Register Now
Removal Of Director
Complimentary Professional Guidance
Fully Online Procedure
Every private company must have at least two directors, while a public company must have at least three directors. A private company has the authority to remove a director if they are found to be incompetent as per the Act, have been absent from board meetings for over 12 months, or engage in agreements or arrangements which are not in the interest of the company.
Regarding the Process of Removing a Company Director
Shareholders can issue a special notice to the company for the removal of a director. Shareholders have the authority to determine the meeting date. The concerned director has the right to present their case at the meeting before the board of directors. After hearing the director, shareholders can exercise their vote and pass a resolution removing the director. If the shareholders and the board of directors agree, they can decide to forego the director's removal process after due consideration.
Director Removal overview
Conflict with the Board
When multiple directors collaborate, disagreements are likely to arise. This can impede the corporation's overall performance, leading to the potential removal of directors after careful consideration.
Abuse of Company Affairs
If a director becomes aware of unlawful practices within the company and risks being involved, they may choose to resign to distance themselves. In such cases, the director may be removed after due consideration to address the situation arising from such activities.
Suspension for Violations
Any non-compliance, breaches, or misconduct by a director can result in serious consequences.
Withdrawal of Nomination
This situation applies specifically to Nominee directors appointed by investors of NBFCs to the Board of Directors. Once the company-entity transaction is finalized, the Nominee director may resign or leave following the withdrawal of their nomination.
Reasons for Directors' Removal: Key Insights
To remove a director from a company, they must not comply with the provisions of the Companies Act, 2013, or they can voluntarily resign or fail to attend board meetings for three consecutive times within a year.
Incident 1 - Removal by Shareholders
Shareholders have the authority to remove a director under Section 169 of the 'Companies Act 2013'. This can be achieved through an ordinary resolution in a general meeting, except if the Director was appointed by the Central Government or the Tribunal.
A notice must be sent to all directors to convene a board meeting with a seven-day notice period. All directors must be informed about the removal of the Director.
Following the notice, a resolution will be passed to hold a general meeting. The decision to remove the Director will be subject to shareholder approval on the day of the board meeting.
A general meeting will be held within 21 days of providing explicit notice to the directors. The decision will be based on the majority vote.
The Director in question will have the opportunity to be heard in the initial stage.
After the resolution is passed, the Director must submit Form DIR-11 and Form DIR-12 along with the 'Board Resolution.'
Ultimately, the name of the removed director will be deleted from the 'Ministry of Corporate Affairs (MCA)' database and website.
Incident 2 - Resignation by Director
If a Company Director wishes to resign, they must first pass a resolution within the Company.
The resignation of a director/ managing director under the Companies Act 2013 entails specific duties and obligations for the Company.
The Company must pass a joint resolution authorizing the notice or letter of resignation and file Form DIR11 with reasons for the resignation as per Section 168(1) of the Companies Act, 2013.
As per Rule 16 of Companies Rule, 2014 (Appointment and Qualification of directors), the resignation notice and reasons must be submitted to the Registrar of Companies (ROC) using 'Form DIR11' within '30 days' of the Director's removal date.
In addition to filing Form 'DIR11', the Company must submit the resignation notice or letter. This process is crucial for the resignation of the Managing Director under the Companies Act 2013.
Documents to be submitted include:
- Resignation notice filed with the Company
- Proof of dispatch
- Acknowledgment of form, if received
Incident 3: Director's Absence in Board Meetings
If a director misses board meetings for 12 months, it will be considered a ground for the vacation of office. The duration is calculated from the first meeting missed, and if the director continues to miss meetings after receiving due notice, it will be deemed as abandonment of office. Actions will be taken as per Section 167 of the Companies Act, 2013. Form DIR-12 should be submitted for the absent director, and their name will be removed from the Ministry of Corporate Affairs after completing the necessary formalities.
Process for Removing Directors in Companies
Within 30 days of the resignation date, if the company fails to submit the 'form DIR-12', the specified penalty will be imposed.
A director who has been removed from office can seek compensation for the loss of office. Although this does not guarantee reinstatement to the board, the existence of this right should be considered by the board, especially if the claim for damages is substantial.
To remove a director, a clear notice must be issued within a specific timeframe. The final decision requires a Board vote in favor. Prior to passing the resolution, the director has the opportunity to provide justification. If the director chooses to leave the company, the Board Resolution will be adopted. The director must file the required form and submit it to the RoC. Subsequently, the director's name will be removed from the company's records and the MCA's website.
Boards must exercise their power to remove directors openly, transparently, and in the company's best interests, avoiding misuse or ulterior motives. These rules should be applied sensibly, reasonably, and in the company's best interests.
Conclusion
Whether directors of the Company should be personally liable for non-compliance after strike off of Company?
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.
What are the Consequences of not filing the form DIR-12?
If the Company doesn't reply to ROC Notice, what is the 1st consequence of the same?