When can a Director be removed from a company?- Scenario explained

Last Updated at: May 14, 2020
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When can you remove a Director from the company

Recent times in India has seen some of the top executives in some of the biggest brands like Tata and ICIC being removed from their positions. The reasons for their removal may vary, but the result is the same. This article aims to elucidate how the director of a company can be ousted.

In the last 12 months, India has witnessed some of the biggest dramas in the corporate landscape, from Cyrus Mistry’s removal by Tata’s Board of Directors to the much-debated role of Chanda Kochhar in the ICICI Bank controversy. While trust deficit is quoted as the reason for removal of Mistry as the Chairman, it was an abuse of trust by Ms. Kocchar in granting loans without diligence procedures to her husband, that the board removed her. Even politically, Alok Verma’s removal as CBI Director has raised contentious issues about positions of responsibility that directors enjoy and the dynamics of the situation that necessitate their removal.

Below you’ll find some of the services provided at Vakilsearch that may answer your on the procedure, documents and process flow for a government or tax registration.

 

In this post, we highlight the factors that may lead to the removal of a director from the company’s board and the build-up to such removal.

In case the Director does not attend three Board Meetings in a row

One of the most important fiduciary duties of the director is to participate in deliberations for giving shape to company policies and assist in decision-making through board meetings. As per Section 167 of the Companies Act, 2013 if a Director does not attend a board meeting for 12 months, starting from the day on which he was absent at the first board meeting, even after the company gives due notice for all the meetings, it will be deemed that he has vacated the office and a Form DIR – 12 can be filed to remove his/her name from records of the Ministry of Corporate Affairs.

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Removal by shareholders

Section 169 of the Companies Act, 2013 states that the shareholders can remove the director by passing an ordinary resolution in the general meeting. A special notice with the intention of removing a director by the specified number of members of the company has to be passed at least before 14 days before the concerned meeting at which it has to move excluding the day on which the notice is served and the day of the meeting.

A special notice required to be given to the company shall be signed, either individually or collectively by such number of members holding not less than one percent of the total voting power or holding shares on which an aggregate sum of not more than five lakh rupees, which has been paid upon the date of the notice.

Removal of a Director by Shareholders

The company is also required to send a notice on intimation to the concerned director intended to be removed, who further has a right to be heard at the meeting. A written representation is also allowed, which is to be sent to all members compulsorily by the company and maybe read at the meeting. This rule of natural justice embodied in the Act is intended to ensure that the director gets a fair chance to explain his conduct. The voting threshold and special resolution requirement are meant to act as a protective safeguard to ensure that a director is not unnecessarily hindered by political/business motives of a select few.

Directors and shareholders – A relationship of trust, honesty and good-faith

The ultimate responsibility of a director is towards the company, and hence, its shareholders. The Companies Act mentions several duties of a director – such as duty to act in good faith, exercising reasonable care, due diligence, independent judgement, working towards the interest of shareholders, prevent undue advantages to related persons among other duties and liabilities. Thus, the ultimate power to oust an erring director is also vested with the shareholders, albeit with safeguards and appeal provisions in the Companies Act.

To conclude it all, there are two ways to remove a director: in case the director does not attend 3 consecutive Board Meetings, shareholders pitch to discharge him or her. It should be noted that the final call to oust a director is vested with the shareholders, but there are safeguards.

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When can a Director be removed from a company?- Scenario explained

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Recent times in India has seen some of the top executives in some of the biggest brands like Tata and ICIC being removed from their positions. The reasons for their removal may vary, but the result is the same. This article aims to elucidate how the director of a company can be ousted.

In the last 12 months, India has witnessed some of the biggest dramas in the corporate landscape, from Cyrus Mistry’s removal by Tata’s Board of Directors to the much-debated role of Chanda Kochhar in the ICICI Bank controversy. While trust deficit is quoted as the reason for removal of Mistry as the Chairman, it was an abuse of trust by Ms. Kocchar in granting loans without diligence procedures to her husband, that the board removed her. Even politically, Alok Verma’s removal as CBI Director has raised contentious issues about positions of responsibility that directors enjoy and the dynamics of the situation that necessitate their removal.

Below you’ll find some of the services provided at Vakilsearch that may answer your on the procedure, documents and process flow for a government or tax registration.

 

In this post, we highlight the factors that may lead to the removal of a director from the company’s board and the build-up to such removal.

In case the Director does not attend three Board Meetings in a row

One of the most important fiduciary duties of the director is to participate in deliberations for giving shape to company policies and assist in decision-making through board meetings. As per Section 167 of the Companies Act, 2013 if a Director does not attend a board meeting for 12 months, starting from the day on which he was absent at the first board meeting, even after the company gives due notice for all the meetings, it will be deemed that he has vacated the office and a Form DIR – 12 can be filed to remove his/her name from records of the Ministry of Corporate Affairs.

Update the Changes in Your Business

Removal by shareholders

Section 169 of the Companies Act, 2013 states that the shareholders can remove the director by passing an ordinary resolution in the general meeting. A special notice with the intention of removing a director by the specified number of members of the company has to be passed at least before 14 days before the concerned meeting at which it has to move excluding the day on which the notice is served and the day of the meeting.

A special notice required to be given to the company shall be signed, either individually or collectively by such number of members holding not less than one percent of the total voting power or holding shares on which an aggregate sum of not more than five lakh rupees, which has been paid upon the date of the notice.

Removal of a Director by Shareholders

The company is also required to send a notice on intimation to the concerned director intended to be removed, who further has a right to be heard at the meeting. A written representation is also allowed, which is to be sent to all members compulsorily by the company and maybe read at the meeting. This rule of natural justice embodied in the Act is intended to ensure that the director gets a fair chance to explain his conduct. The voting threshold and special resolution requirement are meant to act as a protective safeguard to ensure that a director is not unnecessarily hindered by political/business motives of a select few.

Directors and shareholders – A relationship of trust, honesty and good-faith

The ultimate responsibility of a director is towards the company, and hence, its shareholders. The Companies Act mentions several duties of a director – such as duty to act in good faith, exercising reasonable care, due diligence, independent judgement, working towards the interest of shareholders, prevent undue advantages to related persons among other duties and liabilities. Thus, the ultimate power to oust an erring director is also vested with the shareholders, albeit with safeguards and appeal provisions in the Companies Act.

To conclude it all, there are two ways to remove a director: in case the director does not attend 3 consecutive Board Meetings, shareholders pitch to discharge him or her. It should be noted that the final call to oust a director is vested with the shareholders, but there are safeguards.

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Avani Mishra is a graduate in law from the National Law Institute University, Bhopal. She qualified the Company Secretary course with an All India Rank 1 and is a recipient of the President’s Gold Medal for her academic distinctions. She also holds a B.Com degree with a specialization in Corporate Affairs and Administration.