Removal of Director in India
The process of removing a director from a company is a legal procedure governed by the Companies Act 2013, alongside the company’s internal policies. Whether the company is public or private, the removal must follow the correct steps to avoid legal issues.
To begin the removal process, shareholders or the Board of Directors must issue a special notice as required by Section 115 of the Companies Act 2013. This notice must be sent to the company and the concerned director at least 14 days before the meeting. The director has the right to submit a written representation, which must be shared with the shareholders before the vote.
The Board will need to formalize the decision via a Board Resolution. An Extraordinary General Meeting (EGM) or the Annual General Meeting (AGM) must then be held for a vote. A special resolution or ordinary resolution passed during the meeting is necessary for the removal to take effect. If not done correctly, it may lead to disputes, especially for independent directors.
Once the resolution is passed, the company must file Form DIR-12 with the Registrar of Companies (ROC) to officially update the company’s register. The company’s articles of association may govern any further steps related to filling vacancies.
FilingIn helps businesses navigate this process professionally and efficiently, ensuring legal compliance while handling everything from board resolutions to filing the necessary forms.
Who is a Director Under the Companies ACT, 2013?
A director under the Companies Act, 2013 is an individual responsible for managing a company’s operations and ensuring it adheres to legal obligations. Directors form the Board of Directors and are entrusted with overseeing the company’s activities as per the Memorandum of Association (MOA) and Articles of Association (AOA).
The Companies Act defines various types of directors, such as:
- Executive Directors: Actively involved in day-to-day operations.
- Non-Executive Directors: Provide oversight without being involved in daily operations.
- Independent Directors: Act as a safeguard to ensure fairness and protect shareholder interests.
The removal of a director is outlined under Section 169 of the Companies Act 2013, which includes provisions for a special notice and the passage of a resolution at a General Meeting. The director in question must have an opportunity to make a representation before the final decision is made.
Role of a Director in a Company:
A director’s role is central to the success, governance, and compliance of a company. Here are some key responsibilities:
- Strategic Planning: Directors set the long-term direction of the company.
- Decision Making: Key decisions are made on operational strategies.
- Financial Oversight: Ensuring proper management of the company’s finances.
- Risk Management: Identifying risks and formulating mitigation strategies.
- Legal Compliance: Adherence to laws such as health, safety, and governance.
- Stakeholder Engagement: Managing relationships with shareholders and other stakeholders.
- Leadership and Team Development: Ensuring the right teams are in place and motivated.
- Corporate Governance: Maintaining ethical standards and transparent operations.
- Innovation and Adaptability: Ensuring the company evolves with market needs.
- Crisis Management: Handling potential crises with strategic solutions.
At FilingIn, we ensure that your company’s directors remain compliant with all legal requirements, including filing Form DIR-12 for any changes.
When a company decides to remove a director, it must follow these critical steps:
- Issuance of Special Notice: As per Section 115 of the Companies Act 2013, a special notice must be issued for the removal.
- Notice Period to Director: Ensure the director receives the notice at least 14 days before the meeting.
- Right to be Heard: Allow the director to present their case before the shareholders vote.
- General Meeting and Voting: The decision is made through voting at the General Meeting.
- Filing Form DIR-12 with ROC: Submit the relevant forms to record the removal with the ROC.
- Restriction on Reappointment: Directors removed from the company cannot be reappointed.
- Filing Form MGT-14: For changes to the company’s share capital or articles, file Form MGT-14.
- Appointment of a New Director: The Board may need to appoint a new director to fill the vacancy.
- Consideration of Minority Shareholders: Ensure that the rights of minority shareholders are protected.
Removal of Director via Suo-Moto by the Board:
When the Board convenes a meeting suo-moto (of its own accord), the following process applies for the removal of a director:
- Issuance of Notice: The company issues a seven-day notice to all directors, including a special notice regarding the proposed removal of a director, in accordance with the Companies Act, 2013.
- Board Meeting and Resolution: In the board meeting, a resolution will be passed to convene an Extraordinary General Meeting (EGM) for the purpose of discussing and voting on the director’s removal, pending shareholder approval.
- EGM Notice: The EGM must be scheduled with a minimum of 21 days' clear notice to all members, including an agenda for the director’s removal and the special notice of the resolution.
- Shareholder Vote: At the EGM, shareholders vote on the proposed removal of the director. The director will have an opportunity to present their case before the vote. If the majority of shareholders approve, the resolution will pass.
- Post-Resolution Filing: Following the successful vote, the company must file Forms DIR-11 and DIR-12 with the ROC, including the Board Resolution and Ordinary Resolution. These filings will lead to the director’s removal from the MCA database.
Removal of a Nominee Director:
According to Section 115 of the Companies Act, 2013, the board must follow specific steps to remove a nominee director:
- Board Meeting Notice: A seven-day notice will be issued to all directors, along with a special notice, to inform the board of the proposed removal.
- EGM Resolution: A resolution will be passed in the board meeting to call for an EGM, where shareholders will vote on the removal.
- EGM Procedure: The General Meeting will be scheduled with at least 21 days' notice to members. Shareholders will vote on the resolution, and the director will be given a chance to present their case.
- Filing DIR-11 and DIR-12: Once the resolution is passed, the company must file Forms DIR-11 and DIR-12, ensuring the director’s removal is properly documented with the ROC and the MCA.
Removal of Director by Tribunal:
In certain cases, the National Company Law Tribunal (NCLT) may intervene to remove a director, particularly in instances of misconduct, financial mismanagement, or breach of fiduciary duties. Here’s how the tribunal can become involved:
- Conditions for Tribunal Intervention: The tribunal may step in if a director engages in fraudulent conduct, violates statutory obligations, or acts oppressively toward shareholders. It may also be involved if the director fails to file necessary financial statements or engages in financial misconduct.
- Filing a Petition to the Tribunal: A petition can be filed with the NCLT by shareholders, regulatory authorities, or the company itself. The tribunal will review the case, allowing both parties to present their arguments before issuing a ruling. If the tribunal finds merit, it can remove the director and may impose further penalties, including disqualification from future directorships.
To remove a director, the following steps must be followed:
- Review Bylaws and Legal Frameworks: Ensure the removal aligns with internal policies and legal requirements.
- Establish Grounds for Removal: Clearly document the reasons for the director’s removal, such as misconduct or failure to fulfill their duties.
- Convene a Board Meeting: A formal board meeting must be held, giving the director an opportunity to respond.
- Hold the Vote: A vote must be held in line with the company’s bylaws and the Companies Act 2013.
- File and Communicate the Removal: Post-vote, update the ROC with Form DIR-12 and notify the director.
Steps for Voluntary Resignation of a Director:
If a director chooses to resign voluntarily, follow these steps:
- Submission of Resignation: The director submits a formal resignation letter to the Board.
- Schedule a Board Meeting: A board meeting must be scheduled to discuss and accept the resignation.
- Board Resolution: The resignation is formally accepted in the Board meeting.
- Filing by the Director: The director files Form DIR-11 with the ROC.
- Filing by the Company: The company files Form DIR-12 to update the ROC.
- Update Records: The company’s register of directors is updated.
Director Removal Process Under the Companies ACT, 2013 – FilingIn:
If a director remains absent from board meetings for a consecutive period of 12 months, their position is automatically vacated under Section 167 of the Companies Act, 2013. To ensure compliance with legal formalities, the company must take specific actions to formalize the removal. Here’s a detailed guide to help you navigate the process:
Step 1: Director's Absence from Board Meetings
If a director misses all board meetings for over 12 months, they are considered to have vacated their office under Section 167, regardless of whether they requested leave. This applies even if the director was duly notified about the meetings during this period.
Step 2: Filing Form DIR-12
Once the director’s office is automatically vacated, the company must file Form DIR-12 with the Registrar of Companies (ROC). This form documents the removal, confirming that the director’s status has been updated in the official records.
Step 3: Updating the MCA Database
After the company submits Form DIR-12, the director’s name will be removed from the Ministry of Corporate Affairs (MCA) database, ensuring the update is reflected in official records and that the director no longer holds any legal or fiduciary responsibilities.
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Delay Period
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Penalty
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Up to 30 Days Delay
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2x normal filing fees
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31-60 Days Delay
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4x normal filing fees
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61-90 Days Delay
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61-90 Days Delay
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91-180 Days Delay
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10x normal filing fees
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More than 180 Days Delay
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12x normal filing fees
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Additionally, a penalty of ₹50,000 for the company and ₹50,000 for each officer in default may be imposed. If the delay continues, an additional fine of ₹500 per day may be charged, up to a maximum of ₹2,00,000 for the company.
Ways to Remove a Director From a Company:
Directors can be removed through various methods:
- Voluntary Resignation: A director can choose to resign voluntarily by submitting a formal letter of resignation to the company. The resignation must be formally accepted in a Board Meeting, and Form DIR-12 must be filed with the ROC.
- Compulsory Removal: Under Section 169 of the Companies Act 2013, shareholders have the right to remove a director by passing a resolution at a General Meeting. This process requires a special notice and an opportunity for the director to make representations. The company must then file Form DIR-12 with the ROC to officially record the removal.
Law Governing Director Removal:
The Companies Act 2013 governs the removal of directors in India. It outlines the process under Section 169, where a special notice is required from shareholders for the removal of a director. The director also has the opportunity to submit a written representation before a General Meeting.
In cases of misconduct or violations, directors may also be removed through the intervention of the National Company Law Tribunal (NCLT). Additionally, Section 242 allows the tribunal to take corrective actions, including the removal of a director, in cases of oppression or mismanagement.
FilingIn ensures that the director removal process is handled in full compliance with the law, safeguarding your company’s interests.
Implications of Director Removal:
Removing a director carries several legal and operational consequences, including:
- Termination of Duties: The removed director no longer has any responsibility for the management or decision-making of the company.
- Operational Impact: The company’s operations may be affected as the removed director loses the authority to represent or act on the company’s behalf.
- Legal and Financial Consequences: Failure to follow legal procedures for removal may lead to disputes or claims against the company.
- Reputation Risk: Director removal can impact the company's reputation, especially if it is publicly known. Proper handling is key to mitigating any potential negative effects.
Filing Form DIR-12 for Director Removal:
Form DIR-12 must be filed with the Registrar of Companies (ROC) whenever a director is removed or resigns. This form is essential to ensure compliance and avoid penalties for non-compliance. It also ensures transparency by keeping the public records updated with the latest information about a company’s management.
Information Required in Form DIR-12:
- Company Name and CIN: The company's full legal name and Corporate Identification Number (CIN).
- Director’s Details: Name, Director Identification Number (DIN), and the date of removal.
- Reason for Removal: A brief description of the reason for removal.
- Meeting Details: The type of meeting where the resolution was passed and the date.
- Resolution: Whether the resolution was ordinary or special.
When a Director Cannot be Removed Under Section 169 of the Companies Act:
Under Section 169, certain conditions prevent the removal of a director:
- The director was appointed by the Tribunal.
- The director is an independent director reappointed for a second term.
- The company follows a system of proportional representation for electing directors.
Despite these exceptions, a company can remove a director with the appropriate procedure, including passing an ordinary resolution and providing the director with a chance to be heard.
Common Issues in Director Removal:
- Delays in the Process: Delays often occur due to incomplete documentation or failure to follow procedures. To avoid this, ensure all documents are prepared accurately and in compliance with the law.
- Shareholder Disputes: Disagreements among shareholders can delay the process. A well-structured shareholder agreement and effective conflict resolution methods can help avoid these issues.
- Documentation Errors: Errors in the paperwork can cause delays and legal complications. Double-check all documents for accuracy and consult legal professionals when needed.
At FilingIn, we specialize in managing the complexities of director removal, ensuring complete compliance with the Companies Act, 2013. Here’s why you should choose us:
- Expert Legal Guidance: We provide comprehensive legal support throughout the director termination process.
- Documentation Support: Our team ensures all required forms and documents are accurately prepared and submitted.
- Efficient Compliance Handling: We manage all filings and legal procedures on your behalf, ensuring timely and error-free compliance.
- End-to-End Service: From consultation to finalization, we handle every step to make the process seamless for you.
For a hassle-free director removal process, trust FilingIn to ensure legal compliance and peace of mind.
Frequently Asked Questions in India
What is the process for removing a director under the Companies Act, 2013?
The process for removing a director involves issuing a notice of the proposed removal, holding a Board Meeting to pass a resolution, calling for an Extraordinary General Meeting (EGM) where shareholders vote, and filing the necessary forms (DIR-11 and DIR-12) with the Registrar of Companies (ROC). The director’s name is then removed from the MCA database.
Can a director be removed without their consent?
Yes, a director can be removed without their consent, as long as the removal process follows the proper legal procedure, including providing them with an opportunity to be heard before shareholders vote on the resolution.
How many votes are required to remove a director at an EGM?
The removal of a director at an EGM requires a majority vote of the shareholders. In most cases, a simple majority (more than 50%) is required to pass the resolution for removal.
Can a director be removed for non-attendance at board meetings?
Yes, under Section 167 of the Companies Act, 2013, a director who remains absent from all board meetings for a consecutive period of 12 months automatically vacates their office, and the company must file Form DIR-12 to document the removal.
What forms are required to be filed for the removal of a director?
After a director’s removal, the company must file Form DIR-11 and DIR-12 with the Registrar of Companies (ROC). These forms are used to officially document the removal and update the director’s status in the MCA records.
What happens if Form DIR-12 is not filed on time?
Failure to file Form DIR-12 within the required period can lead to penalties. The company and its officers may face fines, which increase with the duration of the delay. Penalties include an initial fine of ₹50,000 and additional charges of ₹500 per day of continued delay.
Can the removal of a director be challenged?
Yes, the removal of a director can be challenged by the director themselves if they feel the procedure was not followed correctly. The director may appeal the decision to the National Company Law Appellate Tribunal (NCLAT) if the removal is contested.
What reasons can be cited for the removal of a director?
Common reasons for the removal of a director include failure to attend board meetings, breach of fiduciary duties, involvement in fraudulent activities, financial mismanagement, or non-compliance with statutory obligations.
What is the role of the Tribunal in the removal of a director?
The National Company Law Tribunal (NCLT) can intervene in the removal of a director if the director’s actions are detrimental to the company or if they violate statutory obligations. In cases of misconduct or financial mismanagement, the tribunal has the authority to remove a director.
Are there any exceptions to removing a director under Section 169?
Yes, directors appointed by the Tribunal or independent directors reappointed for a second term under Section 149(10) cannot be removed easily. Also, in companies with a system of proportional representation, removal requires specific procedures as outlined in Section 163.
