Reference: Sec 164(2) of Companies Act, 2013 and Qu 1(a)(iii) of MTP Mar 2019
Doubt Text: The ICAI says that the appointment of Mr. Khurana is valid till January 2019.
The company didn’t file the financial statements for the financial year 2017-2018 (1 FY) which means that none of the directors will face a disqualification u/s 164(2) if it doesn’t file F/S for further 2 financial years i.e. till March 2020, So when Mr. Khurana is appointed in July 2018, there is no question of disqualification till March 2020. Then why do they say January 2019?
If your answer is, because the company defaulted in the year 2017 AND 2018 (2 years) OK, but still his appointment should be valid till March 2019 and not January.
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Can you please also attach pic of question as it is difficult for me to understand what the question is from answer and your explanation m
Section 164(2) says that if the company does not file F/S for 3 continuous financial years, then its directors will be disqualified for 5 years from the date company fails to do so. And in case of a newly appointed Director, he’ll not be disqualified for the first 6 months from his appointment date.
Now, in this case, the company didn’t file F/S for the financial year 2017-2018 i.e. for 1 financial year.
That means the company has not yet fallen under 164(2) because it required non-filing for 3 financial years. And if 164(2) is not yet attracted, the directors are not disqualified.
So when Mr. Khurana is appointed in July 2018, no question arises of his disqualification. Why, because as we discussed above, the company is not in any default yet, and therefore 164(2) is not attracted.
Ok so far so good.
Now, we know that as on the date of appointment of Mr. Khurana, neither he nor any other director of the company is disqualified. But what’s the date when they’ll be disqualified..?
The answer is the day when the company makes a default in F/S filing for 3 years. And from those 3 years, 1 year (FY 2017-18) has already gone. Thus, company is left with 2 non-filings (FY 2018-19 and 2019-20).
If you understood till here, very good and thank you actually. Now let’s come to the main doubt.
It’s clear from the above discussion that even if the company files all 3 years’ F/S on/before 31st March 2020 11:59 pm, the directors will not be disqualified until that moment. Their appointment is valid till that time.
But the ICAI said the appointment of Mr. Khurana is valid only up to January 2019.
Nooooo..!!! It should be valid up to 31st Mar 2020
Now you answer what’s right.
If your answer is that, ICAI read 2017-2018 as 2 financial years. Ok, understandable, but still in that case also, his appointment should be valid till 31st March 2019 and not January 2019.