Introduction:
The role of a director in any company is crucial, yet circumstances may arise leading to the vacation of their office. Section 167(1) of the Companies Act, 2013 delineates the specific grounds upon which the office of a director becomes vacant. This discussion aims to delve into these grounds, elucidating the legal nuances and implications of such vacancies.
Grounds for Vacation of Office of Directors:
Section 167(1) delineates several grounds for the vacation of a director’s office:
Disqualification (Section 164): A director incurs disqualification as specified in Section 164, resulting in the vacation of office. Notably, if the disqualification occurs under Section 164(2), the office becomes vacant in all companies except the defaulting one under Section 164(2).
Absence from Board Meetings: If a director absents themselves from all board meetings for a continuous 12-month period, with or without seeking leave of absence, their office may become vacant.
Contravention of Section 184: Acting in contravention of Section 184 concerning entering into contracts or arrangements in which the director holds a direct or indirect interest.
Failure to Disclose Interest: Failing to disclose interest in any contract or arrangement where the director holds a direct or indirect interest, contrary to Section 184 provisions.
Disqualification by Tribunal: A director becoming disqualified by an order of the tribunal.
Conviction by Court: Conviction by a court of any offense, leading to imprisonment for a minimum of 6 months. However, there are provisions to delay the vacation of office in certain circumstances, such as pending appeals or petitions.
Removal as per Act: Removal in accordance with the provisions of the Companies Act.
Cessation of Holding Office in Associate Company: When a director, appointed by virtue of holding an office or employment in a holding, subsidiary, or associate company, ceases to hold such office or employment.
Other grounds as per Articles of Association: Additionally, a private company holds the liberty, as per its articles, to specify other grounds for the vacation of a director’s office.
Consequences of All Directors Vacating Office:
If all directors vacate their office due to any specified disqualification, the responsibility falls on the Promoters or, in their absence, the Central Government to appoint the required number of directors. These appointed directors will serve until the company appoints directors in a General Meeting.
Penalties for Continuation Despite Vacant Office:
If a person continues to function as a director despite knowing about their disqualification and the vacancy of their office, they are liable for punishment. They may face a fine ranging from ₹1,00,000 to ₹5,00,000.
Conclusion:
Understanding the grounds leading to the vacation of a director’s office is essential for maintaining corporate governance and compliance. The delineation of such grounds in the Companies Act ensures accountability and integrity in the functioning of directors within companies.
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