Director Disqualification Under Section 164(2): Three Years of Unfiled Returns

Section 164(2) of the Companies Act 2013 disqualifies a director for five years when their company fails to file financial statements or annual returns for any continuous period of three financial years. A disqualified director cannot be re-appointed in that company or appointed in any other company, and the office vacates automatically under Section 167. The remedy is to file all pending forms and seek reconsideration — but the disqualification is automatic, not something the ROC has to apply for.

Since MCA21 V3 (June 2025): a disqualified director's DIN is flagged in real time and any e-form bearing it is rejected at submission. The three-year trigger and five-year disqualification are unchanged.

What the law actually requires

Section 164(2) creates two disqualification triggers. The first — and the one that catches private companies — is the non-filing trigger:

A person is not eligible to be re-appointed as a director of that company or appointed as a director of any other company for five years if the company has not filed financial statements or annual returns for any continuous period of three financial years.

The second trigger is financial: failure to repay deposits, redeem debentures, or pay declared dividends for one year or more. The non-filing trigger is the one most private limited companies need to understand.

Counting the three years

The Companies (Amendment) Act, 2017 clarified that the three-year period is computed from the financial year in which the company first defaults, not from three full years after the first default. A company that stops filing from FY 2023-24 onwards — missing FY 2023-24, FY 2024-25 and FY 2025-26 — hits three consecutive years at the end of FY 2025-26, and the directors become disqualified from that point.

The effect on the director's other boards

The disqualification is not company-specific. Section 164(2) bars appointment in "any other company." A director who sits on a dormant shelf company that missed filings is disqualified from the board of their main operating company too. MCA21 v3 validates DINs in real time — a disqualified DIN is rejected at the point of submission of any e-form, including AOC-4, MGT-7 and DIR-12.

Worked example: three years of silence at Beacon Industries Pvt Ltd

Beacon Industries Pvt Ltd stopped filing after a cash crunch. Its directors are Rohit and Meera.

At the end of FY 2025-26, Rohit and Meera are disqualified for five years. They cannot be appointed to any board — including a new venture the founders are raising money for. When the company later files its pending returns, the five-year clock does not automatically reset; the disqualification is a separate consequence of the three-year default.

The published lists

The MCA has published lists of disqualified directors — most notably in 2017 and 2020 — based on companies that had not filed for the qualifying period. The lists include thousands of directors across India. A director's name appearing on such a list is a public, permanent record visible in MCA master data and in any diligence search.

Related provisions

• Section 167(1) — the office of a director vacates automatically if the director becomes disqualified under Section 164.
• Section 164(1) — separate, absolute disqualifications: undischarged insolvency, conviction for an offence of moral turpitude with a sentence exceeding six months, unsound mind declared by a court, or removal by an NCLT order for fraud.
• Section 167(2) — a disqualified director who continues to act as a director faces imprisonment up to one year, or a fine of ₹1 lakh to ₹5 lakh, or both.

The remedy path: what actually works

• File everything that is pending. The first step is to bring the company's filings current — AOC-4, MGT-7/MGT-7A and DPT-3 for every defaulted year, paying the Section 403 late fees (or using an applicable amnesty scheme). Filing is a prerequisite to any reconsideration.
• Check the MCA condonation/amnesty route. Where the default is entirely due to non-filing, the company can apply for condonation of delay, or use any current one-time scheme, to regularise the record. An "ACTIVE-Compliant" status is the necessary baseline.
• Seek reconsideration. Once the record is clean, the affected director or the company can approach the ROC, or in appropriate cases the NCLT, to have the disqualification reconsidered. This is fact-specific and takes legal advice — there is no automatic reversal.
• Appoint a clean director in the meantime. While a disqualification is under challenge, the company should ensure at least one non-disqualified director (with a live DIN) is in place so that the remedial filings themselves can be signed and submitted — otherwise the catch-22 of "no one can file" paralyses the company.

⚠️ — the reconsideration procedure (ROC vs NCLT, and the specific forms/orders involved) depends on the facts and the current MCA practice. Confirm the precise route for your company's position before filing.

Practical implications

• Disqualification is discovered by diligence, not by notice. Directors receive no formal communication in most cases. It is discovered when MCA21 rejects a filing or a diligence search flags the DIN — by which point the damage to a funding round or bank facility is already done.
• The five-year clock runs regardless of later filing. Filing the pending returns fixes the company's compliance record but does not automatically erase the five-year disqualification. Treat the two as separate problems.
• The flag is public. MCA master data is public. A disqualification list appearance is visible to investors, lenders and counterparties for years.
• Personal liability under Section 167(2). Continuing to act as a director after disqualification is a personal criminal exposure — imprisonment up to one year or a fine of ₹1 lakh to ₹5 lakh — that indemnity cannot cover.

FAQ

What triggers disqualification under Section 164(2)?
Failure to file financial statements or annual returns for any continuous period of three financial years. The period is counted from the first financial year of default.

How long does the disqualification last?
Five years. During that period the director cannot be re-appointed in the same company or appointed in any other company.

Does filing the pending returns remove the disqualification?
Filing regularises the company's record but does not automatically reverse the disqualification. Reconsideration is a separate process with the ROC or NCLT..

Is the disqualification only for that one company?
No. It bars the director from appointment in any company — the disqualification travels with the person, not the company.

Does the office vacate automatically?
Yes. Under Section 167, the office of a director vacates automatically on disqualification under Section 164. Continuing to act carries its own penalty under Section 167(2).

Are there other grounds of disqualification?
Yes, under Section 164(1) — undischarged insolvency, a criminal conviction involving moral turpitude with a sentence over six months, unsound mind, or NCLT removal for fraud.

Sources

• Section 164(1) and 164(2), Companies Act 2013; Companies (Amendment) Act 2017 (computation of the three-year period)
• Section 167 (vacation of office); Companies (Appointment and Qualification of Directors) Rules 2014
• MCA lists of disqualified directors (2017, 2020); MCA21 Version 3 DIN validation
• Companion guide: "Director Disqualification Under Section 164: The Automated MCA21 Trigger" (2026-06-12)

Use the ROC compliance calendar to keep every annual filing within the three-year window. For a ROC compliance audit of your company, visit pvtltd.co.

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See Also

• DIR-3 KYC: Annual Director KYC Due Date (30 September) and Penalty
• MGT-7 Annual Return: Due Date, Contents, and Filing on MCA V3 Portal
• ADT-1: Appointment of Auditor Filing Within 15 Days of AGM

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