Section 169 of the Companies Act, 2013 (Act) deals with the procedure of Removal of Directors. The write up mentioned below endeavours to answer some of the frequently asked questions relating to removal of directors:
Who can exercise the right of removing a director from a company?
The shareholders of a company may pass an ordinary resolution:
1. to remove the director of the company; or
2 to appoint someone in place of a director so removed;
before the expiry of the period of his office after giving him a reasonable opportunity of being heard.
However in case of removal of independent director re-appointed for second term, special resolution would be required.
Is the right available for removing of any kind of director?
No, the Act does not allow removing a director who has been appointed by the National Company Law Tribunal (“Tribunal”) under Section 242 of the Act, which deals with right of appointment of director by the Tribunal in case of oppression or mismanagement.
In what situation shareholders of a company cannot exercise their right to remove a director?
Pursuant to Section 163 of the Act, the articles of a company may contain the provision for the appointment of at least two-thirds of the total number of the directors of a company in accordance with the principle of proportional representation.
In such case, shareholders of a company do not have the option to exercise their right to remove a director.
What is the procedure for removal of director of a company?
Step 1: Special notice of the intention to move a resolution at a members’ meeting for the purpose of removal/ replacement of a director shall be given to the company under Section 115 of the Act, by such number of members as prescribed.
Step 2: Post receipt of notice, the company shall:
- immediately forward its copy to the concerned director,
- inform its members about such resolution immediately but not later than 7 days before the meeting*.
*The day of dispatch of notice and day of the meeting shall be excluded in calculation of days.
Step 3: After convening the General Meeting, the resolution passed shall be filed in Form DIR-12 within 30 days. In case special resolution is passed, it shall be filed in Form MGT-14 as well.
What is the manner of execution and circulation of the Special notice?
The Special notice shall be signed either individually or collectively by number of members holding (as on the date of notice):
- not less than 1% of total voting power; or
- shares on which an aggregate sum of minimum Rs. 5 lakh is paid up;
Also, the Special notice shall be circulated to the members in the same manner as the notice of general meetings is circulated.
If the circulation of notice as above is not feasible, the special notice shall be published at least 7 days* before the meeting in:
- English language in English newspaper; and
- in vernacular language in a vernacular newspaper;
both having wide circulation in the State where the registered office of the Company is situated. Also the notice shall also be posted on the Company’s website, if any.
**The day of publication of notice and day of the meeting shall be excluded in calculation of days.
What is the time limit for sending Special notice by the members of the company?
The Special notice shall be sent not earlier than 3 months but at least 14 days before the date of meeting at which the resolution is to be moved, i.e.
Minimum time gap between notice sent and date of meeting: 14 days
Maximum time gap between notice sent and date of meeting: 3 months
What are the rights of a director who is being removed by giving special notice?
- The concerned director is entitled to be heard on the resolution at the meeting.
- If the concerned director makes a representation in writing to the company and requests that the same be notified to the members of the company:
If there is sufficient time, company shall:
- state the fact of the representation having been made in the notice circulated to members; AND
- send a copy of representation to all the members (whether before or after receipt of the representation by the company)
If there is insufficient time/ due to default of the company:
- the director may require that the representation shall be read out at the meeting
On the application of the company/ aggrieved person, if the Tribunal is satisfied that the rights conferred are being abused to secure needless publicity for defamatory matter, then the representation need not be read out.
The Tribunal may order the company’s costs on the application to be paid in whole / part by the director whether or not that he is not a party to it.
What is the procedure to fulfil the vacancy created on removal of director?
If the special notice provided by the members specifies intention of appointment of new director in place of director being removed, then the vacancy created by removal of director can be filled as per such notice.
However, if the vacancy is not so filled, then it may be filled as a casual vacancy in accordance with the provisions of the Act.
What would be the term of the director appointed in place of director being removed?
The newly appointed director shall hold office till the date up to which his predecessor would have held office if he had not been removed.
Can a director who was removed from office be reappointed as a director by the Board of Directors?
No
What are the rights of a director being removed towards his compensation?
Even if a director is removed by the company, he shall be entitled to compensation/ damages payable to him.
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