Removal of Director
Running a company is like steering a ship, with directors acting as the captains responsible for its direction and operations. Directors are responsible for making critical strategic decisions. But wh
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Overview of Removal of Director
<p>Running a company is like steering a ship, with directors acting as the captains responsible for its direction and operations. Directors are responsible for making critical strategic decisions. But what if a captain is not doing a good job? Or what if they want to leave? This is when you need to know about the removal of a director.</p>
<p>A director, as defined under Section 2(34) of the Companies Act, 2013, is a leader appointed by the shareholders, who are the companys owners.</p>
<p>A directors main job is to manage the company. Together, they form the Board of Directors, the team responsible for guiding the company in the right direction. The Companies Act, 2013, serves as the rulebook, outlining who directors are and their responsibilities.</p>
<p>A director has many important jobs. Directors must act in good faith and the best interests of the company, as outlined in Section 166 of the Companies Act, 2013. Their role is to steer the company in the right direction while ensuring its success. Here are some of their key tasks:</p>
<p>The Companies Act, 2013, governs the removal of a director, with Section 169 giving shareholders the power to remove a director through an ordinary resolution. Other important sections include:</p>
<p>Section 169 gives shareholders a lot of power. But there are some limits. A director cannot be removed by shareholders in these cases:</p>
Eligibility Criteria
Proper Notice:A special notice under Section 115 of the Companies Act must be given by shareholders who wish to remove a director. This notice must be sent at least 14 days before the meeting (excluding the date of the notice and the meeting date).
Opportunity to Be Heard:The director who is being removed must be given a fair chance to explain their side of the story. They can speak at the shareholder meeting.
Correct Voting:The removal must be approved by the required number of votes at a properly called shareholder meeting. This is usually a ordinary resolution as per Section 169.
Filing with the Registrar of Companies (ROC):After the removal, the company must inform the ROC. The ROC is the government body that keeps records of all companies.
Directors Representation:Under Section 169(4), the director has the right to make a written representation regarding their removal. If requested within time, the company must circulate this representation to the shareholders.
Documents Required
Registration Process
Case 1: Resignation by Directors
A director may decide to resign for personal or professional reasons. This is a voluntary process. Submission of Resignation Notice:The director initiates the process by submitting a formal, written resignation letter to the Board of Directors.Board Meeting:The company holds a board meeting to discuss the resignation.Board Accepts Resignation:The other directors formally accept the resignation.Director Informs ROC:While filing Form DIR-11 with the ROC was mandatory for directors before May 7, 2018 (under an MCA notification), it is no longer a requirement post this date. However, it is still recommended for record-keeping and safety purposes.Company Informs ROC:The company must file Form DIR-12 with the ROC. This form updates the official records. The company must file this within 30 days of the resignation.
Case 2: Directors Absence from Board Meetings for 12 Months
A director must attend board meetings, and if they miss all meetings for a continuous period of 12 months, their office becomes vacant. This is not a direct removal but a vacation of office under Section 167(1)(b) of the Companies Act. Check Attendance:The company checks its records. It confirms the director has missed all meetings for 12 months. This includes meetings they attended via video call.Board Takes Note:The Board of Directors passes a resolution. This resolution confirms that the directors seat is now vacant.Inform the Director:The company informs the director about their removal.File Form DIR-12:The company files Form DIR-12 with the ROC. This updates the public record.
Case 3: Procedure for Removal of Director by Shareholders (Section 169)
This is a very important power given to shareholders. It ensures that they have control over who manages their company. The process is detailed in Section 169 of the Companies Act. Shareholders Send a Special Notice:A group of shareholders sends a special notice to the company. This notice states their intention to remove a director.Who can send this notice?Shareholders holding at least 1% of the total voting power or holding shares on which at least Rs. 5 lakhs has been paid up.Note:If the company is aprivate limited company, theArticles of Association (AoA)should be reviewed, as they may impose restrictions on removal powers or define a different procedure for director removal.Company Informs the Director:The company immediately sends a copy of this notice to the director who is to be removed.Directors Right to Speak:The director has the right to make a written representation. They can ask the company to send this representation to all shareholders.Company Calls a Board Meeting:The Board of Directors meets to decide on holding a shareholder meeting.Company Calls a General Meeting:The company then calls a shareholder meeting (anExtraordinary General Meetingor EGM). The notice for this meeting must be sent at least 21 days before the meeting. The notice must mention the proposal to remove the director.Voting at the Meeting:At the meeting, the shareholders vote on the resolution. The director is given a chance to speak at the meeting.Passing the Ordinary Resolution:If more than 50% of the shareholders present and voting say yes, the resolution is passed. The director is officially removed.Filing with ROC:The company must file Form DIR-12 with theRegistrar of Companies (ROC)within 30 days to report the removal.
Case 4: Removal of Nominee Director
A nominee director is appointed by a bank, financial institution, or another third party. They are appointed to protect the interests of the entity that nominated them. The removal of a nominee director is simple. The entity that appointed them can remove them at any time as per the terms of the agreement and subject to AoA. They just need to inform the company in writing. The companys shareholders do not have the power to remove a nominee director.
Case 5: Removal of Director by Tribunal
The National Company Law Tribunal (NCLT) can remove a director. This is a serious step taken in extreme cases under Section 242(2)(h). The NCLT can remove a director if a complaint is filed against them for: Oppression and Mismanagement:The director is managing the company in a way that is unfair to other members or harmful to the public interest.Fraudulent Conduct:The director is involved in fraud. If the NCLT finds the director guilty, it can order their removal. A director removed by the NCLT cannot be appointed as a director in any company for five years.
Fees & Charges
| Fee Component | Amount |
|---|---|
| Up to Rs. 1,00,000 | Rs. 200 |
| Rs. 1,00,001 to Rs. 5,00,000 | Rs. 300 |
| Rs. 5,00,001 to Rs. 25,00,000 | Rs. 400 |
| Rs. 25,00,001 to Rs. 1,00,00,000 | Rs. 500 |
| Above Rs. 1,00,00,000 | Rs. 600 |
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