Section 164(2) Shall Not Apply To – Explained Simply

Section 164(2) Shall Not Apply To—A Clear, Human Explanation Without Legal Noise

If you’ve ever been a director or advised one, Section 164 of the Companies Act, 2013, is probably one of the most stress-inducing provisions you’ve heard of.

I’ve personally seen directors panic after receiving MCA emails saying “disqualified u/s 164,” without fully understanding why, whether it applies to them, or whether it can be avoided.

One of the most searched and misunderstood lines is

“Section 164(2) shall not apply to…”

Let’s slow this down and understand it properly—like a real conversation, not a legal lecture.

First, what is Section 164 of the Companies Act, 2013?

Section 164 deals with disqualification of directors.

In simple terms, it answers one question:
👉 When is a person NOT allowed to be a director of a company?

There are two main parts:

• Section 164(1) – personal disqualifications
• Section 164(2)—company default-based disqualifications

This blog focuses on Section 164(2).

What Does Section 164(2) Actually Do?

Section 164(2) disqualifies a director not because of their personal mistake, but because of defaults committed by the company.

A director becomes disqualified if the company:

• Has not filed financial statements or annual returns for 3 consecutive financial years, OR
• Has failed to repay deposits, interest, debentures, or declared dividends for 1 year or more

If this happens, the director:

• Cannot be reappointed in that company, AND
• Cannot be appointed in any other company for 5 years

This is why Section 164(2) is feared—it has a domino effect.

Now the Big Question: “Section 164(2) Shall Not Apply To”— Who Gets Relief?

This is where context, exceptions, and judicial interpretation matter.

The law itself and subsequent clarifications have made it clear that Section 164(2) shall not apply to certain categories and situations.

Let’s break them down calmly.

1. Directors of Certain Special Category Companies (Conditional Relief)

It is commonly understood and practiced that Section 164(2) shall not apply to directors of certain companies, subject to conditions.

These include:

• One Person Company (OPC)
• Small Company
• Dormant Company

However, this exemption is not automatic.

👉 The company must meet the statutory definition and criteria of these categories at the relevant time.

If a company claims to be “small” but doesn’t meet turnover or capital limits, the protection will not apply.

2. When the Company Has Rectified the Default

Another extremely important practical relief.

Many professionals argue—and courts have also considered—that:

Section 164(2) shall not apply if the company has rectified its defaults

For example:

• All pending annual returns are filed
• Financial statements are regularized.
• Default in repayment is cleared

While the Act itself does not explicitly say this, judicial interpretation and MCA schemes (like Condonation of Delay Schemes) have supported this view.

This means:

• Disqualification is meant to punish continuing non-compliance, not honest correction

3. Debate on Retrospective Applicability (Pre-2014 Period)

This is one of the most litigated aspects.

Section 164 came into force on 1 April 2014.

A major legal question raised was
👉 Can defaults before 1 April 2014 be counted for disqualification?

Many High Courts have held that:

• Section 164(2) should not apply retrospectively
• Defaults before the section came into force cannot automatically trigger disqualification

So yes, it is strongly debated whether Section 164(2) applies retrospectively, and courts have often leaned in favor of directors.

4. When the Person Was Not a Director During the Default Period

This is common sense—but often ignored.

If a person:

• Was appointed after the default period, or
• Resigned before the default began

Then:
👉 Section 164(2) shall not apply to that person

Disqualification is linked to tenure, not association by name.

5. Non-Executive / Independent Directors – Limited Protection

While the section does not fully exempt independent or non-executive directors, courts have shown leniency where:

• The director had no role in day-to-day management
• There was no knowledge or control over compliance

This is not a blanket exemption—but it is a defense, especially in writ petitions.

What Section 164(2) Does NOT Mean (Common Misunderstandings)

Let’s clear some dangerous myths.

❌ It does NOT mean every director is automatically guilty
❌ It does NOT mean permanent disqualification
❌ It does NOT mean resignation avoids past liability
❌ It does NOT apply blindly without context

Section 164(2) is strict—but not mindless.

Section 164(1) vs Section 164(2)—Quick Difference

Understanding this difference avoids half the confusion people face.

Practical Situations I’ve Seen in Real Life

• Directors disqualified due to CA or staff negligence
• Companies closed but returns never filed
• Directors unaware of old dormant companies
• Disqualification emails received years later

In most such cases, professional representation and corrective filing helped.

What Should a Director Do to Stay Safe?

Some very practical advice:

1. Always track MCA compliance, even if not active
2. Don’t assume “inactive company = no filings.”
3. Resign properly with DIR-12 if exiting
4. Regularly check DIN status
5. Act quickly if any default notice appears

Section 164(2) punishes delay—not awareness.

Final Thoughts—Section 164(2) Is Strict, But Not Heartless

Section 164(2) exists to:

• Enforce discipline
• Prevent habitual defaulters
• Improve corporate governance

But the law also recognizes reality.

That’s why:

• Section 164(2) shall not apply to certain companies
• It is debated for retrospective application
• Courts consider fairness, timing, and intent

If you or your client is facing issues related to director disqualification, don’t panic and don’t ignore it. Early correction and proper legal guidance can change outcomes.

For reliable, practical help with director disqualification, MCA compliance, DIN activation, and company law matters—just like in our previous blogs—you can confidently rely on callmyca.com, because corporate compliance is best handled before it turns into a penalty.