Director Disqualification Under Section 164 vs Section 29A

Vikrant D. Shetty

Sep 24

11 min read

Updated: Oct 21

Director Disqualification Under Section 164 vs Section 29A

A director disqualified under Section 164(2) of the Companies Act, 2013 for a company's continuous filing defaults is also rendered ineligible under Section 29A(d) of the Insolvency and Bankruptcy Code, 2016 to submit a resolution plan. Section 164 protects corporate governance by barring defaulting directors from future directorships, while Section 29A protects the insolvency resolution process from persons connected to the debtor's distress. The overlap is not automatic in every direction, since ineligibility under Section 29A on other grounds does not require a Section 164 disqualification. This article examines where the two provisions connect and the remedies available before the National Company Law Tribunal.

Section 164 of the Companies Act, 2013: Director Disqualification

Personal Grounds Under Section 164(1)

Section 164(1) of the Companies Act, 2013 disqualifies a person from being appointed or reappointed as a director on personal grounds. These include being adjudicated as an insolvent, having an undischarged insolvency petition pending, a conviction for any offence involving moral turpitude, a court order for fraud or breach of duty, a disqualification order from the Central Government, failure to file DIN disclosures, or failure to pay calls on shares. These are individual failures, not company failures.

Disqualification under Section 164(1) attaches to the person, not to the company they serve. A person disqualified under Section 164(1) is barred from acting as a director of any company during the disqualification period, which can extend up to five years depending on the ground. The Registrar of Companies does not need to separately notify the person; the disqualification is automatic on the occurrence of the disqualifying event.

Company-Level Grounds Under Section 164(2)

Section 164(2) operates differently. It disqualifies a person from being appointed as a director of any company for five years if they are a director of a company that has failed to file annual returns for three consecutive financial years, or has failed to repay deposits, interest on deposits, or declared dividends for more than one year, or redeem debentures or pay debenture interest. The disqualification operates on all directors of the defaulting company, not just those who caused the default.

The Ministry of Corporate Affairs has periodically published lists of disqualified directors. A director on that list cannot be appointed as director of any other company for five years. The disqualification is company-level in origin but has person-level consequences across all other directorships the person holds.

Section 29A of the Insolvency and Bankruptcy Code, 2016: Resolution Applicant Ineligibility

Origin and Purpose of Section 29A

Section 29A was inserted into the IBC by the Insolvency and Bankruptcy Code (Amendment) Act, 2018, with effect from November 23, 2017. Parliament's stated purpose was to prevent persons who caused or contributed to the insolvency of a corporate debtor from regaining control of it at a discounted price through the resolution process. Before the amendment, promoters who had driven their companies into insolvency could submit resolution plans and buy back control through the CIRP at values they chose.

Section 29A lists eight sub-clauses, each independently rendering a person ineligible to submit a resolution plan. The Supreme Court examined the scope and constitutional validity of Section 29A at length in Arcelormittal India Pvt. Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1, holding that the provision was constitutionally valid and must be applied rigorously to prevent back-door re-entry by promoters. The court also clarified that ineligibility must be assessed as of the date of submission of the resolution plan, not as of the date of invitation.

Key Sub-Clauses of Section 29A

Section 29A(a) bars undischarged insolvents. Section 29A(b) bars wilful defaulters as declared by any scheduled bank under RBI guidelines. Section 29A(c) bars persons whose accounts, or accounts of related parties, are classified as non-performing assets for one year or more, unless the outstanding amount is paid before submission of the resolution plan. Section 29A(d) bars persons disqualified under the Companies Act, 2013 from being a director. Section 29A(e) bars persons prohibited by SEBI from trading in securities or accessing capital markets. Section 29A(f) bars persons who are promoters, or in management or control of the corporate debtor during the year preceding the CIRP commencement date. Section 29A(g) bars persons who executed guarantees in respect of loans of the corporate debtor and whose guarantees have been invoked and remain unpaid. Section 29A(h) brings in associates and related parties of all ineligible persons.

Where the Two Provisions Connect

Section 164(2) Disqualification Feeding Into Section 29A(d)

Section 29A(d) bars from submitting a resolution plan any person who has been disqualified to act as a director under the Companies Act, 2013. A person disqualified under Section 164(2) because a company on whose board they sat failed to file returns for three consecutive years falls squarely within Section 29A(d). The connection is direct: statutory disqualification under the Companies Act triggers ineligibility under the IBC.

A resolution applicant who is a director of even one defaulting company faces a five-year bar under Section 164(2), which simultaneously triggers Section 29A(d) ineligibility. This has caused difficulties for large business groups where individual promoters sit on multiple boards, some of which may be in technical default on filing requirements, even if they are not financially distressed.

What Grounds of Section 29A Ineligibility Fall Outside Section 164?

Section 164 disqualification does not capture every ground of Section 29A ineligibility. A person who is not a director of any company cannot be disqualified under Section 164, but could still be ineligible under Section 29A(b) as a wilful defaulter, or under Section 29A(c) as a promoter with an NPA account. Conversely, a Section 164(1) disqualification arising from a conviction for a non-financial offence might disqualify someone from acting as director but may not render them ineligible under any Section 29A sub-clause other than 29A(d).

Section 164 also has no bearing on who can participate in a company's governance as a shareholder or as management below board level. Section 29A, by contrast, applies to the person submitting the resolution plan and to their related parties under Section 29A(h), regardless of whether they hold any directorial appointment.

Procedural and Remedial Differences

How Can a Director Challenge a Section 164 Disqualification?

A Section 164(2) disqualification is recorded by the ROC based on company filing defaults. A director who disputes the disqualification can approach the National Company Law Tribunal or file a writ petition before the High Court. Several High Courts have granted interim relief to directors who demonstrated that the defaults were caused by reasons outside their control or were cured before the disqualification was applied. The Companies Act also permits filing of overdue returns through Condonation of Delay Scheme notifications, which can restore eligibility.

Section 29A Assessment During CIRP

Section 29A ineligibility is assessed during the CIRP itself, at the stage when resolution plans are submitted and evaluated. The resolution professional is obligated under Section 30(1) to receive resolution plans only from eligible resolution applicants. The Committee of Creditors assesses eligibility when evaluating plans. If the NCLT finds that an approved plan was submitted by an ineligible person, it can reject the plan even after CoC approval. There is no separate pre-CIRP process for establishing Section 29A eligibility; the burden falls on the resolution applicant to demonstrate eligibility.

Does the MSME Carve-Out Under Section 29A Apply to a Section 164 Disqualification?

The second proviso to Section 29A states that sub-clauses (c) and (h) shall not apply to a resolution applicant in respect of a corporate debtor that qualifies as a micro, small, or medium enterprise. This allows promoters of MSME corporate debtors to submit resolution plans even if their accounts are classified as NPAs. The carve-out does not extend to sub-clauses (a), (b), (d), (e), (f), or (g), so a wilful defaulter or a person disqualified under the Companies Act remains ineligible even for MSME CIRPs.

Disqualification and the Right to Be Heard

A recurring legal challenge to disqualification under Section 164 concerns the manner in which it is applied, and the governing principle is the natural-justice rule that an order carrying civil consequences must not be passed without a fair opportunity to be heard, a principle the Supreme Court laid down in State of Orissa v. Dr. (Miss) Binapani Dei [AIR 1967 SC 1269]. Disqualification deprives a person of the office of director and of the ability to be appointed to other boards, which are plainly civil consequences, and courts have applied this principle in scrutinising mass disqualifications imposed without individual notice. While the statutory grounds for disqualification, such as the failure to file financial statements or annual returns for three consecutive years, are clear, the process by which disqualification is given effect must respect the affected director's right to be heard.

Frequently Asked Questions

If I am disqualified under Section 164(2) as a director, am I automatically ineligible under Section 29A to submit a resolution plan?

Yes. Section 29A(d) bars persons disqualified under the Companies Act from being directors. A Section 164(2) disqualification covers you regardless of which company triggered it. You remain ineligible to submit a resolution plan for any CIRP until the disqualification expires or is removed by a court.

Can a Section 164(2) disqualification be cured before the resolution plan submission deadline?

The Companies Act permits filing of overdue returns through Condonation of Delay Scheme notifications, which can result in removal of the disqualification. If the disqualification is removed before the plan is submitted, the person may regain eligibility under Section 29A(d). The cure must be complete before submission, not merely initiated.

Does Section 29A apply to the resolution professional or only to resolution applicants?

Section 29A applies only to resolution applicants, not to the resolution professional. The resolution professional's eligibility is separately governed by Section 5(27) and the IBBI (Insolvency Professionals) Regulations, 2016.

Can the NCLT review a CoC-approved resolution plan for Section 29A compliance?

Yes. The NCLT is required under Section 31 to satisfy itself that the plan complies with Section 30(2), which includes verifying that the plan was submitted by an eligible resolution applicant. A plan from a Section 29A ineligible person cannot be approved by the NCLT even if the CoC voted in its favour.

Does the Section 29A(h) 'related party' concept follow the Companies Act definition?

Not exactly. Section 5(24) of the IBC defines 'related party' broadly to include holding companies, subsidiaries, associates, and persons connected through management or control. Courts have interpreted it expansively, and it is wider than the Companies Act's corresponding definition.

Can a person declared a wilful defaulter cure that ineligibility before submitting a resolution plan?

Section 29A(c) expressly permits cure by paying the NPA amount before submission. Section 29A(b) covering wilful defaulters has no such express cure provision. Courts have not conclusively settled whether settlement of the underlying loan after a wilful defaulter declaration removes the ineligibility, and practitioners treat wilful defaulter status as effectively permanent until the bank formally withdraws the classification.

Is a director personally liable for a Section 164(2) default even if they joined the board after the default period began?

Courts have held that Section 164(2) disqualification applies to all persons who were directors during the period of default. A director who joined partway through the three-year default period may still be disqualified. The remedy is to challenge the disqualification before the NCLT or High Court and demonstrate the specific circumstances of the directorship.

What is the maximum period of disqualification under Section 164(2) of the Companies Act, 2013?

A director disqualified under Section 164(2) of the Companies Act, 2013 remains disqualified for five years from the date the company failed to file its financial statements or annual returns, or from the date it failed to repay deposits, redeem debentures or pay dividends, whichever default triggered the disqualification. The five year bar applies to appointment as a director in any company, not only the defaulting one. The disqualification is recorded by the Registrar of Companies and typically published in a list of disqualified directors maintained under the Companies Act, 2013.

Who decides whether a person is ineligible under Section 29A of the Insolvency and Bankruptcy Code, 2016?

The resolution professional makes the first assessment of a resolution applicant's eligibility under Section 29A of the Insolvency and Bankruptcy Code, 2016, since Section 30(1) obliges the resolution professional to receive plans only from eligible applicants. The Committee of Creditors and, ultimately, the National Company Law Tribunal can also examine eligibility when a plan is approved or challenged. A resolution applicant is generally required to file a declaration of eligibility, and providing false information in that declaration carries its own consequences under the Code.

Is there a condonation of delay scheme that can remove a Section 164(2) disqualification without approaching a court?

The Ministry of Corporate Affairs has, on past occasions, introduced condonation of delay schemes that allow a defaulting company to file its overdue annual returns and financial statements within a window without additional penalty, and directors disqualified under Section 164(2) of the Companies Act, 2013 for that company's default were, during such a scheme, treated as having their disqualification lifted for the defaulting company without needing to approach the National Company Law Tribunal or a High Court. Such schemes are periodic and not a standing entitlement, so a director cannot assume one will be available when needed.

Does Section 164(2) disqualification affect a person's position as a director in a private company that has not defaulted?

Yes, a Section 164(2) disqualification under the Companies Act, 2013 is not confined to the defaulting company. Once triggered, it bars the disqualified person from being appointed or reappointed as a director of any company, public or private, for the remaining part of the five-year period, and it also vacates their office in every other company where they currently serve as director, subject to the specific provisions on vacation of office under Section 167. A private company that has never defaulted cannot retain or appoint such a person as director during the disqualification period.

What happens to a resolution plan already approved by the Committee of Creditors if the successful applicant is later found ineligible under Section 29A?

A resolution plan submitted by a person ineligible under Section 29A of the Insolvency and Bankruptcy Code, 2016 cannot be approved by the National Company Law Tribunal even if the Committee of Creditors has already voted in its favour, because Section 30(2) requires the resolution professional and the Adjudicating Authority to confirm compliance with Section 29A before approval. If ineligibility surfaces after CoC approval but before NCLT sanction, the Tribunal can reject the plan and direct the Committee to reconsider other plans or invite fresh proposals.

Is a nominee director disqualified under Section 164(2) if the company they represent defaults on filings?

A nominee director is treated the same as any other director for the purposes of Section 164(2) of the Companies Act, 2013, since the provision disqualifies every director of a defaulting company regardless of how they came to be appointed. Courts have occasionally granted relief to nominee directors of government companies or financial institutions on the facts of a specific case, but there is no blanket statutory exemption for nominees, and a nominee director who wishes to avoid exposure should ensure the company's filing compliance is actively monitored rather than assumed to be someone else's responsibility.

Can a foreign national be disqualified under Section 164 and ineligible under Section 29A in the same manner as an Indian director or resolution applicant?

Section 164 of the Companies Act, 2013 and Section 29A of the Insolvency and Bankruptcy Code, 2016 apply to any person, without a nationality qualification, so a foreign national who is a director of a company with continuing filing defaults can be disqualified under Section 164(2) in the same way as an Indian director, and a foreign resolution applicant connected to such a disqualification can be rendered ineligible under Section 29A. The practical difficulty for foreign applicants is often establishing, to the resolution professional's satisfaction, that no disqualifying connection exists under Indian company records.