Procedure for Removal of Director as per the Companies Act, 2013

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 and the provision of the Companies Act, 2013 gave them special rights to protect themselves from the outsiders and the insiders also. In this article we have discussed the step by step procedure for the Removal of a Director (How to remove a Director?) as per the Companies Act, 2013.

One of the crucial rights which Companies Act 2013 gave them is the right to remove the Directors of the company if they are not acting in agreement with the company’s constitution, and only utilizing their powers for their benefits.

The Board of directors of the company is the key person who is in charge of running a business operation of the company. However, there are certain situations where the company management decides to remove a director owing to any negligence, breach of privacy or any other term by which a director was supposed to comply with.

Who is the director?

As stated by the Companies Act, 2013 director means a director appointed to the Board of a company. In a general sense, it is the natural person who has specific education and experience which adds up to the prosperity of the company.

As per Section 2(34) the CA, 2013 A director means any individual who is elected as the director of the Company by its board to perform certain duties and functions on behalf of the company as per the provisions of the Companies Act, 2013.

Only an individual should be elected as a director of a Company. No association, body corporate, or firm should be appointed as a director of a Company. Section 169 of the CA, 2013 act deals with the removal of Directors.

Section 149 of the Companies Act provide that a public limited company is mandatory to have at least three directors, whereas at least two directors are needed in the situation of a private company and one director is mandatory to be elected in situations of a one Person Company. A maximum of fifteen directors can be selected by a company. However, a company can appoint higher than fifteen directors only after passing a special resolution at its annual general meeting or extraordinary general meeting.

For how much period a director can be appointed in a company?

The distinct types of directors have distinct appointment terms like Managing Director and whole-time directors must have a term of five years, Additional Director must have termed up to following General Meeting, Nominee director has a term as mentioned in the service agreement.

Which section deals with the Procedure of the removal of a Director?

Section 169 of the CA, 2013 contends with the removal of a director. The company needs to follow this provision otherwise company and its officer will attract penal provisions as stated by The Companies Act, 2013.

Does the Companies Act disclose any exceptions to the removal of the director?

Yes, there is an exception to the removal of the director as stated by company act 2013 i.e., the company should not remove the following mentioned persons from the position of director: –

• A director which is elected by the Tribunal
• The company has utilized itself the option to select not less than 2/3 of the total number of directors as Stated by the principle of proportional representation.

What is the procedure to remove a director under the Companies Act, 2013?

The procedure for the removal of a director is as follows:

1. Draft notice of board meeting together with draft resolution(s) to be considered in the board meeting.
2. The company shall give intimation to the concerned director regarding his removal.
3. Dispatch of Notice to all the directors together with Agenda of Board meeting.
4. Hold a board meeting and pass the Board Resolution for the removal of the concerned Director and notice of the annual general meeting to all the members of the company.
5. Dispatching of notice of the annual general meeting to all the members minimum 14 days before date of holding general meeting together with special notice to remove a director by the specific number of members of the company must be passed minimum before 14 days before the concerned annual general meeting at which it has pass excluding the day on which the notice is served and the meeting day.
6. A special notice required to be given to the company shall be signed, either individually or collectively by such number of members holding not less than one percent of the total voting power or holding shares on which an aggregate sum of not more than five lakh rupees has been paid upon the date of the notice.
7. Holding a General Meeting, allowing the removed director to be heard and speak. Passing an ordinary resolution if it seems just and equitable.
8. Preparation of Documents for removal of director and intimation to concerned departments.
9. Once the director who was removed from office shall not be re-appointed as a director by the Board of Directors.

What are the preconditions before removing a director?

The director is given an opportunity to be heard before its removal.

What are the forms that need to be filed in case of removal of the Director?

Only two forms are required for the removal of the Director:

• MGT-14
• DIR-12

What are post compliances one needs to comply with once a director has been removed from the company?

• The Company needs to furnish MGT-14 and DIR-12 forms with required attachment to the ROC in thirty days from the passing of the ordinary resolution in the annual general meeting.
• Making a relevant entry in the statutory registers of the company in time as prescribed in the Companies Act, 2013.

What if the company fails to comply with provisions?

If a company contravenes any provisions mention under the Companies Act, 2013, the company and every officer of the company who is in default should be punishable with a fine which shall not be lesser than 50000 rupees but which may hold up to 500000 rupees

Conclusion

One must comply with the above-disclosed provisions to avoid a penal situation. 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.

Suggested Read: How to appoint a Director in a Private Limited Company?