The Ministry of Corporate Affairs (MCA) in India has a primary focus on ensuring that companies keep current and accurate company director information as part of the country’s corporate compliance framework. One compliance requirement that is particularly key in the realm of company director information is DIR-3 KYC, which requires all individuals that have a Director Identification Number (DIN) to file a DIR-3 KYC every year in order to keep their name on the active list of Directors, and keep their credentials compliant. The complexity arises in the case of a director that has been disqualified, where the MCA's system sometimes does not allow the submission of the DIR-3 KYC even though it is mandatory that such persons file a DIR-3 KYC. This leaves both the directors and the companies with uncertainty regarding filing and compliance, as penalties will continue to accrue for non-compliance. This blog will explain in detail, in a professional, technical and practical manner, how to address DIR-3 KYC compliance for a disqualified director when the form cannot be filed, including legal remedies available, procedural questions involved, and expert recommendations regarding collecting the necessary information. The blog seeks to provide stakeholders the necessary understanding of the issues and to take appropriate actions.
Understanding DIR-3 KYC and Its Importance
The Ministry of Corporate Affairs has made DIR-3 KYC an annual requirement for compliance to confirm the identity and contact information of directors that are already registered with the MCA. Any director who has been issued a Director Identification Number (DIN) prior to March 31st of a financial year must comply with this requirement by the specified deadline of September 30th of the next financial year.
The objectives of DIR-3 KYC are
• To verify the credibility of the information recorded in the MCA database for directors.
• To deter any potential abuse of DINs.
• To promote transparency and accountability for the conduct of business operations by companies.
When a DIN is not submitted after the deadline for filing a DIR-3 KYC, it is marked as deactivated for non-filing and therefore a late fee must be assessed against the DIN.
Because the filing of the DIR-3 KYC is significant, the requirement to file is still applicable even if the director is currently suspended or disqualified, or at least in theory. It is this distinction that creates a conflict between the legal and technical aspects of corporate governance.
What Does Director Disqualification Mean?
As per Section 164 of the Companies Act, 2013, a director is disqualified if an individual does not:
1. Submit financial statements or annual returns for 3 consecutive years and
2. Has been convicted by a court of an offence involving violation of the Code of Moral Turpitude.
3. Has failed to pay deposits or debentures or dividends that have been declared.
After a director has been disqualified, that individual cannot be re‐appointed as a director of the same or another company for five (5) years. However, the DIN will not be cancelled by automatic operation or by being disqualified; however, it will be limited to only being usable and recorded in a state of “disqualified”.
Who Is a Disqualified Director Under the Companies Act?
A Director becomes Disqualified according to Section 164(2) of the Companies Act 2013, if
If a director is disqualified:
However, it is important to note that disqualification does not cancel the DIN, therefore, the DIR-3 KYC will still need to be submitted.
The Core Issue: DIR-3 KYC for Disqualified Directors
The practical issue of compliance towards performing the DIR-3 KYC for all DIN holders to stay current under the MCA rules creates a paradox because the MCA site will not permit a disqualified director to file a DIR-3 KYC form. Hence, the above two requirements conflict as follows:
• All holders of DIN must complete a DIR-3 KYC to remain compliant with the MCA.
• A disqualified director is unable to submit a DIR-3 KYC via the MCA portal, even though they are required to do so.
Consequently, disqualified directors may incur penalties for non-filing, even though they are prevented from being in compliance with the filing requirement as imposed by the MCA.
Why the MCA Portal Blocks DIR-3 KYC Submission
When a director’s status is marked as Disqualified, the MCA system restricts access to certain forms (i.e., the forms that fall under the definition of Disqualified) and, therefore, places those DINs in the inactive category for transactional filings because disqualification means non-compliance with regulatory requirements (i.e. regulatory non-compliance);
However, the DIR-3 KYC is not a transactional form, but rather a form for verification. There is currently no separate mechanism available for disqualified directors to update their KYC information. As a result of that lack of process or mechanism, the procedural gap remains.
Is DIR-3 KYC Legally Required for Disqualified Directors?
Legally, there is not explicit exemption for disqualified Directors from being required to file for their DIR-3 KYC. As per every MCA newsletter and frequently asked question pages, KYC Compliance is Linked to DIN and has nothing to do with whether or not the Director is an active Director or not.
Then therefore, a disqualified director continues to have an obligation to file their DIR-3 KYC Document. It is the legal obligation of the Directorate to file its DIR-3 KYC document; however, there is no obstacle to do so.
Is DIR-3 KYC Mandatory for Disqualified Directors?
Yes,
Every holder of a Director Identification Number (DIN) must complete DIR-3 KYC including those directors who are disqualified from being directors.
The Ministry of Corporate Affairs (MCA) has established through its notification as well as through the development of its system that:
• A manager's DIN will remain on record even if he or she is disqualified from being a director.
• All DIN's must meet KYC requirements unless they are surrendered in accordance with MCA regulations.
This results in a legal obligation and does not provide an easy and clear way of complying; thus, this creates difficulty in understanding obligations and making appropriate decisions.
Why Does the MCA Portal Not Allow DIR-3 KYC Submission for Disqualified Directors?
This is the core issue.
If a director is disqualified due to a Section 164(2) disqualification, the MCA system does the following
• Prevents the person from signing and/or filing e-forms
• Disables DSC for compliance filings
• Makes the DIN Status Disqualified
Thus, while it is mandatory to file DIR-3 KYC, via the MCA portal it cannot be submitted due to a technical block in the system, resulting in a compliance deadlock.
This contradiction exists because:
• whereas disqualifications relate to company defaults rather than to an individuals’ distinct identity as such, and as consequence directors find it impossible to file the DIR-3 as required.
• because DIR-3 KYC is simply a process for verifying an identity
• The MCA system considers all filings made in the system as the same without any exception based on individual circumstances.
Practical Solutions When DIR-3 KYC Cannot Be Filed
While the system does not allow for direct filing, there are remedies and best practices available to directors.
1.Filing a Representation to the ROC or MCA
The most commonly suggested first step is to file a representation to the ROC or directly to the MCA. When making a representation to the ROC or MCA it should include:
• The reason that you were unable to complete DIR-3 KYC because of system issues
• Your DIN and the details of your disqualification along with all applicable dates
• Request either for manual intervention or for clarification When you file a representation, you have documented evidence of your intention to comply.
2. Apply for DIN Reactivation (Where Applicable)
In instances where disqualification was applied erroneously or is still being disputed, a director could take legal action by doing the following:
• Submission of a writ petition to the High Court
• Requesting for temporary or permanent relief from disqualification
If the High Court grants the director relief from disqualification and restores his DIN status, the director can complete DIR-3 KYC as normal.
3. Submitting DIR-3 KYC after DIN Status Change
The KYC for (Directors) should be filed immediately after the Director’s identification number has changed from “Disqualified” to “Active” to avoid incurring penalties for later submission of this form. In the event that someone submits this form later than expected, they should still submit it as soon as they can to show their willingness/intent to comply with the law.
4. Professional Compliance Help
Utilizing a professional service that specializes in filing DIR-3 KYC forms in India minimizes the chances of running into difficulties and penalties related to filing a DIR-3 KYC. The professionals have years of experience managing the various aspects involved in the filing of this form (i.e., submitting documentation, speaking to regulatory authorities, obtaining and maintaining appropriate records, etc.) and can reduce an individual’s potential for penalties during an audit.
The Correct Legal Remedy: Filing DIR-3 KYC for a Disqualified Director
The solution is to rectify the status of the DIN, prior to the filing of DIR-3 KYC, as the filing of DIR-3 KYC online is not yet possible.
Step 1: Determine why you were disqualified.
The majority of the disqualification reasons will be due to the fact that the Annual Returns (AOC-4 and MGT-7) have not been filed on behalf of the Company.
Step 2: Bringing the Company into compliance.
To remove the disqualification as a DIN holder, the following actions must be completed:
• All Annual Returns and Financial Statements must be filed.
• Any additional fees due and penalties must be paid.
Step 3: Apply for removal of disqualification.
Depending on the circumstances, it may be possible to:
• File a writ petition in the High Court.
• The DIN will be reinstated by the MCA upon compliance being met (in a limited number of administrative cases).
Step 4: Reactivate the DIN.
Once the disqualification has been lifted:
• The DIN status will be "Approved" or "Active".
• You can submit via the MCA Portal.
Step 5: Submit DIR-3 KYC
After reactivation, a File DIR-3 KYC can be submitted as defined:
• DIR-3 KYC (eForm).
• DIR-3 KYC Web.
The role of professional File DIR-3 KYC service providers is critical in this process.
The DIR-3 KYC Process Explained
Before understanding the workaround for disqualified directors, let’s review the standard DIR-3 KYC process for all directors:
1.Obtain a Digital Signature Certificate (DSC):
The director must have a valid DSC to submit the form electronically.
2.Visit the MCA Portal:
Access the MCA portal and log in with the director’s DIN and registered credentials.
3.Download DIR-3 KYC Form:
The form can be downloaded in PDF format for offline preparation.
4.Fill in Personal & Professional Details:
Update PAN, Aadhaar, contact information, and any changes in employment or directorship.
5.Attach Documents:
Attach proof of identity, address, and DSC, as required.
6.Submit Online:
Once completed, submit the form via the MCA portal. A confirmation message with an SRN (Service Request Number) will be generated.
7.Receive Acknowledgment:
MCA updates the director’s KYC status, and a successful submission is reflected on the director’s profile.
This process works seamlessly for active directors. However, for disqualified directors, the system will typically block submission, leading to compliance challenges.
Common Challenges in Filing DIR-3 KYC for Disqualified Directors
Professional Service Providers may be of assistance but there are still many challenges faced by Directors filing for DIR-3 KYC including:
• Portal Restrictions - the MCA portal auto-blocks as submissions from disqualified Directors
• Pending Compliance - if a disqualified Directors DIR-3 KYC has been completed, then it cannot be filed until all other records are regularized;
• Delay in Status Update - A Director may have successfully filed their DIR-3 KYC application with the MCA; however, the MCA may take time to update a director’s status; and
• Accuracy of Documentation - if there is a mismatch between PAN/Aadhaar/DSC details, the application will be rejected.
Addressing these challenges requires both extensive preparation and professional DIR-3 KYC filing services.
Consequences of Not Filing DIR-3 KYC for Disqualified Directors
Failing to fulfil DIR-3 KYC obligations will result in the following consequences:
• Perpetual deactivation of DIN.
• Disqualification from being a director even after the expiration of the disqualification period
• Potential legal issues for future incorporation.
• Greater Level of Inspection by Regulatory Body.
As a result, it is crucial to take immediate corrective measures.
Common Myths Around DIR-3 KYC for Disqualified Directors
Myth 1: Disqualified directors are exempt from DIR-3 KYC Fact: DIR-3 KYC is mandatory for all DIN holders.
Myth 2: DIN automatically reactivates after five years Fact: Compliance defaults must be corrected.
Myth 3: Penalty payment alone solves the issue Fact: Legal and procedural steps are often required.
Conclusion
Filing DIR-3 KYC for a disqualified director is one of the most misunderstood areas of corporate compliance in India.. Although the law requires all DIN Holders to submit their KYC, practical limitations of the MCA Portal can prevent most Disqualified Directors from doing so. Therefore, it is important to understand how compliance intent and appropriate documentation, as well as the involvement of professionals, can help reduce the risk of a Disqualified Director's failure to complete the KYC filing process timely. With support from an experienced professional, maintaining open communication with regulatory agencies and completing the KYC filing process once the access to the MCA Portal has been restored, Disqualified Directors will be able to appropriately comply with this regulatory requirement and protect their ability to comply in the long term.
FAQs
1.Is DIR-3 KYC mandatory for disqualified directors?
Yes. Legally, DIR-3 KYC is mandatory for all DIN holders, including disqualified directors, although practical system limitations may restrict filing.
2.Why can’t I file DIR-3 KYC after disqualification?
The MCA portal often blocks form submission for disqualified DINs, even though the compliance requirement technically remains.
3.Will penalties apply if DIR-3 KYC is not filed due to system restriction?
In many cases, penalties continue to reflect on the MCA system. However, maintaining documented proof of attempted compliance is strongly advised.
4.Can professional consultants help in such cases?
Yes. A professional File DIR-3 KYC service can guide you through representations, legal remedies, and post-reactivation compliance.
5.What should I do once my DIN is reactivated?
You should immediately complete the DIR-3 KYC process to avoid further non-compliance.
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