Overview on Removal of Director
Each private company should have a least of two directors, whereas a public corporation shall have a least of three directors. A Private company can remove a director if he catches any of the incompetence specified under the Act, absents himself/herself from board adherence over 12 months. It enters into agreements or arrangements against the provisions of section 184. However, it gets excluded by order of a court or Tribunal or is convicted by a court of any crime and sentenced to imprisonment for not less than six months.
About Participation in the Removal of the Director of a Company
- The Stockholders who are keeping shares not less than a sum of Rs 5,00,000 as a paid-up capital shares on the period of notice or are holding not less than 1% of the total voting power, can send a special announcement to the company for 'removal of the director.'
- Shareholders concede the power to decide the date of the meeting. However, the particular notice shall not be sent earlier than three months from the time of the meeting, although the resolution is to be moved at least 14 clear days before the date of the session.
- The considered director has given the option of being heard at the meeting before the board of the directors. If the objects are validated by the stockholders and the board of the directors, then they can eliminate the procedure of the removalof Director after consideration.
Understandings behind Resignation of Directors
- Dispute with the Board
When many directors work commonly, a difference of opinion ought to happen. It results in hindering the overall performance of the corporation; in such a position, the directors may be removed with due considerations
- Misuse in the Company Affairs
When a director gets introduced to the illegal practices of the company, he may find himself becoming dragged into it that matches his reason for resignation. To defend the circumstances appearing out of such activities, he may be removed by due considerations.
- Suspension due to infringement
Any non-adherence, violation, or defaults on the director’s end can lead him into trouble.
- The recession of nomination
It is only appropriate to the Nominee directors who primarily get appointed by the NBFC’s investors on the BOD. Once the transaction between the company and entity is complete, the Nominee director can resign, or he may also leave after the removal of nomination.
What is the Eligibility Criteria to be a Director?
There are no designated qualifications, but an individual should comply with the following mentors be a director:However, according to the law, a specific natural person only can be a director of any company.
- Age Demarcation
There is no alternate fixed age for being a director, but it is essential that the person who should be competent to enter into any contract. Moreover, in a matter of 'managing director,' 'full-time' director, or 'independent' director of a recognized company, the person becomes eligible to be a director if he is of 21 years and has not reached the age of 70 years officially.
- Determination of Nationality
There is no restriction. However, there must be a minimum of one Indian director in the company.
- DIN Needed
To be eligible to be designated as a company's director, the person must get a Director Identification Number. The main intention behind having a DIN is to make assured that fake directors do no fraud, and in case anyone ventures any such criminal activity, they can be traced within this unique number.
- Limit of Valid directorship
A personality can only be a director of 20 separate companies at a time. Out of these 20 companies, only ten can be public companies.
- Unsound mind or bankrupt person
Anybody who is of unsound mind or is incompetent of making decisions on his own cannot be appointed as a director. This involves children, mentally disabled individuals, and frames with unstable mental faculties. Furthermore, insolvent people or individuals who have maintained bankruptcy claims in the court of law are disqualified from acting directors.
- Criminal background
If a personality has a criminal record and was sentenced to confinement for more than seven years or more, he cannot be a director.
- Pending overdue returns
If the individual has not met previous returns in any of the preceding years, he shall be barred from keeping the directorial position.
Recognition: Types of Director
The directors of a company change in terms of the role they play, such as managing director who runs the overall purposes of the company, executive directors who look after the day to day methods, and independent directors who assure proper governance of the company. Thereby, one company can have increased directors; nevertheless, the appointment of directors also depends on the type of business like:
- As per 'Section 149(1)' of the Companies Act, 2013, every public corporation shall have a minimum number of 3 directors, whereas the least amount of directors in a private company is two and only one director in case of the 'One Person Company.'
- The highest number of directors in a public company is 15. Besides, a company can also select more than 15 directors after getting a permit from a specific resolution in the general meeting. The method of appointment of more directors does not expect the endorsement of the Central Government.
- A director can determine the maximum number of directorships up to 20, including any alternative directorship of a person.
- In the event of any private company or 'public company,' either holding or subsidiary company shall restrict to10 directorships in the 'public company'.
- All the Certified companies must appoint at least one woman director in the Board of Directors in a year from the enforcement of the second Proviso to Section 149(1) of Companies Act.
- Similarly, every public company having a turnover of Rs. 300 Crore or a paid-up portion capital of Rs. One hundred crores under the latest audited financial statements shall appoint at least one woman director within a year from the convocation of the second Proviso to Section 149(1) of Companies Act.
Note: "If any person holds the efficiency of director in more than 10 or 20 companies before the commencement of Companies Act, then he shall have to determine the companies where he wishes to maintain or resign as the director within one year from such beginning. After that, he shall inform about his decision to the chosen companies as well as the concerned Registrar.
Removal of Director
Why Add and Switch?
- Get fresh talent on council
- No Compulsion of ownership
- The incompetence of existing directors
- To meet the sanctioned limit
Documents needed for Removal of Director
- Photograph: Passport size photo of the Director to be designated
- PAN Card: Self-attested PAN card of the Director to be designated
- Proof of Residency: Aadhar Card/ Voter ID/ Passport/ Driving License
- Digital Signature Certificate: DSC of the ongoing Director and Director to be eliminated/removed
- Identity proof before-mentioned as Passport/Election card/Driving License/Aadhar card
- Mobile number and Personal & official email id of the Director
- It is mandatory to apostle all the documents apostilled if the Director is a non-resident of India.
- Notice of resignation filed with the company
- Proof of dispatch
- Acknowledgment of form, if received.
Manner of Removal of Directors Effecting Companies
In cases to remove a director from business, he/she should not have abided by the words and rules according to the 'Companies Act, 2013', or can himself come up with resignation or drops to attend the board meeting for three consecutive times in a year.
Incident 1 - Suo-moto via the Board
Stockholders hold the power to remove a director, as per Section 169 of the 'Companies Act 2013'. The method can be done by passing an ordinary decision in a general meeting, besides in the case, the Director was not appointed by the Central Government or the Tribunal.
- A notice should be attached to all the directors to possess a board meeting by allowing seven days. Moreover, all the directors of the Company will receive information regarding the removal of Director.
- Resulted in the notice, a resolution will be passed for possessing the general meeting. The question of adopting the decision is for the permission of the shareholders on the day when the board meeting will be held.
- There will be a general meeting held after presenting 21 days of the explicit declaration to the directors. The decision will be made based on the majority of the votes.
- In the very first part, the considered Director will get an option and chance for being heard.
- After the declaration of the resolution, the Director should file two forms Form DIR-11 and Form DIR-12 with attachments of the 'Board Resolution.'
- At the utmost, the name of the consent director will be eliminated from the 'Ministry of Corporate Affairs (MCA)' database and consequently on the website too.
Incident 2 - Self-submission by a director
The Director of the Company may wishes to resign from the post of a director, then he/she can continue by passing a resolution firstly to the Company
The resignation of a director/managing director, companies act 2013, asserts that the Company has special duties and obligations to fulfil after.
- The first and principal option is to be the Company passing a joint resolution to authorize the notice or letter of resignation and commission to file form DIR11 defining the reasons behind the departure, as per the provision specified in section 168(1) of Companies Act, 2013.
- As per rule '16 of Companies Rule, 2014 (Appointment and Qualification of directors)', the resignation report or notice and ideas for the resignation has to be shared with the Registrar of Companies (ROC) using 'Form DIR11', within '30 days' of the date of removalof Director.
- In extension to filing eForm 'DIR11', the Company requires to provide the notice or letter of resignation necessarily. This is the scheme for the Company through the resignation of the Managing Director; companies act 2013.
- Documents to be submitted are :
Notice of resignation filed with the Company
Proof of dispatch
Acknowledgment of form, if received.
Incident 3: Absence of the Director in three consecutive Annual board Meetings
- If a director didn't serve the Board meeting for 12 months, then the defection has to be taken severely. The duration is measured from the day on which he/she was not accessible from the first meeting and to any of the assemblies, even after granting him/her due notice for all the sessions. It will be noted that he/she has abandoned the office, and several steps will be taken as per section 167 of the Companies Act, 2013. Correspondingly, a Form DIR-12 should be applied on the missing Director's name. Further, after the formalities, the respective Director's name will be removed from the Ministry of Corporate Affairs.
Provisional Aspects: Removal of Director under Companies Act 2013
1. Section 169(1)
- An general resolution is needed;
- Director assigned/apointed by Tribunal under section 242 shall not be removed;
- Reappointed Independent Director shall be removed by 'Special Resolution'.
- Section 169(1) will not be effective if directors are appointed according to the principle of proportional representation (S.163).
2. Section 169(2)
- Special notice is needed for a resolution to remove a director or to designate somebody in his position.
3. Section 169(3)
- The Company should attempt to send the Special notice along with the intention of removal to Director along with opportunity of being heard is provided to him at the meeting.
4. Section 169(4)
- For representation, Director should give it in writing to the Company and request to notify it to the members.
- if Tribunal is satisfied, Company shall not assign the representation and shall not read it out at meeting
5. Section 169(5)
- The opening generated by the removal of Director can be filled by the same meeting if 'special notice' is given under 'section 169(2)'.
6. Section 169(7)
- Director removed cannot be reappointed as Director to fill the casual vacancy.
7. Section 169(8)
- Director discharged shall be entitled to payment as per the terms of contract or terms of his employment, if any.
- Director can be removed under any additional provisions of this act.
8. Rule 79 of NCLT Rules 2016
- The Company or any other personality who claims to be aggrieved may make an appeal to the Tribunal in Form 'NCLT-1'.
- File Form DIR-12 within '30 days' from the date of General Meeting with following attachments:
- Special Notice of the Shareholders proposes to remove the Director.
- Notice of General Meeting with explanatory Statement.
- Copy of ordinary Resolution passed at EGM.
- Notice sent to Director concerned.
Consequences of not filing the form DIR-12
In 30 days of date of the resignation, if the company fails to or doesn’t file the 'form DIR-12', the below mentioned penalty will be applied.
- One-time of concrete Government fees until 15 days;
- If it surpasses more than 15 days, then it’s two times of the original government penalty;
- A penalty of 4 times of the exact government charges is applicable if it passes 30 days to 60 days;
- In case it surpasses 180 days, then ten times of the actual administration fees are relevant;
- The penalty is also relevant to the company, which fails to file the form DIR -12 within 300 days from the date of reaching the resolution. The company has to pay 12 times the exact government fees and the compounding offense as well.
CorpBiz Complete Procedure
- Select 'Order' above.
- Start with the required details and develop the application form.
- Complete the payment consideration.
- We will file the expected form electronically with Companies House to designate or resign a director.
- You will obtain a notification that the Removalof Director has been approved at Companies House, a 'VAT invoice', and a copy of your digital documents in 2-3 Business working days by email or Post.
- A director who has been removed from ofﬁce may initiate a claim for losses or (other compensation) for his loss of ofﬁce. While this would not end in him being reinstated to the board of directors, the truth that he has such a right would be a factor to be held by the board of directors in considering whether to remove him from ofﬁce, mainly where the depreciation claim would be high.
- Even though the challenges that such a director would face are that he must have the right to claim damages (or other compensation) for his loss of ofﬁce under the company’s Memorandum of Incorporation or his service contract, he must not have breached the company’s Memorandum of Incorporation or his service contract.
- In exercising this new power to remove one of their own from the committee of directors of a company, boards must act openly and transparently and in the best interests of the company. It is expected that directors do not abuse this power or use it with ulterior motives or to cover up any wrongdoing.These rules must be used sensibly, reasonably, wisely, and in the best interests of the company.
- In a shell, if you want to remove a director of the company, in any case, you need to issue a clear notice for some specific days, as described above. And, the final decision will be taken only if the Board Members vote in favor of the decision. Before passing the Board Resolution, the director will be given a chance to justify, if any. If he/she continues with the decision to leave abandon the company, then the Board Resolution will be passed. The director is supposed to file the specific form as described above and submit it to the RoC. Lastly, the name of the director will be abolished from the company’s master data and the MCA’s website.
Frequently Asked Questions
Send notice to its members clear seven days before the meeting, along with a copy of the representation copy.
The member who proposes the dismissal should provide a 'Special Notice' of a resolution to remove a director at least 28 days before the meeting at which the director may be excluded.
There may be no alternative option left for the Company than to seek the removalof Director by consulting to the Board and with a majority of shareholders under (AOA) of the Company.
Under the Companies Act, 2013, in a private company, a shareholder can appoint a director, so ideally only they hold the authority to remove directors. However, in proprietary companies, the removal of director can be commenced by a majority of directors if the constitution permits it.
While carrying change in the Board of directors, the Company must obtain consent from its Board and members, as required by passing a resolution and statutory limit after removalof Director or resignation.
No, even after the end of the tenure as director, a person can hold the shares in the Company only if it is not subscribed as a condition to appointment as provided by AoA.
The shares of the Company shall be transferred by way of completing the Share Transfer deed and by affixing the stamps as per the rates mentioned in the Stamp Act of the concerned State after the change.
As per Notice of 'ROC u/s 248(1)', this notice is the first step toward struck off of Company. If 'Company' fails to reply such notice within 30 days of publication of note, ROC shall strike off the name of Company in its records.
As per Section 166 Director has to adhere to the duties mentioned in such a section. In case the Company got struck off, they shall be personally responsible for such statutory liabilities.
In 30 days of date of the resignation, if the company fails to or doesn’t file the 'form DIR-12', a specific concrete Government fees- Penalty will be charged.