Section 167 of the Companies Act, 2013

Section 167 of the Companies Act, 2013 deals with the disqualification of directors — specifically, the vacation of office by a director when certain conditions are met.

🔹 Section 167 – Vacation of Office of Director

Key Provisions:

A director shall vacate his office in the following cases:

1. Disqualifications (Clause a):

If he incurs any of the disqualifications specified under Section 164 (e.g., being of unsound mind, insolvent, convicted, etc.).

2. Absence from Board Meetings (Clause b):

If he absents himself from all the Board meetings held during a period of 12 months, with or without seeking leave of absence from the Board.

3. Contravention of Related Party Provisions (Clause c):

If he acts in contravention of Section 184 (which deals with disclosure of interest in contracts or arrangements), and such contravention is notified by the Board.

4. Disqualification due to Court or Tribunal Order (Clause d):

If he is disqualified by an order of a court or tribunal.

5. Imprisonment (Clause e):

If he is convicted and sentenced to imprisonment for not less than 6 months, the office is vacated even if an appeal is filed.
However, if sentenced to imprisonment for 7 years or more, he is permanently disqualified under Section 164(1)(d).

6. Removal under Companies Act or Law (Clause f):

If he is removed in accordance with the provisions of this Act.

7. Not Having DIN (Clause g):

If he fails to comply with Section 165 (regarding maximum number of directorships), or Section 164(2) (disqualification due to non-filing of financial statements or annual returns for 3 years, etc.).

🔸 Special Case – Director in Defaulting Company:

If a director is disqualified under Section 164(2) (e.g., a company hasn't filed financial statements or returns for 3 years), then:

He shall vacate office in all other companies except the defaulting company.

🔸 Penalty for Continuing as Director After Disqualification:

Continuing as a director despite disqualification can result in a penalty of ₹5 lakh, and if default continues, ₹500 per day (maximum up to ₹5 lakh for individuals).

📄 Purpose of Section 167:

To ensure that non-compliant, inactive, or legally unfit persons are removed from the directorship of companies to maintain integrity in corporate governance.

 

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