Companies Act Section 164

Disqualifications for Appointment as a Director Under the Companies Act Section 164

1. General Disqualifications for Appointment as a Director

Under the Companies Act, certain individuals are not eligible for appointment as a director of a company. The law sets forth the following criteria that would disqualify a person from holding such a position:

Mental Incapacity: Any person who has been declared of unsound mind by a competent court is ineligible to become a director.
Insolvency Status: A person who has been declared an undischarged insolvent cannot be appointed as a director.
Pending Insolvency Application: If a person has applied to be adjudicated as an insolvent and the application is still pending, he or she cannot be appointed as a director.
Criminal Convictions:
If an individual has been convicted by a court of any offence and has been sentenced to imprisonment for six months or more, he or she will be disqualified for a period of five years from the date of completion of the sentence.
If the conviction involves a sentence of imprisonment for seven years or more, the individual will be permanently disqualified from holding the position of director in any company.
Disqualification by Court or Tribunal: If a competent court or tribunal has issued an order disqualifying an individual from being appointed as a director, and that order remains in force, such a person cannot be appointed as a director.
Failure to Pay Share Calls: A person who has failed to pay any calls due on shares held by them (either solely or jointly with others) for a period of six months after the payment was due will be disqualified.
Conviction for Related Party Transactions Offense: Any person who has been convicted of an offence related to related party transactions as specified under Section 188 of the Act in the last five years will be ineligible for appointment.
Non-Compliance with Director Identification Requirements: If a person has not complied with the requirements of sub-section (3) of Section 152 (which deals with director identification), they will be disqualified from becoming a director.
Non-Compliance with Maximum Directorship Limit: If an individual has violated the limits on the number of directorships specified under Section 165(1), they will be disqualified from holding the position of director.
2. Disqualification Due to Company Defaults

In addition to individual disqualifications, a person who has been a director of a company that has defaulted in certain statutory obligations will also be disqualified from being appointed as a director in any company for a specified period. These defaults include:

Failure to File Financial Statements or Annual Returns: If a company has not filed its financial statements or annual returns for any continuous period of three financial years, its director will be disqualified for five years from the date of such failure.
Failure to Repay Deposits or Debentures: If a company has failed to:
Repay the deposits it accepted from the public,
Pay interest on such deposits,
Redeem any debentures on their due date, or
Pay interest or dividends as declared, and such failure continues for one year or more, its director will be disqualified for five years.
Exception for Newly Appointed Directors: If a person is appointed as a director in a company that is already in default under the above clauses, they will not immediately incur disqualification. Instead, they will have a grace period of six months from the date of their appointment before any disqualification applies.

3. Additional Disqualifications in Private Companies

A private company has the discretion to impose additional conditions for disqualification through its articles of association. These disqualifications are in addition to the statutory disqualifications under sub-sections (1) and (2) of this section.

4. Effect of Appeals Against Convictions or Disqualifications

Even if an appeal or petition is filed against an order of conviction or disqualification, the disqualifications under the following clauses will continue to apply:

Clause (d): Disqualification due to criminal conviction.
Clause (e): Disqualification due to a court or tribunal order.
Clause (g): Disqualification due to conviction for related party transactions offences under Section 188.