The Hindu Business Line : Qualification in question

THE Central Government has framed the Directors Disqualification Rules under Section 274(1)(g) of the Companies Act, 1956. These are made applicable to all public companies defaulting thereunder. The Rules came into force on October 21, 2003. A disqualifying company is one in which default has occurred and where a director stands disqualified.

Under this section, a public company becomes disqualified in the circumstances when a public company fails to file the annual accounts and annual returns, and such company and its directors shall be disqualified on the last date for filing the annual returns for any continuous three financial years commencing on or after April 1, 1999. When a public company has failed to repay any public deposit accepted, or interest thereon, or redeem its debentures or pay any dividend declared on the respective due dates, and if such default continues for one year, then such company and its directors shall stand disqualified immediately on expiry of that one year from the respective due dates.

Rule 5 provides that a disqualified public company, as aforesaid under this section, shall have to file immediately a return in Form DD-B (in duplicate) prescribed under these rules with the Registrar of Companies (RoC) concerned with a filing fee of Rs 500. In this form, the company has to specify the nature of default committed with date(s) of default, directors' names in full as per company's records, their permanent and present addresses and the position held by them during the last five years in the company. On filing this form, the Central Government shall publish the names and addresses of disqualified directors on the Web site and in any other manner as may be considered appropriate.

Under Rule 6, when a company fails to file Form DD-B within 30 days from the date default, its officers listed under Section 5 of the Act shall be officers in default. Under Rule 11, if any public company contravenes these Rules, then such company and its every officer who is in default shall be punishable with fine which may extend to Rs 5,000.

And where the contravention is a continuing one, with a further fine which may extend to Rs 500 for every day after the first during which the contravention continues. As such, the well-known saying "who bells the cat" goes reverse.

Here the defaulting company goes to the regulator to cause prosecution against itself for the contravention of the Act. It amounts to a confession of wrong done by a company which is an artificial/legal person.

Director consent

Form No 29, on director consent, is required to be filed within 30 days from the date of appointment, but not in the case of reappointment.

This return needs to be filed not only by a new public company but also an existing one for appointing director thereof.

Rule 9 provides that every director in a public company registered under the said Act shall file Form DD-A prescribed under these Rules, before he/she is appointed or re-appointed. In this form, the individual seeking appointment as a director of a public company has to declare the names of the companies in which he/she was director during the last three years, with date of appointment and cessation.

He/she has also to declare whether any disqualification under Section 274(1)(g) of the Act has been incurred or not. If yes, then the names of such companies with date of appointment and cessation must be spelt out.

Any person contravening this Rule shall be punishable with fine which may extend to Rs 5,000. And where the contravention is a continuing one with a further fine which may extend to Rs 500 for every day after the first, during which the contravention continues.

As such, every individual seeking appointment as a director of a new or an existing public company, including re-appointment, needs to file Form DD-A with the RoC concerned before appointment or re-appointment, as the case may be, with requisite filing fee of Rs 500. And in case of failure to do so, shall be punishable as aforesaid.

Accordingly, an individual being appointed a director of a company to be formed shall have to file Form DD-A along with Form No 29 and other documents required for the purpose.

In the case of an existing company, an individual being appointed as a director in an additional or casual vacancy, or under Section 257 of the Act in any general meeting, or re-appointed as a director in any annual general meeting (AGM) on retirement by rotation or cessation as an additional director, has to file Form DD-A in addition to other form(s), if any, required under the Act with the RoC, before seeking appointment or reappointment.

While it is doubtful whether corporate India requires the new form of control on directors, effective implementation by the offices of the RoC also appears remote.

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