Companies Act Section 164 — Disqualifications for appointment of director
CHAPTER XI APPOINTMENT AND QUALIFICATIONS OF DIRECTORS
Commercial / Corporate
Summary
A person cannot be appointed as a director of a company if any of the following conditions apply to them. They are of unsound mind and a competent court has officially declared them so. They are an undischarged insolvent, meaning they have not been released from bankruptcy. They have applied to be declared insolvent and that application is still pending. They have been convicted by a court of any offence and sentenced to imprisonment for at least six months, and less than five years have passed since the sentence ended. However, if the conviction led to imprisonment for seven years or more, they are permanently barred from being a director of any company. A court or Tribunal has passed an order disqualifying them from being a director, and that order is still in force. They have not paid calls on any shares they hold in the company, whether alone or jointly with others, and six months have passed since the last date fixed for payment. They have been convicted of an offence related to related party transactions under section 188 at any time in the last five years. They have not complied with sub-section (3) of section 152. They have not complied with the provisions of sub-section (1) of section 165.
Sub-section (2) deals with people who are or have been directors of a company that has failed to file financial statements or annual returns for any continuous period of three financial years, or has failed to repay deposits, pay interest on deposits, redeem debentures, pay interest on debentures, or pay declared dividends, with such failure continuing for one year or more. Such a person cannot be re-appointed as a director of that company or appointed as a director of any other company for a period of five years from the date the company failed to do so. However, if a person is appointed as a director of a company that is in default under clause (a) or clause (b), they will not incur this disqualification for a period of six months from the date of their appointment.
Sub-section (3) states that a private company may, through its articles, provide for additional disqualifications for appointment as a director beyond those listed in sub-sections (1) and (2). The disqualifications referred to in clauses (d), (e), and (g) of sub-section (1) will continue to apply even if an appeal or petition has been filed against the order of conviction or disqualification.
Official Text
(1) A person shall not be eligible for appointment as a director of a company, if —
(a) he is of unsound mind and stands so declared by a competent court;
(b) he is an undischarged insolvent;
(c) he has applied to be adjudicated as an insolvent and his application is pending;
(d) he has been convicted by a court of any offence, whether involving moral turpitude or otherwise, and sentenced in respect thereof to imprisonment for not less than six months and a period of five years has not elapsed from the date of expiry of the sentence:
Provided that if a person has been convicted of any offence and sentenced in respect thereof to imprisonment for a period of seven years or more, he shall not be eligible to be appointed as a director in any company;
(e) an order disqualifying him for appointment as a director has been passed by a court or Tribunal and the order is in force;
(f) he has not paid any calls in respect of any shares of the company held by him, whether alone or jointly with others, and six months have elapsed from the last day fixed for the payment of the call;
(g) he has been convicted of the offence dealing with related party transactions under section 188 at any time during the last preceding five years; or
(h) he has not complied with sub-section (3) of section 152. 1[
(i) he has not complied with the provisions of sub-section (1) of section 165.]
(2) No person who is or has been a director of a company which—
(a) has not filed financial statements or annual returns for any continuous period of three financial years; or
(b) has failed to repay the deposits accepted by it or pay interest thereon or to redeem any debentures on the due date or pay interest due thereon or pay any dividend declared and such failure to pay or redeem continues for one year or more, shall be eligible to be re-appointed as a director of that company or appointed in other company for a period of five years from the date on which the said company fails to do so: 1[Provided that where a person is appointed as a director of a company which is in default of clause (a) or clause (b), he shall not incur the disqualification for a period of six months from the date of his appointment.]
(3) A private company may by its articles provide for any disqualifications for appointment as a director in addition to those specified in sub-sections
(1) and (2). 2[Provided that the disqualifications referred to in clauses (d),
(e) and
(g) of sub-section (1) shall continue to apply even if the appeal or petition has been filed against the order of conviction or disqualification.]