The removal of directors in a company is governed by Section 169 of the Companies Act, 2013. This section outlines the detailed procedure and requirements for removing a director, ensuring transparency and compliance with legal standards. However, certain directors, such as those appointed by the National Company Law Tribunal (NCLT) under Section 242 or through proportional representation under Section 163, are exempt from this provision.
According to the provisions of Section 169 of the Companies Act, 2013
Non- Applicability of the section
Section 169 does not apply on directors appointed by NCLT under section 242 and directors appointed through proportional representation under section 163.
Procedure for removal of Directors
1. Special notice will be given by one or more member proposing removal, and company will send a copy of special notice to concern director.
2. Hold a Board meeting and approve the notice to call general meeting (AGM/EGM). Company will issue general meeting notice atleast 21 days in advance and such notice should ideally contain representation filed by director, but if representation could not be sent it shall be read out at general meeting.
3. In General Meeting, members will pass ordinary resolution or special resolution if required, after giving an opportunity of being heard.
4. Company will file DIR -12 with ROC, along with copy of special notice, general meeting notice, ordinary resolution/special resolution and his interest in other entities. It may be filed the removal in Form MGT-14 with the registrar, if applicable. This filing will be done within 30 days.
5. Company will modify the register maintained in Section 170 & 189.
Filling the vacancy created by Removal of Director under Section 169
1. Vacancy created by such removal can be filled by shareholders by appointing someone else at the same meeting subject to special notice being already given.
2. If vacancy does not fill in General Meeting then, Board of Directors may fill it as a casual vacancy.
3. The same director who was removed cannot be appoint again in that General Meeting and by Board of Directors in a casual vacancy.
4. Person appointed to fill this vacancy will serve only the remaining tenure of original director so removed.
5. Section 169 does not prohibit removal of directors under any other section and payment of any compensation or damages if agreed in the terms of appointment.
Also noted that,
If it is found that the representation submitted by concerned director is defamatory in nature, company or any other aggrieved person can complain to Tribunal.
If tribunal is satisfied, tribunal may issue following orders-
1. Stay order on the representation
2. Payment of Companies cost by the concern directors.
Conclusion: Understanding the provisions of Section 169 of the Companies Act, 2013, is crucial for ensuring a smooth and legally compliant process for the removal of directors. By following the prescribed steps and adhering to the requirements, companies can effectively manage changes in their board of directors while maintaining corporate governance standards. It is also important to be aware of the non-applicability clauses and the potential legal recourse available if a director’s representation is deemed defamatory.
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