Business Laws and Ethics · Directors - Role, Responsibilities, Qualification, Appointment, Removal, Remuneration and Powers

Disqualification of Directors: Sections 164 and 167

Updated 10 October 2026 · Fact-checked

Section 164 lists the grounds on which a person is not eligible to be appointed a director, such as unsoundness of mind, insolvency, certain convictions, unpaid calls or default by a company. Section 167 lists when an existing director's office becomes vacant. To solve a question, match the facts to a clause and check its time limit.

Understand Qualifications and Disqualifications of Directors

A director can be appointed only if the person is not barred. Section 164 is the list of bars. Think of it as a gate: if any bar applies, the person cannot be appointed. If a person is already a director and a bar arises, section 167 says the office becomes vacant.

Section 164(1) covers personal bars. These are: unsound mind declared by a competent court; undischarged insolvent; a pending application to be adjudicated insolvent; conviction with imprisonment of not less than six months (barred until five years pass from the expiry of the sentence); a court or Tribunal disqualification order in force; unpaid calls on shares for six months after the last date fixed; conviction for a section 188 related party transaction offence in the last five years; non-compliance with section 152(3); and non-compliance with section 165(1).

The conviction clause has a harsher proviso. If the sentence is seven years or more, the person is not eligible to be a director in any company, with no five-year wait mentioned.

Section 164(2) covers company default. A person who is or has been a director of a company that (a) did not file financial statements or annual returns for any continuous three financial years, or (b) failed to repay deposits or interest, redeem debentures or pay interest, or pay a declared dividend, and the failure continues for one year or more, cannot be re-appointed in that company or appointed in another company for five years from the date of the default. A person newly appointed to a company already in default does not incur the disqualification for six months from the date of appointment.

Section 167(1) lists the grounds for vacation of office. Besides incurring any section 164 disqualification, these include absence from all Board meetings held during twelve months, breach of section 184 on contracts in which he is interested, failure to disclose that interest, disqualification by a court or Tribunal order, conviction with imprisonment of not less than six months, removal under the Act, and ceasing to hold the office in a holding, subsidiary or associate company that was the basis of appointment.

A private company may add disqualifications and grounds of vacation through its articles (sections 164(3) and 167(4)). Note that in a Producer Company section 378Q gives its own grounds for vacation.

Key rules to remember

Conviction bar: Imprisonment ≥ 6 months → ineligible until 5 years from expiry of sentence; imprisonment ≥ 7 years → ineligible in any company; Applies to any offence, whether or not it involves moral turpitude. Section 164(1)(d) and its proviso.
Unpaid calls: Calls unpaid + 6 months elapsed from last day fixed for payment → disqualified; Applies to shares held alone or jointly. Section 164(1)(f).
Related party conviction: Convicted under section 188 offence in the last preceding 5 years → disqualified; Section 164(1)(g).
Company default: Company fails to file financials or annual returns for 3 continuous financial years, or fails on deposits, debentures or dividend for 1 year or more → 5 years bar; Applies to re-appointment in that company and appointment in other companies. Section 164(2).
New appointee in a defaulting company: No disqualification for 6 months from the date of appointment; Proviso to section 164(2).
Absence: Absent from all Board meetings held during 12 months, with or without leave → office vacated; Section 167(1)(b).
Grace on conviction or disqualification order: Office not vacated for 30 days; if appeal is filed within 30 days, until 7 days after disposal; if further appeal is filed within 7 days, until it is disposed of; Applies to section 167(1)(e) and (f) only.
Penalty for acting after vacancy: Fine of ₹1,00,000 to ₹5,00,000; For a person who functions as a director knowing the office is vacant. Section 167(2).
Proviso on default disqualification: If vacation arises under section 164(2), the office is vacated in all companies other than the defaulting company; Proviso to section 167(1)(a).

How to solve Qualifications and Disqualifications of Directors questions

Use this method for any case-based question on eligibility or vacation of a director.

1Identify whether the person is being appointed (section 164) or is already a director (section 167).
2List the facts with numbers: sentence length, months of default, years elapsed, number of meetings.
3Match each fact to the exact clause and state the clause number.
4Check the time condition: six months, five years, one year, three years or twelve months.
5Check provisos: seven-year sentence, six-month grace for a new appointee, and the 30-day and 7-day relief under section 167.
6Check whether the company is private and its articles add further grounds.
7State the conclusion clearly: eligible or not, vacated or not, and which companies are affected.
8Add the consequence if relevant, such as the fine under section 167(2).

Quickest way: Clause-and-clock check

When to use it: Use for MCQs and short case questions where you have under two minutes.

Ask: appointment or existing director?
Pick the clause by the trigger word: unsound mind, insolvent, convicted, calls, section 188, default, absent.
Check the clock: 6 months, 5 years, 1 year, 3 years or 12 months.
Check for the one proviso that flips the answer, then choose the option.

Common mistakes in Qualifications and Disqualifications of Directors

Treating section 164 and section 167 as the same thing.
Both deal with disqualifications and the lists overlap.
Fix: Remember: 164 decides who may be appointed; 167 decides when an existing director must leave. Section 167(1)(a) links the two.
Saying a conviction disqualifies only if the offence involves moral turpitude.
Older rules and the Producer Company provision use that phrase.
Fix: Under sections 164(1)(d) and 167(1)(f) the offence may involve moral turpitude or otherwise. What matters is imprisonment of not less than six months.
Forgetting the seven-year proviso.
Students stop after the five-year rule.
Fix: If the sentence is seven years or more, the person is ineligible in any company. Read the sentence length first.
Assuming an appeal removes a disqualification under section 164.
Students confuse it with the grace period in section 167.
Fix: The proviso to section 164(3) says the disqualifications in clauses (d), (e) and (g) of 164(1) continue to apply even if an appeal or petition is filed against the conviction or disqualification order. The 30-day and 7-day relief is a separate rule on vacation of office under 167.
Applying the five-year bar from the wrong date in default cases.
Students count from conviction or from appointment.
Fix: Under section 164(2) the five years run from the date on which the company fails to file or pay. A new appointee gets six months from appointment.
Saying a director who is absent from three consecutive meetings vacates office.
Students recall a general rule of thumb.
Fix: The text says he must be absent from all meetings held during a period of twelve months, with or without leave.

Worked examples

Example 1

Mr. Rajan was convicted of an offence and sentenced to imprisonment for eight months. He was released on 1 April 2025. On 1 January 2028, a company wishes to appoint him as a director. Can it do so? Would your answer differ if the sentence had been eight years?

Show the solution

Section 164(1)(d) applies: imprisonment of not less than six months.
Eight months is not less than six months, so the bar applies until five years have passed from the date of expiry of the sentence.
Five years from 1 April 2025 ends on 1 April 2030. On 1 January 2028 the period has not elapsed.
So he is not eligible on 1 January 2028.
If the sentence were eight years, the proviso applies: seven years or more means he is not eligible to be appointed in any company.

Answer: No, Mr. Rajan cannot be appointed on 1 January 2028, because five years have not elapsed from the expiry of his sentence. With an eight-year sentence he would be ineligible in any company under the proviso to section 164(1)(d).

Example 2

Mr. Suresh is a director of Alpha Ltd and Beta Ltd. Beta Ltd did not file its financial statements for three continuous financial years. Discuss Mr. Suresh's position under sections 164 and 167. Also state what happens if he keeps acting as a director of Alpha Ltd knowing his office there is vacant.

Show the solution

Section 164(2)(a) applies: Beta Ltd has not filed financial statements or annual returns for a continuous period of three financial years.
A person who is or has been a director of such a company is not eligible to be re-appointed in Beta Ltd or appointed in another company for five years from the date on which Beta Ltd fails to file.
The six-month grace in the proviso to section 164(2) applies only to a person who is newly appointed as a director of a company already in default. Mr. Suresh was already a director, so no grace applies to him.
Under section 167(1)(a) and its proviso, he incurs the disqualification and his office becomes vacant in all companies other than the defaulting company.
Alpha Ltd is not the defaulting company, so his office there becomes vacant. His office in Beta Ltd does not become vacant on this ground.
If he functions as a director of Alpha Ltd knowing the office is vacant, section 167(2) applies: fine of not less than ₹1,00,000, which may extend to ₹5,00,000.

Answer: Mr. Suresh is disqualified for five years under section 164(2), with no six-month grace because he was not newly appointed. His office in Alpha Ltd becomes vacant, but not in Beta Ltd, the defaulting company. If he continues to act in Alpha Ltd knowing this, he is liable to a fine of ₹1,00,000 to ₹5,00,000.

Exam tips

Always cite the section and clause, such as 164(1)(d) or 167(1)(b). Examiners give step marks for the correct reference.
In case studies, write the numbers from the facts into your reasoning, such as months of default and years elapsed, then compare with the statutory limit.
For a difference-between question, write two columns of points: who it applies to, timing, source section, effect and consequence.
Learn the grace rules in the section 167 proviso for conviction and disqualification orders. They are a favourite trap in MCQs.
Do not mix in the Producer Company rule (section 378Q) unless the question names a Producer Company.

Practice questions from Directors - Role, Responsibilities, Qualification, Appointment, Removal, Remuneration and Powers

Qualifications and Disqualifications of Directors in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Qualifications and Disqualifications of Directors: frequently asked questions

What is the difference between disqualification and vacation of office of a director?

Disqualification under section 164 is a bar on being appointed as a director. Vacation of office under section 167 is the end of an existing director's term because a ground arises. Incurring a section 164 disqualification is itself one ground for vacation.

Does a director who is convicted have to leave immediately?

Not always. Under the proviso to section 167(1), the office is not vacated for thirty days from the date of conviction. If an appeal is filed within those thirty days, the office stays until seven days after it is disposed of, and a further appeal filed within seven days extends this until that appeal is disposed of.

Can a private company add more disqualifications for directors?

Yes. Section 164(3) lets a private company provide additional disqualifications in its articles, and section 167(4) lets it add other grounds for vacation of office. These sections give this power only to private companies.

What is the penalty for acting as a director after the office is vacant?

Under section 167(2), a person who functions as a director knowing that the office has become vacant on account of a section 167(1) disqualification is punishable with a fine of not less than ₹1,00,000, which may extend to ₹5,00,000.