REMOVAL OF DIRECTOR(s)
Generally, a company’s management lies with the company’s Board of directors and they always work for the advancement of the company and its shareholders. The Board of directors of the company are the agents of the company, elected by the shareholders to manage its routine affairs. The Shareholders are the owners of the Company and they appoint the directors to act as their representatives. It is possible to add or remove a director from the company at any time.
There are different reasons to remove a director:
- If they incur any of the disqualifications specified under the Companies Act.
- If they absent themselves from board meetings over 12 months.
- If they enter into contracts or arrangements against the provisions of Section 184 of the Companies Act.
- If they are disqualified by an order of a court or tribunal.
- If they are convicted by a court of any offense and sentenced to imprisonment for not less than six months.
- If they have not abided by the terms and protocols mentioned in the Companies Act of 2013.
- If they have resigned voluntarily from their position.
WAYS TO REMOVE A DIRECTOR(s):
SELF-RESIGNATION: In case the director resigns himself from the post of director. Company shall follow these steps to remove such director:
The steps to be followed in this scenario are:
Step 1: Holding a board meeting by giving seven days of clear notice
Step 2: In the meeting, the board members will take note of the resignation of the aforesaid Director.
Step 3: Then they have to pass a resolution in a particular format to that effect.
Step 4: After that, Form DIR-11 needs to be filed by the resigning director in his individual capacity.
Step 5: The company has to file Form DIR-12 with the registrar of companies (RoC) along with the registration letter and the board resolution.
Step 6: When all the forms are filled and the formalities for the removal of the director are done, the name of the director will be removed from the master data of the company on the Ministry of Corporate Affairs (MCA) website.
SUO-MOTO REMOVAL: This mode of removal of the director states that the company can remove the director by passing an Ordinary Resolution in General Meeting provided such director is not appointed Government or Tribunal.
The steps to be followed in this scenario are:
Step 1: Shareholders holding 1% of the total voting power or holding INR 5 Lakhs of paid-up capital shall send the special notice of their intention to the company.
Step 2: Within 14 days of special notice, the company shall conduct a general meeting of members for considering the removal of a director
Step 3: Such special notice shall not be earlier than 3 months after the proposed date of the General Meeting
Step 4: The company upon the receipt of special notice shall send a copy of the such notice to the concerned director to give him a reasonable opportunity of being heard and to present necessary representation
Step 5: The company thereafter shall send notice of removal of the director to all other members along with the copy of the representation made by the director
Step 6: Members shall conduct the general meeting and pass an Ordinary Resolution for the removal of the director. During the meeting votes cast in favor shall be more than votes cast against it.
Step 7: Once the resolution is passed, similar forms DIR-11 and DIR-12 are filed with the attachment of ordinary resolution for removal
Step 8: Company shall fill the casual vacancy that occurred due to such removal by the appointment of some other director up to the date till which the predecessor would have held the office, if not removed.
DIRECTOR DID NOT ATTEND 3 CONSECUTIVE BOARD MEETINGS:
Step 1: If director absences himself from all the meetings of the board of directors held over a period of twelve months, with or without seeking a leave of absence from the board, they are considered to have vacated their office as per Section 167.
Step 2: A Form (DIR-12) must be filed.
Step 3: Upon completion of the formalities, the concerned director’s name will be removed from the database of the Ministry of Corporate Affairs (MCA).
REMOVAL OF DIRECTOR BY NCLT (National Company Law Tribunal): Through this mode of removal of a director, the company appeals to the National Company Law Tribunal for preventing any mismanagement in the company, and upon the receipt of such appeal NCLT can terminate or set aside such agreement of company with its director. The removed director doesn’t get compensation for the loss of office.
PROCEDURE OF REMOVING DIRECTOR(s)
Removal of the director is an inherent right of the shareholders and a director can be removed from his office if he is incompetent or unfit to hold his position as a director of the Company. There need to be distinct reasons regarding why the company management wants the removal of directors but the director must be given the chance of being heard before he or she is removed. However, it is always better to try all the legal options before initiating the removal of the director.
Mr.Arsh Ajit Bafna
Intern, Bhatt & Joshi Associates
[LJ School of Law, 2020-2023]