Page 156 - DCOM106_COMPANY_LAW

Unit 10: Management of Company

As regards failure of ABC Ltd. to pay interest on term loans taken from a public financial Notes
institution, the disqualification does not apply under s. 274(1)(g)(B).
As regards failure to repay its deposits on due date and the failure continues for more than one
year, Mr. Ram is disqualified. In the light of this disqualification, he is not eligible to be appointed
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on additional director in MN Ltd. From 1 June, 2008 onwards.
The disqualification would come into operation only at the time of appointment or
reappointment of Mr. Ram as director of any public company after the default has become
effective. Till such time, he can continue to hold office of director in all public companies in
which he is a director. Therefore, he need not vacate the office of director in XYZ Ltd. and PQR
Ltd. (either under s. 274(1)(g) or s. 283).
However, Mr. Ram cannot seek reappointment in XYZ Ltd. and PQR Ltd. when he retires by
rotation at the AGMs to be held in September, 2008.

Example: Mr. A is a director of ABC Ltd. which failed to repay matured deposits from
1 April, 2007 onwards and the default continues. But ABC Ltd. is regular in filing annual
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accounts and annual returns. Mr. A is also a director of PQR Ltd. and XYZ Ltd.
ABC Ltd. has committed default under s. 274 (1)(g)(B) and Mr. A, being a director of ABC Ltd.
becomes disqualified for his appointment or reappointment as a director in any other public
company. However, he need not vacate his office of directors in PQR Ltd. and XYZ Ltd. as it is not
required either by s. 274 or s. 283.
In case DEF Ltd. wants to appoint Mr. A as an additional director at the Board meeting to be held
on 15 May, 2008, it cannot be done [Proviso to s. 274(1)(g)].
Further, if Mr. A had ceased to be a director of ABC Ltd. by resignation on 1 March, 2008, then
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the proviso to s. 274(1)(g) would not be attracted, and therefore he could be appointed as a
director in DEF Ltd.

Example: The articles of association of MKP Ltd. incorporated with an authorised share
capital of 50 crores divided into 5 crore equity shares of 10 each contained the following
clause:
“The qualification of a director shall be the holding of at least 1,000 equity shares in the company
and such a director, if not already so qualified shall have to obtain his qualification within a
period of 30 days from the date of his appointment as a director.”
A person appointed as a director may acquire shares for qualification within 2 months after his
appointment. Therefore, the clause requiring him to obtain his qualification shares within a
period of 30 days from the date of his appointment is void.
In this case, the disqualification specified in s. 274(1)(g)(A) does not apply as ABC Ltd., has not
committed defaults in respect of both the matters (i.e. annual returns and annual accounts for
three consecutive financial years).
Also, the clause requires him to hold at least 1,000 equity shares of 10 each. This amounts to
10,000 whereas s. 270(3) restricts the nominal value of the qualification shares to 5000 or
nominal value of one share where it exceeds 5000.

Example: Mr. A, who has huge personal liabilities far in excess of his assets and properties,
has applied to the court for adjudicating him as an insolvent and such application is pending. He
cannot be appointed as a director of a company [s. 274(1)(c)].

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