Removal of director of a Company – Things to be kept in mind & Procedure

The directors of a company are responsible for managing and operating the business of a company. The shareholder are the owners of a company. There are times when a company i.e the shareholders want to remove a director because of different reasons maybe because he/she is not discharging their duty in the right way.

In this article we will discuss the procedure and things to be kept in mind for removal of director of a company as per section 169 of the Companies Act, 2013.

As per section 169 of the Companies Act’ 2013, The shareholders have the power to remove a director of the company by passing an ordinary resolution. If the director to be removed is an independent director, then a special resolution is needed to remove the director.

Q1. What is the procedure to be followed for removal of director u/s 169 of the Companies Act’2013?

Ans: Here we give a step wise procedure for removal of director.

1. Receive a special notice under section 115 from one or more of the shareholders for removal of director detailing the grounds/reasons for removal of director.

Notice shall be given by members holding minimum 1% of the total voting power or shares on which an aggregate sum of not less than Rs. 5,00,000 has been paid up as on the date of the notice. (Section 115 of the Companies Act, 2013).

2. On receipt of the required special notice, the company shall send an intimation informing the concerned director of receiving a special notice for his removal along with the copy of such Special Notice to the concerned director.

3. The intimation letter shall intimate the concerned director of his right to represent himself against the said special notice giving him an opportunity to be heard whether in writing or otherwise.

4. If the concerned director intends to make a written representation against the resolution for his removal, he must send the same to the directors of the company before the notice of members’ meeting is given for convening the EGM/AGM for passing of resolution of removal. A copy of the representation made by the concerned director shall be circulated along with the notice of EGM/AGM.

5. In the meantime, the board of directors need to call a Board meeting to fix date, time and venue for Extraordinary Meeting (EGM) or annual general meeting as the case maybe and to consider resolution for removal of director in the board meeting.

6. At the board meeting, the directors pass a resolution for removal of director subject to the approval of shareholders at the general meeting and to issue notice to call a general meeting of the members at a fixed date, time and venue detailing the resolution for removal of director to be passed by the shareholders at such meeting.

7. The Explanatory statement to the notice of the general meeting, shall contain the detailed grounds for removal of director, along with copy of special notice received from a shareholder(s) and the written representation, if any from the director to be removed.

8. The resolution to be passed at the general meeting will be an ordinary resolution as a special business in the agenda for the Extra-ordinary General Meeting/Annual General Meeting unless the director to be removed is an independent director in which case a special resolution should be passed by the shareholders in order to remove a director of the company.

9. At the EGM, the director proposed to be removed shall also be given an opportunity of being heard if he has not sent the written representation earlier. If the director has sent the written representation as above the director has the right to get the representation read out in the relevant meeting.

However, the company or any other person aggrieved may apply to the Tribunal not to send the representation and not to read it out in the meeting on the ground that the rights conferred by this section are being wrongly used by the director.

10. If the shareholders are satisfied by the explanation and representation made by the concerned director, they may proceed to pass the resolution for the removal of director.

11. After the resolution for such removal is passed by the members at the EGM/AGM, the concerned director shall be informed of his removal and the resolution passed at the general meeting maybe filed in form MGT-14 with the registrar, if applicable.

Reasons to Remove a director

A director can be removed for any of the following reasons:

• If they incur any of the disqualifications specified under the Companies Act
• If they absent themselves from board meetings over 12 months
• If they enter into contracts or arrangements against the provisions of Section 184 of the Companies Act
• If they are disqualified by an order of a court or tribunal
• If they are convicted by a court of any offence and sentenced to imprisonment for not less than six months
• If they have not abided by the terms and protocols mentioned in the Companies Act of 2013.

Other points to be noted in respect of removal of director:

• The provisions of Section 173(2) (now Section 102 of Companies Act, 2013) as to the explanatory statement are not applicable in respect of the resolution for the removal, because the company merely acting in pursuance of a special notice received by it to move the resolution, is not a resolution proposed by the company [Life Insurance Corporation of India v. Escorts (1986) 59 Comp Case 548 (SL).
• Section 169 does not apply for removal of director appointed by the tribunal u/s 242 of the Act.
• A vacancy caused by such removal may be filled at the same meeting provided special noticeof the proposed appointment has also been given. The director so appointed shall hold office till the removed director could have held office had he not been removed. If the vacancy is not filled in, at the meeting, it may be filled in by the Board as casual vacancy. However, the director who has been removed shall not be appointed.
• Representation made by the removed director shall also be filed with the Registrar when it is not sent to the members.
• DIR-12 needs to be filed for intimating the ROC of such removal of director by the company within 30 days of such removal.
• In case if a Company fails to comply the said provisions, the Company along with every officer of the company who is in default shall be held punishable with fine which shall not be less than fifty thousand rupees and may extend to five lakh rupees.
• Pursuant to removal of a director, necessary entries have to be made in the register of directors and key managerial personnel (KMP) and register of contracts or arrangements in which directors are interested in Form MBP-4.
• Special Notice shall be sent to concern director at least 14 days before passing the resolution and not more than 3 months from the date of meeting.
• Where a director is removed, the certified copies of minutes can be attached to Form MGT-14, if applicable or form DIR-12. However, in order to avoid future disputes in such matters, it is better to have the evidence of dispatch of notice for the meetings to the said Director, confirming due procedure was followed as per the Act and as per the AOA.

Lastly, care and diligence must be exercised if one wants to invoke the above provisions to remove a director. Otherwise, it can result in unnecessary legal battle between the parties involved.

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(The author is a Chartered Accountant and can be contacted at info@youronlinefilings.in or capratikanand@gmail.com or Mobile: +91-9953199493)