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CS Executive · Company Law and Practice · Directors

Ms. Neha Iyer, a director of Alpha Ltd and Beta Ltd, incurs disqualification under section 164(2) because Alpha Ltd failed to file financial statements for three continuous financial years. What is the effect on her directorships?

She vacates office in Beta Ltd but may continue in Alpha Ltd. The proviso to section 167(1)(a) says that on disqualification under section 164(2), the office becomes vacant in all companies other than the company that is in default.

  1. AShe vacates office in Alpha Ltd only, and continues in Beta Ltd
  2. BShe vacates office in both Alpha Ltd and Beta Ltd
  3. CShe vacates office in Beta Ltd, but may continue in the defaulting Alpha LtdCorrect
  4. DShe vacates office in no company until the Tribunal passes an order

Explanation

The proviso to section 167(1)(a) states that where a director incurs disqualification under section 164(2), the office becomes vacant in all companies other than the company which is in default. So Neha vacates Beta Ltd but not defaulting Alpha Ltd. The option that she leaves both is wrong because the defaulting company is excluded.

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