Disqualified directors of companies that failed to file annual returns for three years may challenge their debarment in court. They may argue that the Companies Act of 2013, under which they were disqualified, should not apply retrospectively to the period before the law was enacted. However, legal experts note that if a director was appointed after the 2013 Act came into effect and the company was already non-compliant at that time, the director would still be disqualified. Directors can also apply to the National Company Law Tribunal within three years to appeal their debarment if they feel removal is unjustified.

1. Disqualified directors of debarred companies may
approach courts
The government’s move to debar directors of companies who have not filled annual returns for three
successive years is likely to be challenged in courts citing retrospective application of Companies Act, 2013.
As a general rule, law is always applicable prospectively, unless any prior date is mentioned specifically says
Sumit Naib.
According to corporate law experts, Section 164 (2) (a) of the Companies Act, 2013, which pertains to
disqualification of directors due to non-filing of financials and annual returns for three years is applicable to all
types of companies including private ones with effect from April 1, 2014. Prior to the enactment of this new
section under the Companies Act 2013, the corresponding section under the Companies Act, 1956 was
applicable only to public companies The Ministry of Corporate Affairs earlier this month struck off the names
of around 209,000 companies from the records, found to be without any business activity, including those that
had not filed financial statements for three years or more. Subsequently the directors, or the authorized
signatories, of the debarred companies have been disqualified from being appointed in any other company in
that position.
As per government estimates, at least 200,00-300,000 disqualified directors shall get debarred in the process.
Many directors feel the period of default being considered while issuing the list of defaulters is prior to the
enactment of section 164 under Companies Act, 2013. Accordingly, such directors may approach the court
seeking relief on this ground, says Naib. One could take a view that to the extent the disqualification relates to
non-compliance by private companies the law was introduced only with effect from FY2014-15, he says.
However, if the director was appointed after introduction of Companies Act, 2013 and at that point such non-
compliance existed he or she would still stand disqualified points out Ahmed.
Legal experts note that during introduction of new company law in 2014 the government had introduced a
Company Law Settlement Scheme – a two–month window – for companies that defaulted on filing statements
to come good by paying a lower fee. However for companies that took advantage of this scheme, the
provisions of Section 164 (2) would apply only for prospective defaults if any, says Ahmed. As per Companies
Act, 2013, any aggrieved director could apply to the National Company Law Tribunal (NCLT) within three
years of debarment order If, in the opinion of NCLT, removal is not justified it may order restoration of the
name of the company in the Register of Companies.
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