Director disqualification under Section 164 of the Companies Act, 2013 happens in two entirely different ways, and the cure depends on which one you are facing. Section 164(1) disqualifies a person for something personal to him, such as insolvency, unsoundness of mind or a criminal conviction. Section 164(2) disqualifies him for something the company did, or rather failed to do: not filing financial statements or annual returns for three continuous financial years, or defaulting on deposits, debentures or a declared dividend for a year or more. The consequence in both cases is a five-year bar on being appointed or re-appointed as a director.
Most disqualifications that land on a founder's desk come from the second limb, and usually from a dormant company nobody bothered to close properly. The position is now reasonably well settled by the High Courts, but there is no single application form that undoes it.
Director disqualification under Section 164: the two limbs
Section 164(1) lists personal grounds. A person cannot be appointed a director if he is of unsound mind and stands so declared by a competent court; is an undischarged insolvent; has applied to be adjudicated insolvent and the application is pending; has been convicted of any offence and sentenced to imprisonment for not less than six months, where five years have not elapsed from expiry of the sentence; is under a court or Tribunal order of disqualification in force; has not paid calls on shares for six months; has been convicted of a related party transaction offence under Section 188 in the last five years; or has not complied with Section 152(3), which requires a Director Identification Number. A later clause covers breach of the directorship limits in Section 165(1). The proviso to clause (d) is severe: a sentence of seven years or more makes a person permanently ineligible in any company.
Convictions feeding into Section 164(1)(d) now arise under the Bharatiya Nyaya Sanhita, 2023 and are tried under the Bharatiya Nagarik Suraksha Sanhita, 2023, which replaced the Indian Penal Code, 1860 and the Code of Criminal Procedure, 1973. Older IPC convictions still count. Note also the proviso to Section 164(3): the disqualifications in clauses (d), (e) and (g) continue to apply even while an appeal against the conviction or disqualification order is pending.
Section 164(2) is different in character. It attaches to the person because of the company's default, and it follows him to every other company. The section says that no person who is or has been a director of a company which has not filed financial statements or annual returns for any continuous period of three financial years, or which has failed to repay deposits, pay interest, redeem debentures or pay a declared dividend for one year or more, is eligible to be re-appointed as a director of that company or appointed in any other company for five years from the date the company so fails.
Key takeaway. Section 164(2) does not require any adjudication, notice or order. It operates by force of the statute the moment the three-year default is complete. The Registrar's published list is a record of the disqualification, not the cause of it.
The two limbs of Section 164, and the common consequence they share.
Section 164(1)
Personal grounds: unsound mind, undischarged insolvency, a conviction carrying six months or more, unpaid calls for six months, no DIN, or breach of the directorship limits.
Section 164(2)
The company's default: no financial statements or annual returns for three continuous financial years, or unpaid deposits, debentures or declared dividend for a year or more.
A five year bar
Either limb bars appointment or re-appointment as a director for five years, and under 164(2) the bar follows the person into every other company.
When does the clock start, and can old defaults count?
This produced the largest wave of company law writ petitions in recent memory, and the High Courts have not spoken with one voice.
The Karnataka High Court in Yashodhara Shroff v. Union of India, decided on 12 June 2019, held that the continuous period of three financial years must commence from 1 April 2014, and that no period before that date can be counted towards it. That reading protects directors whose companies stopped filing under the old Companies Act, 1956.
The Delhi High Court took a narrower view in Mukut Pathak v. Union of India, decided on 4 November 2019. The court accepted that Section 164(2) operates prospectively from 1 April 2014, but held that a default in filing for the financial year ending 31 March 2014 could still be taken into account, because the obligation to file that return arose after the provision came into force. The court expressly recorded its disagreement with the Karnataka, Gujarat and Madras High Courts on that point.
The Kerala High Court in Zacharia Maramkandathil Mohan v. Union of India, decided in June 2021, upheld the constitutional validity of Sections 164(2) and 167(1) while holding that Section 164(2) is not retrospective, and that a Director Identification Number cannot be deactivated solely because a director has been disqualified under Section 164(2).
Section 167: does disqualification also cost you your seat?
Section 164 bars appointment and re-appointment. Section 167(1)(a) goes further and says the office of a director becomes vacant if he incurs any disqualification specified in Section 164. Read literally, that would mean a defaulting company loses every director the moment the third year of non-filing closes, leaving nobody able to file the overdue returns and nobody eligible to be appointed to do it.
In Mukut Pathak the Delhi High Court described that as an absurdity and read Section 167(1)(a), as originally enacted, as applying to Section 164(1) disqualifications rather than Section 164(2). The legislature then addressed the problem directly. A proviso inserted with effect from 7 May 2018 says that where a director incurs disqualification under Section 164(2), his office becomes vacant in all companies other than the company that is in default. A matching proviso to Section 164(2) gives a person newly appointed to a defaulting company six months of immunity from the disqualification.
The result is uncomfortable but coherent. A director of a defaulting company keeps his seat there so that somebody can regularise the filings, and loses it everywhere else. Section 167(2) provides that a person who continues to act as a director knowing his office has become vacant is punishable with a fine of not less than one lakh rupees, extending to five lakh rupees.
Section 164(1) and Section 164(2) compared
| Question | Section 164(1) | Section 164(2) |
|---|---|---|
| What triggers it | Something personal: insolvency, unsound mind, conviction, unpaid calls, no DIN, breach of directorship limits | The company's failure to file for three continuous financial years, or to repay deposits, debentures or dividend for a year or more |
| Who it affects | Only that individual | Everyone who is or has been a director of the defaulting company in the relevant period |
| Duration | Varies by clause; five years from expiry of sentence for a conviction, permanent where the sentence is seven years or more | Five years from the date the company so fails |
| Effect on existing seats | Office vacated under Section 167(1)(a) in all companies | Office vacated in all companies except the defaulting company, by the proviso in force from 7 May 2018 |
| Effect of a pending appeal | Clauses (d), (e) and (g) continue to apply despite an appeal, under the proviso to Section 164(3) | Not applicable |
| Usual route out | Discharge, acquittal, setting aside of the order, or waiting out the period | Regularising the filings, restoring a struck off company under Section 252, or waiting out the five years |
Does the Registrar have power to deactivate your DIN?
This is where directors have had the most success. Rule 11 of the Companies (Appointment and Qualification of Directors) Rules, 2014 sets out the grounds on which the Central Government may cancel or deactivate a DIN: duplication, a DIN obtained wrongfully or by fraudulent means, death, unsoundness of mind declared by a competent court, adjudication as an insolvent, voluntary surrender in Form DIR-5 by a person never appointed as a director, and failure to file e-form DIR-3 KYC within the prescribed time. Disqualification under Section 164(2) is not on that list.
Both the Delhi High Court in Mukut Pathak and the Kerala High Court in Zacharia Maramkandathil Mohan held that a DIN cannot be deactivated merely because the holder is disqualified under Section 164(2). The reasoning is straightforward: having framed rules specifying when a DIN may be cancelled, the Central Government cannot cancel it on some other ground.
Common mistake. Assuming a deactivated DIN always means disqualification. A DIN also goes inactive for simple failure to file the annual DIR-3 KYC, which is a separate problem with a separate and much cheaper fix. Check the reason shown on the MCA portal before you plan a remedy.
The cure: what actually works
- Establish the exact basis. Pull the company master data and the director master data for every company you are or were associated with, and identify which company triggered the default and which financial years are missing.
- Check the status of the defaulting company. If it is still active, the route is filing. If the Registrar has struck it off under Section 248, filing is not possible until the name is restored.
- For an active company, file the overdue annual returns under Section 92 and financial statements under Section 137. For these two filings the first proviso to Section 403 prescribes an additional fee of not less than one hundred rupees per day of delay, so budget for a substantial figure where several years are missing.
- For a struck off company, file an appeal to the National Company Law Tribunal under Section 252(1) within three years of the Registrar's order. A company, member, creditor or workman may alternatively apply under Section 252(3) within twenty years of the gazette notice.
- Once the Tribunal orders restoration, file the certified copy with the Registrar within thirty days as Section 252(2) requires, then complete the overdue filings.
- Where the DIN has been deactivated without a Rule 11 ground, or where the disqualification is based on defaults predating 1 April 2014, consider a writ petition before the High Court. The judgments discussed above are the starting point, and the correct forum depends on where the Registrar is located.
- Do not accept a fresh directorship while disqualified. Section 164(2) bars appointment in any other company, and Rule 14(1) requires a director to disclose disqualification in Form DIR-8 before appointment or re-appointment.
- If none of these routes is available, the disqualification simply runs its five years and lapses. Plan around it rather than around a shortcut.
The routes out of a Section 164(2) disqualification, and when each one is the right one.
Active company: file
File the overdue annual returns under Section 92 and financial statements under Section 137. The first proviso to Section 403 adds not less than one hundred rupees per day of delay.
Struck off: Section 252
Appeal to the National Company Law Tribunal within three years of the Registrar's order, file the certified copy within thirty days, then complete the overdue filings.
Writ petition
Consider a High Court writ where the DIN was deactivated without a Rule 11 ground, or where the disqualification rests on defaults predating 1 April 2014.
Wait out five years
Where no route is available the disqualification simply runs its five years and lapses. Plan around it rather than around a shortcut.
Treat all timelines as indicative. Overdue filings for an active company can often be completed within a few weeks once the accounts are audited, and the audit is usually the bottleneck. An NCLT restoration petition under Section 252 is more commonly a matter of several months, depending on the bench and on how quickly the Registrar files his report. A writ petition follows the ordinary High Court listing cycle. Professional fees vary with the number of years and companies involved, so ask for a written scope before anyone starts work.
Deadline warning. The Section 252(1) appeal window against a strike off order is three years from the date of the Registrar's order. It is a hard outer limit, and it is missed more often than any other date in this area, usually because nobody was reading the correspondence sent to a registered office that had been shut for years.
Prevention costs far less than the cure
Section 92(4) requires the annual return to be filed within sixty days of the annual general meeting, or from the date the meeting should have been held. Section 137(1) requires the financial statements to be filed within thirty days of the AGM. Missing either attracts a penalty under Section 92(5) of ten thousand rupees plus one hundred rupees for each day of continuing failure, subject to a maximum of two lakh rupees for the company and fifty thousand rupees for an officer in default. Rule 14(2) requires a company that has fallen into a Section 164(2) default to file Form DIR-9 with the Registrar naming every director for the relevant years.
Two habits prevent almost all of this. First, close companies you have stopped using, properly, through strike off or winding up, instead of letting them go dark. The mechanics are set out in our note on Strike Off of a Company in India. Second, keep the registered office address, the email on the MCA record and the DIR-3 KYC current, because every warning the Registrar sends goes to those.
In practice, the founders who get caught are rarely the ones running the operating business. They are the ones who agreed years ago to be the second director on a friend's venture or a family entity, signed nothing since, and never checked. Before accepting a directorship, look at the filing history on the MCA portal, and if you have resigned, verify that Form DIR-12 was actually filed and reflected against your DIN. A resignation the company never reported leaves you on the record, and the record is what the disqualification list is built from. The same discipline applies to shareholder disputes in private limited companies, where the paperwork on the register usually decides the argument before the merits do.
Related guides and where to get help
- Related Party Transactions Under Section 188: Approvals and Risk
- ESOPs in an Indian Startup: The Legal Issues Founders Miss
- Are Non-Compete Clauses Enforceable in India?
Frequently Asked Questions
How long does disqualification under Section 164(2) last?
Five years from the date on which the company failed, that is, from the completion of the three continuous financial years of non-filing, or from the date the deposit, debenture or dividend default crossed one year.
Can I resign to avoid the disqualification?
No. Section 164(2) applies to a person who "is or has been" a director of the defaulting company. Resigning before the disqualification is recorded does not undo it, although resigning promptly does stop further years of default being attributed to you.
Do I lose my directorship in my other companies?
Yes. Since 7 May 2018 the proviso to Section 167(1)(a) provides that where a director incurs disqualification under Section 164(2), the office becomes vacant in all companies other than the company that is in default. Continuing to act after that attracts a fine of not less than one lakh rupees under Section 167(2).
Is my DIN cancelled when I am disqualified?
It should not be. Rule 11 of the Companies (Appointment and Qualification of Directors) Rules, 2014 does not list Section 164(2) disqualification as a ground for cancelling or deactivating a DIN, and the Delhi and Kerala High Courts have so held. Deactivation for not filing DIR-3 KYC is a different matter and is expressly covered by the rule.
My company was struck off. Can I still file the pending returns?
Not until it is restored. You would need an order of the National Company Law Tribunal under Section 252, filed within three years of the Registrar's order under Section 252(1), after which the certified copy goes to the Registrar within thirty days and the overdue filings follow.
Can defaults from before 1 April 2014 be counted?
The Karnataka High Court in Yashodhara Shroff held that the three-year period must start from 1 April 2014 and that no earlier period counts. The Delhi High Court in Mukut Pathak held that a default relating to the financial year ending 31 March 2014 can be counted, because the filing obligation arose after the section came into force. Which line applies to you depends on the High Court with jurisdiction over your Registrar.
Will the Registrar give me a hearing before disqualifying me?
Section 164(2) is self-operating. There is no adjudication, no show cause notice and no order that creates the disqualification, which is precisely why directors discover it only when a filing is rejected or the DIN shows as disqualified.
Does a criminal conviction always disqualify a director?
Only where the sentence is imprisonment of six months or more, and then for five years from the expiry of the sentence. A sentence of seven years or more disqualifies permanently. Under the proviso to Section 164(3), a pending appeal does not suspend the disqualification for a conviction under Section 164(1)(d).
Every disqualification turns on the exact filing history and the position of each company involved, so this article is general information rather than advice on any particular case. Our corporate and commercial law practice page describes the areas we work in, and our note on director liability for cheque bounce under Section 141 covers a related exposure that frequently arrives with the same set of facts.
