Overview of Removal of Director

Running a company is like steering a ship, with directors acting as captains guiding its direction and operations. Directors play a vital role in making key strategic decisions. But what happens if a director isn’t performing well or wants to step down? That’s when understanding the process of director removal becomes essential.

Who is a Director Under the Companies Act, 2013?

According to Section 2(34) of the Companies Act, 2013, a director is an individual appointed by the shareholders—the company’s owners—entrusted with managing the company’s affairs. Collectively, directors form the Board of Directors, responsible for steering the company’s overall direction. The Companies Act, 2013, outlines the definition, powers, and duties of directors.

Role of a Director in a Company

Directors have crucial responsibilities, acting in good faith and in the company’s best interest, as per Section 166 of the Companies Act, 2013. Their key duties include:

• Strategic Decision-Making: Setting long-term goals and making critical business decisions.

• Financial Oversight: Managing company finances responsibly.

• Regulatory Compliance: Ensuring adherence to laws and regulations.

• Senior Appointments: Hiring top management to run day-to-day operations.

• Protecting Shareholder Interests: Maximizing company value for shareholders.

• Board Meetings: Regularly convening to discuss company matters.

Legal Framework Governing Removal of Directors

The Companies Act, 2013, primarily governs director removal, particularly under:

• Section 169: Allows shareholders to remove a director by ordinary resolution.

• Section 167: Lists conditions under which a director’s office becomes vacant automatically.

• Section 168: Covers voluntary resignation by directors.

• National Company Law Tribunal (NCLT): Can order director removal in special cases like fraud or mismanagement.

When Can a Director Not Be Removed by Shareholders?

There are exceptions where shareholders cannot remove a director under Section 169:

• Tribunal-Appointed Directors: Directors appointed by NCLT (e.g., under Section 242 for mismanagement) cannot be removed by shareholders.

• Proportional Representation Directors: Under Section 163, directors appointed to represent minority shareholders cannot be removed by the majority. This safeguards minority rights.

Grounds for Removal of a Director

Directors can be removed for reasons including:

• Poor performance or lack of contribution

• Misconduct or unethical behavior

• Conflict of interest affecting company welfare

• Disqualification under Section 164 (e.g., insolvency, criminal conviction)

• Health issues affecting ability to perform duties

• Breach of trust against company interests

• Continuous absence from board meetings for 12 months (Section 167)

Methods of Director Removal in India

There are three main ways a director can be removed:

1. Shareholder Resolution: Shareholders vote to remove the director, typically by ordinary resolution.

2. Resignation: The director voluntarily resigns.

3. NCLT Order: The tribunal may remove a director in cases like fraud or oppression.

Mandatory Conditions for Director Removal

For removal to be valid, the following must be ensured:

• Proper Notice: Shareholders must issue a special notice at least 14 days before the meeting (Section 115).

• Opportunity to Be Heard: The director must be allowed to present their case at the meeting.

• Valid Voting: Removal must be passed by the required majority (ordinary resolution under Section 169).

• Filing with ROC: The company must notify the Registrar of Companies about the removal.

• Director’s Representation: The director can submit a written representation against removal, which must be circulated to shareholders if requested.

Documents Checklist for Removal of Director in India

Having the right documents ensures a smooth and legally compliant director removal process. Here’s a simple checklist:

• Special Notice: Written notice from shareholders proposing removal.

• Board Meeting Notice: Notice sent to all directors for the board meeting.

• Board Resolution: Formal resolution passed by the Board of Directors.

• General Meeting Notice: Notice for the shareholder meeting where voting occurs.

• Ordinary Resolution: Shareholders’ final decision to remove the director.

• Director’s Representation: Written statement from the director being removed (if submitted).

• Form DIR-12: Official form to be filed with the Registrar of Companies (ROC).

• Proof of Dispatch: Evidence that notices were sent to all relevant parties.

• Resignation Letter: Copy of resignation letter (for voluntary resignations).

• Attendance Sheet/Minutes: Record of continuous 12-month absence from board meetings.

• Representation Letter by Director: Confirmation letter if the director has provided a representation.

Procedure for Director’s Removal

Case 1: Resignation by Director

• Submission of Resignation: Director submits a written resignation to the Board.

• Board Meeting: Board discusses and formally accepts the resignation.

• ROC Filing: Company files Form DIR-12 with the ROC within 30 days.

• Note: Filing DIR-11 by the director is optional but recommended for records.

Case 2: Director’s Absence for 12 Consecutive Months

• Check Attendance: Verify director’s absence from all board meetings (physical or virtual) for 12 months.

• Board Resolution: Board passes a resolution declaring the office vacant.

• Inform Director: Notify the director of the vacancy.

• File DIR-12: File with ROC to update official records.

Case 3: Removal by Shareholders (Section 169)

• Special Notice: Shareholders holding at least 1% voting power or Rs. 5 lakh paid shares send a special notice to the company.

• Notify Director: Company shares the notice with the director immediately.

• Director’s Right: Director may submit a written representation to be circulated to shareholders.

• Board Meeting: Board decides on calling a shareholders’ meeting.

• Extraordinary General Meeting (EGM): Notice sent at least 21 days before meeting, stating the removal proposal.

• Voting: Shareholders vote; director can speak at the meeting.

• Passing Resolution: Requires ordinary resolution (>50% votes).

• File DIR-12: Company files DIR-12 with ROC within 30 days.

Case 4: Removal of Nominee Director

• Nominee directors are appointed by external entities (banks, institutions).

• Removal is done by the nominating entity as per agreement and AoA.

• Shareholders do not have removal rights over nominee directors.

Case 5: Removal by National Company Law Tribunal (NCLT)

• NCLT can remove directors under serious circumstances like oppression, mismanagement, or fraud (Section 242(2)(h)).

• A director removed by NCLT cannot be appointed in any company for five years.

Removal of Director Fee Structure

Professional Fees Include:

• Drafting legal documents (Special Notice, Resolutions, Explanations).

• Legal consultation for compliance and guidance.

• Assistance in ROC filing and documentation.

• Complete process management and deadline adherence.

Form DIR-12 for Removal of Director

• Used to notify ROC about director appointment, removal, or resignation.

• Must be filed within 30 days of the event.

• Requires digital signature of a continuing director or key managerial personnel.

Implications of Director Removal

For the Director:

• Loss of position and authority.

• Possible damage to reputation if removed for misconduct.

• Potential liability for wrongful acts during tenure.

• Possible entitlement to compensation depending on contract terms.

For the Company:

• Changes in board composition.

• Need to appoint a new director if legally required.

• Temporary operational or strategic disruption.

• Potential negative publicity if removal is contentious.

Certificate of Incorporation (COI)

This document proves your company exists legally. It includes:

• Company Name

• CIN (Registration Number)

• Date of Incorporation

• Registered Address

You’ll need the COI for:

• Opening a bank account

• Getting PAN/TAN

• Signing contracts

• Getting licenses

• Raising funds

How to Get Your Company Registration Number?

1. Get DSC and DIN

2. Reserve Company Name

3. Fill SPICe+ Form on MCA Portal

4. Submit all documents and pay fees

5. MCA will verify

6. Receive Certificate of Incorporation with your CIN

How to Download COI (Certificate of Incorporation)?

1. Go to www.mca.gov.in

2. Log in to your account

3. Go to ‘MCA Services’ → ‘Get Certified Copies’

4. Search your company name or CIN

5. Pay the small fee (if any)

6. Download the PDF file

How to Check If Your Company is Registered?

1. Visit www.mca.gov.in

2. Go to ‘MCA Services’ → ‘View Company/LLP Master Data’

3. Enter company name or CIN

4. Fill the captcha

5. Submit and see your company details