Removal of Director from a Company
Step-by-Step Guide to Removal of Director from a Company
The directors of a company bear the responsibility for managing its day-to-day operations, while the shareholders, who are the rightful owners, delegate this role to the directors as their representatives. The Companies Act 2013 in India distinctly delineates directors’ and shareholders’ rights and duties. As a general principle, the entity that appoints a director retains the authority to remove them. IndiaFilings can assist you in filing for the removal of director, which can be initiated for various reasons.
Three distinct procedures are depending on the specific cause for removal. Regardless of the circumstances, IndiaFilings is available to facilitate the director removal process for your Company, ensuring a streamlined and hassle-free experience.Get Started!
Reason for Director Removal
As mentioned above, A director may be subject to removal for any of the following reasons:
- Incurring any disqualifications as specified under the Companies Act.
- Prolonged absence from board meetings spanning over 12 months.
- Entering into contracts or agreements contrary to the provisions outlined in Section 184 of the Companies Act.
- Receiving a disqualification order from a court or tribunal.
- Being convicted by a court for an offense and sentenced to a minimum of six months in prison.
- Failure to adhere to the terms and regulations stipulated in the Companies Act of 2013.
- Voluntarily resigning from their position.
Methods for Director Removal
The removal of a director from a company can be carried out through three distinct methods:
- Resignation by Directors: When the directors voluntarily tender their resignation.
- Director Absence from Board Meetings: When a director remains absent from board meetings for 12 months.
- Shareholder-initiated Removal: When shareholders decide to remove a director.
Relevant Provisions of the Companies Act, 2013:
- Section 169 of the Companies Act, 2013: This section pertains to the removal of directors and outlines the legal procedures and requirements for director removal.
- Section 115 of the Companies Act, 2013: This section likely relates to the appointment of additional directors, but providing specific details without additional context is challenging.
- Section 163, Companies Act, 2013: This section allows for proportional representation in appointing directors. Depending on the Company’s governance structure, it can influence the director removal process.
- Rule 23 of the Companies (Management and Administration) Rules, 2014: This rule is associated with the management and administration of companies and likely provides specific guidelines or regulations related to director removal and related procedures.
Compulsory Criteria for Director Removal
For the removal of a director, the following mandatory requirements must be adhered to:
- A Special Notice following Section 115 of the Companies Act 2013 must be issued.
- The Special Notice should be dispatched to the respective Director at least 14 days before the resolution is passed.
- It is obligatory to provide the concerned Director with an opportunity to present their case, and their representation should be submitted in written form.
- A director who has been removed from office cannot be reappointed.
Form DIR-12 is a specific form required under the Companies Act 2013 and is used to remove a director from a company. This form is essential to the legal process when a company wishes to remove a director from their position.
Procedure for Director Removal
The procedure to be followed for Director Removal is explained in detail below:
Removal of Director – Resignation by Directors
When a director voluntarily tenders their resignation, the following steps are taken to remove their name from the register of directors:
- Board Meeting Notice: The Company convenes a Board Meeting, providing clear notice, which typically means a notice period of 21 days, excluding the day on which the notice was sent and received.
- Resignation Discussion: During the Board Meeting, board members discuss and deliberate on whether to accept the Director’s resignation.
- Board Resolution for Resignation: Upon agreement, the Board passes a formal resolution to accept the Director’s resignation.
- Filing Form DIR-11 (Director’s Responsibility): The outgoing Director takes responsibility for filing Form DIR-11. This form must include the Board Resolution, proof of delivery of the resignation letter, and a copy.
- Filing Form DIR-12 (Company’s Responsibility): The Company is responsible for filing Form DIR-12 with the Registrar of Companies (RoC). This filing should include the resignation letter and the Board Resolution.
- Removal of Director Name from MCA: After completing all necessary form submissions and formalities, the Director’s name will be officially removed from the Company’s master data on the Ministry of Corporate Affairs website.
Director Absence from Board Meetings for 12 Months
The steps in case a director remains absent from all board meetings over twelve months are as follows:
- Step 1: If a director is absent from all board meetings over twelve months, regardless of seeking leave of absence, they are deemed to have vacated their office under Section 167.
- Step 2: File Form DIR-12.
- Step 3: Upon completing the formalities, the concerned Director’s name will be removed from the Ministry of Corporate Affairs (MCA) database.
Director Removal by Shareholders
The steps for the removal of a director by shareholders are as follows:
Send a notice to all shareholders for a board meeting within seven days from the date of the removal of a Director through Ordinary Resolution. To remove a Director, a Company can follow these steps through an Ordinary Resolution, provided the Director was not appointed by the Central Government or the Tribunal:
- Board Meeting Notice: Initiate the process by calling a Board Meeting and giving seven days’ notice to all directors. In this notice, inform the directors about the intended removal of the Director.
- Extraordinary General Meeting Resolution: During the Board Meeting, pass a resolution to convene an Extraordinary General Meeting (EGM). Additionally, pass a resolution for removing the Director, contingent upon shareholder approval.
- EGM Notice to Members: Issue a notice for the EGM, ensuring a clear notice period of 21 days. Clear notice means a notice period of 21 days, excluding the day on which the notice is sent and the day of the meeting.
- Voting at EGM: Members are asked to vote on the resolution for the Director’s removal at the EGM. If the majority of members are in favor of the decision, the resolution is passed.
- Opportunity for Director to Be Heard: Allow the Director to be heard before passing the resolution. Allow them to present their case or provide an explanation.
- Form DIR-11 and Form DIR-12 Submission: Following the passing of the resolution, submit Form DIR-11 and Form DIR-12 to the Registrar of Companies. These forms should include the attachments of the Board Resolution and Ordinary Resolution.
- Removal of Director Name from MCA: Upon successful form submissions and completion of all required formalities, the Director’s name will be officially removed from the Ministry of Corporate Affairs website.
It’s crucial to follow these steps meticulously and ensure compliance with legal requirements, as specified in the Companies Act when removing a director through an Ordinary Resolution.
This is a simplified overview of the entire director removal process. Executing the director removal procedure meticulously and following the procedures outlined in the Companies Act is crucial. Our team at IndiaFilings will guide you through the entire process and assist at every step.
Consequences of Failing to File Form DIR-12:
Form DIR-12 must be submitted within 30 days of the Director’s resignation date. If the Company neglects to do so, the following penalties will be incurred:
- Between 30 days and 60 days: A penalty amounting to twice the government fees.
- Between 60 days and 90 days: A penalty amounting to four times the government fees.
- If the delay surpasses 90 days, A penalty amounting to ten times the government fees.
- If the delay extends beyond 180 days, A penalty amounting to twelve times the government fees, and the Company may also be subjected to compounding offenses.
Implications of Director Removal
Removing a director can have significant implications for both the Director and the Company. Some critical implications to consider include:
- Termination of Director’s Duties: Once a director is removed, they are no longer responsible for the management and decision-making of the Company.
- Loss of Authority: The removed Director loses their authority to act on behalf of the Company and represent its interests.
- Legal Consequences: If the removal is not carried out following the legal requirements, it may result in legal disputes and potential claims against the Company.
- Reputation Damage: Director removal can impact the Company’s reputation, especially if it becomes public knowledge. It is crucial to handle the process with sensitivity and confidentiality.
IndiaFilings is here to assist you in navigating through the process.
Removing a director from a company is a substantial decision that demands careful consideration and strict adherence to legal procedures defined in the Companies Act 2013 or relevant local regulations. Whether it involves an ordinary resolution, board resolution, or court order, the process should be characterized by fairness, transparency, and alignment with the Company’s best interests.
IndiaFilings can provide valuable assistance in navigating the director removal process, ensuring it complies with legal requirements and due diligence. It’s crucial to seek professional guidance and support to execute this significant corporate action effectively.Get Started!