Removing a Director Under the Companies Act, 2013
The process of director removal under the Companies Act 2013 involves a company board’s resolution followed by shareholder approval.
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Director Removal
The removal or resignation of a director from a company involves legal and procedural steps, such as submitting a resignation letter, passing board or shareholder resolutions, and notifying the Registrar of Companies with the necessary filings.
Removal can be initiated by the board, shareholders, or under specific legal circumstances, while resignation is a voluntary act by the director. Both processes require compliance with the Companies Act and the company’s Articles of Association to ensure proper governance and record-keeping.
Min & Max Number of Directors based on type of Company
Essential Documentation for Director Removal
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Procedures for Director Removal in a Company
The removal of a director from a company’s board can occur through various methods, each governed by specific regulations and procedures outlined in the Companies Act, 2013, in India. Below is a detailed presentation of the procedures involved in the resignation of a director, removal by the board, removal by the shareholders, and removal by the Central Government or Tribunal.
Reasons for Resignation:
- Personal reasons, health issues, or other professional commitments.
- Disagreements with the board or management over company policies or practices.
- Inability to fulfill directorial duties effectively.
Procedure:
Notice of Resignation: The director wishing to resign must submit a written notice to the board.
Board Meeting: The company’s board of directors convenes a meeting to discuss and acknowledge the resignation.
Board Resolution: A resolution is passed to accept the resignation and the board records the resignation and its effective date.
Filing with RoC: The company must then file the resignation with the Registrar of Companies using Form DIR-11 (by the director) and Form DIR-12 (by the company), along with the resignation letter and the board resolution as attachments.
Update Records: The company’s internal records, such as the Register of Directors, must be updated to reflect the change.
Reasons for Board Removal:
- Non-performance or failure to meet the directorial duties as outlined in the Companies Act or the company’s Articles of Association.
- Conflicts of interest that impact the director’s ability to serve the company’s best interests.
Procedure:
Grounds for Removal: The board can only remove a director under specific grounds outlined in the Articles of Association or under automatic vacation clauses as per Section 167 of the Companies Act, 2013 (e.g., non-attendance at board meetings for 12 months, insolvency, etc.).
Board Resolution: The Board of Directors convenes a meeting to discuss and vote on the removal of the director. A majority vote is usually required for the resolution to pass.
Notice and Hearing: The director in question must be given a fair opportunity to be heard before any decision is made, depending on the company’s Articles and the nature of the removal.
Filing with RoC: If the removal is approved, the company must file the necessary forms (such as Form DIR-12) with the RoC, along with the resolution passed and relevant details.
Reasons for Shareholder Removal:
- Loss of confidence or dissatisfaction with the director’s performance.
- Actions detrimental to the interests of the company or its shareholders.
- Mismanagement or involvement in fraudulent activities.
Procedure:
Special Notice: To initiate the removal of a director by shareholders, a special notice of intention to move a resolution must be given to the company at least 14 days before the meeting, excluding the day of the notice and the meeting day.
Board Notification: Upon receiving the special notice, the Board must notify the shareholders about the resolution to remove the director.
General Meeting: A general meeting is called where the resolution for the director’s removal will be proposed.
Director’s Right to be Heard: The director targeted for removal must be given a chance to present their case to the shareholders at the meeting.
Ordinary Resolution: The removal of the director is subject to an ordinary resolution passed by the shareholders at the general meeting. This requires a simple majority of votes cast by shareholders entitled to vote.
Filing with RoC: Following the removal, the company must file the outcome with the RoC using Form DIR-12, along with the resolution and the details of the new director appointed, if any.
Reasons for Government or Tribunal Removal:
- Fraudulent practices or embezzlement of funds.
- Serious misconduct or abuse of power.
- Actions that are prejudicial to public interest or the interests of the company.
Procedure:
Grounds for Removal: This method is typically reserved for cases involving fraudulent practices, mismanagement, or where the interests of the public or the company’s creditors are at stake.
Application to Tribunal: An application is made to the National Company Law Tribunal (NCLT) by the Central Government, any member, or creditor of the company.
Tribunal Hearing: The NCLT will hear the case, and the director in question will be given an opportunity to present their case.
Order for Removal: If the inquiry or proceedings justify the removal of the director, the Tribunal or the Central Government will issue an order for the director’s removal.
Compliance with Order: The company must comply with the Tribunal’s order and file the necessary documents with the RoC to record the removal.
Post-appointment compliance MBP-1 DIR-3KYC Update Company Records
After a director’s removal from a company, key post-removal compliances include:
Updating Company Records
Register of Directors: The company must update its internal statutory registers, particularly the Register of Directors and Key Managerial Personnel, to reflect the removal of the director.
Minutes of Meeting: The minutes of the meeting in which the removal was decided or approved should be duly recorded and maintained in the company’s records.
Notifying Stakeholders
Depending on the circumstances and the company’s policy, it may be appropriate to notify stakeholders, including shareholders, employees, creditors, and other relevant parties, about the change in the company’s directorship.
This can be done through official communications, press releases, or updates to the company website.
Reviewing Contracts & Agreements
The company should review any contracts, agreements, or obligations where the removed director was a signatory or had a significant role.
Necessary actions may include reassigning roles, amending contracts, or notifying relevant parties about the change in the company’s representation.
Submit Required Amendment Applications Under the Following Legislation
If you need to make amendments or modifications to your business operations or compliance with various regulations, you may be required to file necessary amendment applications under the following acts:
► Goods and Services Act
► Shops & Establishment Act
► Factories Act
► Foreign Exchange Management Act
► Inter-State Migrant Workmen Act
► Private Security Agency Act
► Employees’ Provident Fund (EPF)
► Employees’ State Insurance (ESI)
► Other Labor Laws
► Industry-Specific Laws
These applications are crucial to ensure your business is in compliance with the ever-evolving legal landscape, and they may vary depending on your specific circumstances and the nature of your business. Always consult with relevant authorities or legal experts for guidance on filing the necessary amendments under these acts.
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