Companies Act 2013 Provides Procedure for the Removal of the Director

calendar08 Nov, 2019
timeReading Time: 5 Minutes
Removal of Directors

Everything requires proper management so that it can function correctly. The same thing goes for a Private Limited Company, and hence we have Directors who are responsible for the management of the company. Directors are the one who promotes the success of the business and benefit to its shareholders. The shareholders elect the director of a company for managing the affairs of the company in accordance with the provisions of Companies Act 2013 (hereinafter the act). The Board of Directors or shareholders can remove the director of a Company under section 169 of the act. Here in this article, we will discuss the removal of director:

Removal of the Directors

The removal of the directors under section 169[1] of the act can be made as follows:

  • The company, by passing an ordinary resolution, can remove the directors by giving an opportunity of being heard. (Note: Directors appointed under section 242 by the tribunal are not covered under this clause).
  • For the removal of the director, a special notice of a resolution is required to remove, and the notice has to be issued for the appointment in place of the removed director.
  • After the receiving of the notice of the resolution this notice has to send immediately to the concerned director an other directors which are a member or non-member of the board of the company and those are required to be heard o resolution at the meeting.
  • When a director receives notice of the resolution for his removal, then the concerned director has to give his representation in writing to the company. The notice of representation has to be given to all members of the company and send a copy of that representation to every member of the company who has called for the meeting.
  • The vacancy is created under this section after the removal of the director then in the same meeting of the removal another director is being appointed for time being, and a special notice of the intended appointment is provided.
  • The newly appointed director has to hold the post until the duration up to the new formal appointment of the director is made.
  • The director removed once shall not be re-appointed by the board of the directors.
  • The removed director is liable for the damages and compensation which is required to be payable to him in lieu of his removal or termination according to the prescribed terms and conditions of the appointment.

Reasons for the removal of the director

The Board of Directors or shareholders can remove the Directors of a company if he/she incurs any of the disqualifications specified under section 164  the Companies Act of 2013, or he/she is absent from the Board meeting over 12 months. Also, if the concerned director enters into a contract or arrangement against the provision of section 184, then that director is convicted by the court and can be sentenced to imprisonment for not less than six months.

Note: A company has the right to remove the director only if the Central Government or the Tribunal has not appointed the director.

Who can take part in the removal of the director?

  • The shareholders who are holding shares not less than sum of  Rs. 5,00,000 as a paid up capital shares on the date of notice or are holding not less than 1% of the total voting power, can send a special notice to the company for removal of the director.
  • Shareholders have the discretion to decide the date of the meeting. However, the special notice shall not be sent earlier than three months from the date of meeting but at least 14 clear days before the date of the meeting, at which the resolution is to be moved.
  • The concerned director has given an opportunity of being heard at the meeting before the board of the directors. If the reasons are validated by the shareholders and the board of the directors, then they can terminate the procedure of the removal after consideration.

Mandatory Requirements

  1. It is an obligatory condition to issue a special notice for the removal of director.
  2. [Section 115 and Rule 23(1) of the Companies (Management and Administration) Rules, 2014] – A special notice necessary to be given to the Company shall be signed by number of members holding not exceeding one percent of total voting power either collectively or individually or holding of the shares for which a cumulative sum not exceeding five lakh rupees have been paid on the notice date. 
  3.  Any vacancy formed by the removal of a director if he had been appointed in the general meeting by the company or by the Board then it shall be filled by appointing another director at his place at that particular meeting where he was removed, provided that the intended appointment’s special notice has been given.
  4. It is always important for the director to hold office until the date from which his predecessor could have held the office if he was not been removed.
  5. There shall be no re-appointment of the director by the Board of Directors.

Procedure for the Removal of the Director

Two cases arise either the company itself removes the director, or in case the director does not attend three Board meetings in a row.

In case the company removes the Director:

  • Seven days notice will be given to all the Directors informing about the removal of Directors.
  • In the Board meeting, a resolution for the holding of an (EGM) extraordinary general meeting will be held along with the resolution for the removal of the director subject to the approval of the shareholders.
  • The Board members of the company will hold a Board meeting by providing seven days of clear notice. This notice has to be issued within 21 days by the company which excludes the day on which the notice was sent and received.
  • In the board meeting, the Board members will discuss and then decide whether to remove the director.
  • Before passing the final resolution, a choice is given to the director to present anything in favour of himself.
  • After the resolution is being passed, two forms of DIR-11 and DIR-12 are needed to be filed in this case. The director files DIR-11 while the company itself files DIR-12 with the ROC (Registrar of the Companies) along with the Board Resolution.
  • In the end, the name of the concerned director has to be removed and finally withdrawn from the master data of the company of the MCA (Ministry of Corporate Affairs) website.

In case the director does not attend three Board meetings in a row:

  • According to Section 167 of the Companies Act, 2013, if a director does not attend three consecutive Board meeting during the time period of 12 months then it is considered as a director has vacant the office. This 12 month means the day on which he was absent at the first board meeting even if he/she got the prior notice of all the meetings.
  • The absence of the director will be considered as if he/she has left the office and the FORM DIR-2 is filed then.
  • After this, the name of that concerned director will be removed from the MCA website.

Final Thoughts

The Removal of the director in any company entirely depends upon the company itself and the director. The concerned director who is removed has to follow a procedure prescribed by the Board of Directors or the shareholders in accordance with the provisions of the Companies Act 2013. The Corpbiz has the team which will help regarding the procedure under the Companies Act through our professionals.

Read our article:Companies Act 2013 Provides a Procedure for Appointment and Resignation of the Directors

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