Director Disqualification: New Grounds Under Companies Amendment Bill 2026

The Corporate Laws (Amendment) Bill, 2026, introduced in Parliament in early 2026, proposes significant additions to the grounds for director disqualification under the Companies Act, 2013. If enacted, directors of struck-off companies, wilful defaulters, and persons convicted of fraud under any law will face automatic disqualification from holding board positions across all companies. For the estimated 16 lakh+ active directors in India, these changes demand immediate attention. Section 164, which has remained largely unchanged since 2013, is getting its most substantial overhaul in over a decade. This article covers every existing and proposed ground for disqualification, the critical differences between Section 164(1) and 164(2), the restoration process through NCLT, and the practical steps directors must take right now to protect their positions.

What is Director Disqualification?

Director disqualification is a statutory prohibition that prevents an individual from being appointed as or continuing as a director of any company registered in India. It is governed by Section 164 of the Companies Act, 2013, read with the Companies (Appointment and Qualification of Directors) Rules, 2014, and administered by the Ministry of Corporate Affairs (MCA) through the Registrar of Companies (ROC).

When a director is disqualified, the consequences extend far beyond the company where the default occurred. Under Section 167(1)(a), the director must vacate their position in every company where they hold a directorship. Their DIN is flagged on the MCA portal, and they cannot be appointed to any new board until the disqualification is lifted or the prescribed period expires. For business owners who serve on multiple boards, a single disqualification event can unravel their entire corporate portfolio overnight.

Think of Section 164 as a two-track system. Track one (Section 164(1)) deals with personal failures: mental incapacity, insolvency, criminal conviction. Track two (Section 164(2)) is the one that catches most directors off guard: it penalises directors for the company's filing defaults, even when the director had no role in the specific non-compliance. The 2026 Bill adds new tracks to this already complex system.

Existing Grounds for Director Disqualification Under Section 164

Before examining the proposed changes, every director should know the grounds that already exist. These have been in force since the Companies Act, 2013 came into effect on April 1, 2014.

Section 164(1): Personal Disqualification Grounds

These grounds are directly attributable to the individual. No corporate default is required; the person's own actions or status trigger disqualification.

• Unsound mind: A person declared to be of unsound mind by a competent court and the finding is in force
• Undischarged insolvent: A person who has been adjudicated as an insolvent and has not received their discharge order
• Applied to be adjudicated as insolvent: A person who has applied to be adjudicated as insolvent and the application is pending
• Criminal conviction: Convicted by a court for an offence involving moral turpitude or otherwise, sentenced to imprisonment for 6 months or more, and a period of 5 years has not elapsed from the date of release
• Court or Tribunal order: An order disqualifying the person has been passed by a court or Tribunal and the order is in force
• Non-payment of calls: Not paid any call on shares held in the same company for 6 months from the last day fixed for payment
• Conviction for related party transactions: Convicted of offence under Section 188 (related party transactions) at any time during the preceding 5 years

Section 164(2): Company Default-Based Disqualification

This is the section that affects the largest number of directors. Here, the company's non-compliance becomes the director's personal liability.

• Non-filing of financial statements or annual returns: If the company fails to file financial statements (Form AOC-4) or annual returns (Form MGT-7) for a continuous period of 3 financial years
• Failure to repay deposits: If the company has failed to repay its deposits or interest thereon on the due date or redeem its debentures on the due date or pay dividends declared and the failure continues for 1 year or more

New Grounds Added by the Corporate Laws Amendment Bill 2026

The Corporate Laws (Amendment) Bill, 2026 proposes to expand Section 164 by introducing four additional disqualification grounds. These target specific scenarios that the MCA has identified as governance failures over the past decade.

1. Directors of Struck-Off Companies (Proposed Section 164(1)(i))

Under the proposed amendment, any person who was a director of a company at the time it was struck off the register under Section 248 will be disqualified from being appointed as a director in any other company for a period of 5 years from the date of striking off. This is a significant expansion. Currently, Section 164(2) covers non-filing defaults, but the struck-off ground will capture directors of companies removed for reasons beyond just filing failures, including failure to commence business, inactive company status, and ROC-initiated removal.

2. Conviction for Fraud or Dishonesty Under Any Law (Proposed Section 164(1)(h))

The existing Section 164(1)(d) covers conviction for offences with imprisonment of 6+ months. The proposed amendment adds a specific ground for fraud and dishonesty-related convictions under any law, not limited to the Companies Act. This means a conviction under the Indian Penal Code (now Bharatiya Nyaya Sanhita, 2023), the Prevention of Money Laundering Act, or the Securities and Exchange Board of India Act could trigger director disqualification, even if the imprisonment is less than 6 months.

3. Wilful Defaulter Status (Proposed Section 164(1)(j))

Directors who have been declared wilful defaulters by banks or financial institutions under RBI guidelines will face automatic disqualification. The RBI already restricts wilful defaulters from accessing institutional credit, but this amendment extends the consequence to their directorship positions. Given that the RBI maintains a database of wilful defaulters, this creates a direct pipeline from banking non-compliance to corporate governance consequences.

4. Failure to Maintain Registered Office (Proposed Section 164(1)(k))

Directors of companies that have failed to maintain a registered office at the address filed with the ROC for a continuous period (to be prescribed in rules) will face disqualification. This targets "shell companies" and companies that exist only on paper. The ROC has historically found thousands of registered addresses to be non-functional during physical verification drives.

Section 164(1) vs Section 164(2): Key Differences

Understanding the distinction between these two sub-sections is critical because the trigger, the process, and the remedies differ significantly.

The practical takeaway: Section 164(1) disqualifications are hard to reverse because they depend on personal circumstances (criminal conviction, insolvency). Section 164(2) disqualifications, while devastating in scope, can often be remedied by bringing the company into compliance and then approaching the NCLT.

Complete List of Disqualification Grounds (Existing + Proposed)

Here is every disqualification ground in one consolidated table, covering both the current law and the proposed 2026 amendments.

How Director Disqualification Works: Process and Timeline

Disqualification is not always a single event. The process varies depending on whether it is triggered by Section 164(1) or Section 164(2).

Section 164(1) Process

1. Triggering event occurs: Court order, conviction, insolvency adjudication, or other specified event
2. Automatic disqualification: The disqualification takes effect by operation of law from the date of the event. No separate MCA action is required
3. DIN flagging: The MCA updates the DIN status on its database when it receives information about the triggering event (court order, conviction records)
4. Vacation of office: The director must vacate their position in all companies under Section 167(1)(a)
5. Company obligation: The board must file Form DIR-12 with the ROC within 30 days of the vacancy

Section 164(2) Process

1. Filing default accumulates: The company misses filing annual returns or financial statements
2. 3-year threshold crossed: Once the default continues for 3 consecutive financial years, the trigger is activated
3. MCA identification: The MCA runs periodic data analysis to identify defaulting companies and flags the DINs of all directors on the board
4. DIN deactivation and disqualification: The MCA deactivates the DINs and marks directors as disqualified on the portal
5. Bulk notifications: The MCA publishes lists of disqualified directors on its website (it has done this in 2017, 2018, and 2020)
6. Impact cascades: Disqualified directors lose their positions across all companies, not just the defaulting one

The timeline from default to disqualification under Section 164(2) is typically 3 to 4 years. The first missed filing happens in Year 1, and the third consecutive default triggers the disqualification in Year 3 or 4, depending on when MCA runs its identification drive.

Impact of Disqualification on Directors and Companies

The consequences of disqualification go well beyond losing a board seat. Here is a comprehensive breakdown of how disqualification affects both the individual and the companies involved.

The Cascade Effect on Multiple Directorships

Consider a scenario: you are a director in 3 companies. Company A fails to file annual returns for 3 years. Under Section 164(2), you are disqualified. Under Section 167(1)(a), you must immediately vacate your directorship in Companies B and C as well, even if those companies are fully compliant. This cascade effect is what makes Section 164(2) particularly dangerous for serial entrepreneurs and professional directors.

The remaining directors in Companies B and C must then file Form DIR-12 reporting your vacation of office, appoint replacement directors to maintain minimum board strength, and update all banking mandates and signing authorities. The disruption is significant, especially for small companies where the disqualified person may have been the primary operational director.

DIN Deactivation vs Director Disqualification

These two terms are frequently confused, but they represent very different situations with different consequences and remedies.

A common but dangerous mistake: directors assume their DIN has merely been "deactivated" when in reality they have been disqualified under Section 164(2). Always check the exact status on the MCA portal. DIN deactivation is a 3-day fix. Disqualification is a 6-month legal process involving the NCLT.

How to Check If a Director is Disqualified

Whether you are checking your own status or verifying a potential director before appointment, the MCA portal provides multiple verification methods.

Method 1: MCA Director Master Data

1. Visit www.mca.gov.in
2. Navigate to MCA Services > Master Data > Director Master
3. Enter the DIN (Director Identification Number)
4. Review the DIN status: Approved (active), Deactivated (KYC pending), or Disqualified (Section 164)
5. The record also shows all current and past directorships held by the person

Method 2: Company Master Data

1. Go to MCA Services > Master Data > Company/LLP Master Data
2. Enter the company CIN or name
3. View the list of current directors and their DIN status
4. Directors flagged as disqualified will be marked in the records

Method 3: List of Disqualified Directors

The MCA periodically publishes consolidated lists of disqualified directors on its website. These lists were published in bulk in 2017 (over 3 lakh directors), 2018, and 2020. Check the "Reports and Statistics" section of the MCA portal for the latest list. These reports are also available through third-party compliance platforms that aggregate MCA data.

How to Restore a Disqualified Director

Restoration is possible but requires a structured legal approach. The process differs depending on whether the disqualification falls under Section 164(1) or 164(2).

Section 164(2) Restoration Process

This is the more common restoration scenario because Section 164(2) disqualification can be remedied by curing the underlying default.

1. File all overdue documents: Submit every pending annual return (Form MGT-7) and financial statement (Form AOC-4) for the defaulting company. This is a prerequisite; the NCLT will not entertain a petition without this step. Use ROC Annual Filing services to expedite this
2. Prepare NCLT petition: Engage a Company Secretary or advocate to draft a Company Petition under Section 164(3) requesting removal of disqualification. The petition must include proof that all overdue filings are now up to date
3. File petition with NCLT: Submit the petition at the NCLT bench with jurisdiction over the company's registered office. Pay court fees (typically ₹5,000 to ₹10,000 depending on the bench)
4. Serve notice on ROC: The NCLT will direct serving notice on the ROC and MCA. The ROC has 30 days to respond. In most cases, if filings are complete, the ROC does not oppose the petition
5. Attend hearing: Appear through counsel at the hearing. Present evidence that the default has been remedied and that the director is otherwise qualified under Section 164(1)
6. Obtain NCLT order: If satisfied, the NCLT passes an order removing the disqualification and directing the ROC to update the DIN status
7. File NCLT order with ROC: Submit the certified copy of the NCLT order to the ROC. The ROC updates the MCA portal to reflect the restored DIN status. Processing takes 15 to 30 days after order submission

Section 164(1) Restoration

For disqualifications under Section 164(1), restoration is generally more difficult because the personal circumstances must change. A convicted director must wait out the 5-year period from release. An insolvent must obtain discharge. However, if the underlying court order is overturned on appeal, the disqualification ceases automatically.

Cost and Timeline Estimates

Precautions Directors Should Take to Avoid Disqualification

Prevention costs a fraction of what restoration does. These steps protect active directors from falling into the disqualification trap.

1. Ensure Timely Annual Filings

This is the single most effective precaution. Make sure every company where you are a director files Form AOC-4 (financial statements) within 30 days of the AGM and Form MGT-7 (annual return) within 60 days of the AGM. If the company's management is not cooperative, send written reminders and retain copies. Your written record demonstrates good faith if disqualification occurs.

2. File DIR-3 KYC Annually

Complete your DIR-3 KYC filing before September 30 every year. While non-filing of KYC causes DIN deactivation (not disqualification), a deactivated DIN prevents you from filing other compliance forms, which can trigger the 3-year default chain leading to disqualification under Section 164(2).

3. Monitor All Companies on Your DIN

If you hold directorships in multiple companies, track the compliance status of each entity. Many directors are unaware that a dormant company they forgot about has triggered their disqualification. Log into the MCA portal quarterly and check the filing status of every company linked to your DIN.

4. Resign from Non-Operational Companies

If you are a director in a company that has ceased operations and the promoters are not interested in compliance, resign formally by filing Form DIR-11 and ensure the company files Form DIR-12 recording your resignation. A resignation that is on record protects you from future disqualification events in that company. Do not simply "walk away" without formal resignation filed with the ROC.

5. Arrange Compliance Support

For small companies without a dedicated compliance team, engage a professional firm to handle annual filings. The cost of annual compliance (₹8,000 to ₹15,000 per year) is negligible compared to the cost of disqualification restoration (₹50,000 to ₹2,00,000 plus months of lost board positions).

6. Consider the 2026 Bill's Implications

If you are a director of a company that is at risk of being struck off, or if the company has received a strike-off notice from the ROC, take action now. File overdue returns before the company is removed from the register, or ensure a formal application against striking off is filed. Once the 2026 Bill is enacted, being on the board of a struck-off company will directly trigger disqualification.

Impact on Other Companies Where the Director Holds Position

Section 167(1)(a) of the Companies Act, 2013 creates a cascading impact that makes director disqualification one of the most far-reaching consequences under Indian corporate law.

Immediate Consequences

When a director is disqualified under Section 164, their office is vacated in every company where they are a director, whether executive or non-executive, whole-time or independent. The vacation is automatic by operation of law. No board resolution or shareholder approval is required for the removal. The company must only record the fact and file Form DIR-12.

Board Composition Impact

A Private Limited Company requires a minimum of 2 directors. A Public Limited Company requires 3 directors. If the disqualified person's departure brings the company below this threshold, the remaining directors have a limited window (as prescribed under Section 161) to appoint an additional director. Failing to maintain minimum board strength is itself a compliance violation.

Ongoing Contracts and Obligations

Any contracts signed by the disqualified director before disqualification remain valid. However, contracts executed after the disqualification date may be challenged on the ground that the signatory lacked authority. Companies must immediately review and update all authorisation matrices, bank mandates, and signing authorities to remove the disqualified director.

Practical Steps for Affected Companies

1. Pass a board resolution noting the vacation of office
2. File Form DIR-12 with the ROC within 30 days
3. Appoint a replacement director to maintain minimum board strength
4. Update banking mandates and remove the disqualified director as an authorised signatory
5. Review all pending contracts and ensure they are signed by authorised directors
6. Notify stakeholders (lenders, investors, key clients) if the disqualified director was a publicly visible figure

Summary

The Corporate Laws (Amendment) Bill, 2026 is set to expand director disqualification grounds from 9 to 13, bringing directors of struck-off companies, wilful defaulters, fraud convicts, and companies without functional registered offices into the disqualification net. While the Bill is still pending parliamentary approval, the existing grounds under Section 164 already disqualify thousands of directors every year, primarily through the 3-year non-filing trigger under Section 164(2). The cost of disqualification, both financial (₹50,000 to ₹2,00,000 for restoration) and reputational (public record on MCA, loss of all board positions), far outweighs the cost of staying compliant. Directors who serve on multiple boards carry the highest risk: one defaulting company can cost them positions across every entity. The most effective protection remains disciplined compliance: timely annual filings, annual KYC updates, and proactive resignation from non-operational companies. If you hold directorships in any company, check your filing status on the MCA portal today.