aravindh K (CA) (164 Points)
Replied 08 June 2015

Originally posted by : P C Agrawal
	Sec.164(2) puts restriction on reappointment as a director of defaulting company. It does not provide that he will immediately cease to be a director. Hence in my view disqualification will arise only at the time of reappointment and not before that. Accordingly, Sec.167(1)(a) will also get attracted at the time of reapppointment only.

But Sir, the Section 167 quotes as -

"If a person, functions as a director even when he knows that the office of director held by him has become vacant on account of any of the disqualifications specified in subsection (1), he shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees, or with both."

So, doesn't it mean it comes to effect as soon as the Act has come into force.?

VINESH SHAH (company secretary) (25 Points)
Replied 21 July 2015

Originally posted by : Dipak S Kapadia
	Mr Honey Sharma...please check the provision once again..it was mandatory before to file annual return and annual accounts.."and" is replaced by "or".Thanks

whether the disqualification also applies to LLP, if any LLP has not filed form 8 & Form 11 for last 3 years with Roc. mean to say if LLP has defaulted whether this amounts to disqualification of director in private limited.pl.advise

Honey Sharma (Executive-CS) (51 Points)
Replied 22 July 2015

Dear Aravindh,

Please note that the beginning text of Form DIR-11 states the following:

"Notice is hereby given that, ____________________________, the director of M/s. ___________________________ has/have resigned from the office of director of the company with effect from ___________________"

Further, in other points as well the details specifically mentioning resignation have been asked for and mention of vacation is nowhere.

Therefore, to my opinion, if there is vacation of office filing of DIR-11 is not required.

Mr. Deepak and Mr. Vinesh Shah,

I admit my mistake. Request you to suggest the way out accordingly.

Thanks and Regards,

Ms. Honey Sharma

CHAYAGUPTA (properietor) (25 Points)
Replied 14 May 2016

Respected Learned Personas,

Kindly resolve my query wrt., section 164(2); if a Pvt. Co.has not done its annual filing since 2012-13, then the directors have to vacate their office.. pl let me know from which date shall they be liable to vacate their office and whats the remedy so that annal filing of such company can be done.

Being a pvt ltd small Co the directors are not liable to reire by rotation nor they are to be reappointed.

If the old directors have to appoint the new directors; will they be appointed as additional directors.. and then can the old directors be reappointed in the same Co..

Pls resolve