A company, which is a distinct legal entity, has the right to removal a director before the end of their term on the board. Let us know why!
Directors play a crucial role in the management and growth of a company since they make all the essential decisions that will shape the future of the business. Therefore, a better board of directors can provide the organisation with better guidance for accomplishing its goals. The directors’ primary objective is to boost the company’s wealth and generate profits for the company’s shareholders.
For the efficient functioning of the business, the company has the right to appoint or remove any director at any time. By using the authority granted to them by the 2013 Companies Act, shareholders or the central government may dismiss a director of a company. Before being disqualified or removed from the company board, the director of the firm is given proper notice and has the chance to be heard.Every company must continue to have a set minimum number of directors. In a public company, the minimum number of directors is three; in a private limited company, it is two; and in a sole proprietorship, it is just one.In this article, we will discuss in detail about the reasons for removal of director from the company.
What Are The Reasons For The Removal of Director?
Any of the given reasons can be the reasons for removal of director:
- If they commit any of the acts that are prohibited by the Companies Act,2013
- If they miss more than 3 consecutive board meetings
- If they make agreements or contracts that are against Section 184 of the Companies Act,2013
- If they are disqualified by a court or tribunal order
- if they are given a prison term of at least six months after being found guilty by a court for any crime
- If they have disregarded the conditions and guidelines outlined in the Companies Act of 2013
- If they gave their position a voluntary resignation.
Who Can Remove A Director?
A director may resign from his or her position as a director by giving written notice to the board of directors, the shareholders, the government, or the board itself. A director can only be terminated during a business meeting if they have committed any mistake given in reasons for removal of director list above. Only the Tribunal (NCLT) or Court can remove a director from the corporation if that director was appointed by the Tribunal (NCLT) or Court. Every time a director is terminated from the company, the firm is responsible for notifying the Registrar of the dismissal and assigning authority over it.
What Are The Ways To Remove A Director From A Company?
Here are the following ways which can lead to removal of director from a company:
1. When The Director Gives A Resignation
In this situation, the following steps must be taken:
- Conducting a board meeting with a clear seven-day notice
- The board members will discuss the resignation during the meeting
- Then they have to adopt a resolution to that effect in a certain format
- The resigning director must then complete Form DIR-11 in his individual capacity
- The registration letter, board resolution, and Form DIR-12 must be submitted by the firm to the Registrar of Companies (RoC)
- The director’s name will be deleted from the company’s master data on the Ministry of Corporate Affairs (MCA) website once all forms have been completed and the necessary procedures for removing the director have been followed.
2. Director Remains Absent From 3 Consecutive Board Meetings
- A director is deemed to have resigned from their position in accordance with Section 167 if they fail to appear at any or all of the board meetings during the course of a year, whether or not they requested a leave of absence
- It is necessary to file a Form (DIR-12)
- The name of the concerned director will be deleted from the Ministry of Corporate Affairs’ database after the necessary procedures have been completed.
3. Removal of Director By Shareholders
- A notification is sent to all shareholders for a board meeting, which must be held within seven days after the issuance date
- Subject to the shareholders’ approval on the day of the meeting, a resolution is passed to call a general meeting and then to remove the director at that meeting
- The second meeting of shareholders is called with a 21-day notice to vote on the earlier resolution, and the director who is being removed by the shareholders can speak regarding their dismissal
- The shareholders must submit Form DIR-12 along with an ordinary resolution and the board resolution’s attachments
- The name of the concerned director is removed from the Ministry of Corporate Affairs (MCA) database and website once all the processes are done away with.
Relevant Provisions of the Companies Act, 2013
Section 169: Director Removal
This section outlines the legal procedures and requirements for the dismissal of directors.
Section 115: Appointment of Additional Directors
While this section likely pertains to the addition of directors, specifics without additional context are challenging to determine.
Section 163: Proportional Representation in Director Appointments
This section allows for proportional representation in appointing directors, potentially influencing the director removal process based on the company’s governance structure.
Rule 23: Management and Administration Guidelines
This rule is associated with the management and administration of companies, likely providing specific guidelines or regulations related to director removal and associated procedures.
Form DIR-12
The DIR-12 form is a mandatory document according to the Companies Act 2013, used for the dismissal of a director from a company. It plays a crucial role in the formal procedure for removing a director from their role within the company.
Consequences of Failing to File Form DIR-12
- Within 30 to 60 days: A penalty equal to double the government fees
- Within 60 to 90 days: A penalty equal to quadruple the government fees
- Exceeding 90 days incurs a penalty of ten times the government fees
- If the delay goes beyond 180 days, the penalty increases to twelve times the government fees, and the Company may also face compounding offences.
Conclusion
The removal of a director from a company is a process that has to be carried out carefully and should follow the legal guidelines & regulations laid down in the Companies Act,2013. Legal experts at Vakilsearch can help you in the above process with simple and easy documentation. We will provide you with best-in-class service at every step of the entire process.
Frequently Asked Questions
What are the grounds for the removal of a director?
In accordance with Section 168 of the Companies Act 2006, a shareholder has the option to petition the court for the removal of a company director if they have engaged in serious misconduct or are deemed unfit to continue in their position.
Can a director be removed for cause?
As previously stated, a director could be fired for obtaining any disqualifications that the Companies Act specifies.
What is the cause of directors?
Director cause refers to the circumstances under which a Director may be removed from the Board, specifically when the Director persistently fails, for over 10 days after receiving written notice from the Company, to fulfil their duties as requested by the Company.
Do you need a reason to remove a director?
Typically, shareholders have the authority to dismiss a director if there is a valid reason, such as misconduct, gross negligence, or failure to fulfil their duties.
Can a director be removed without notice?
Yes, a director can be removed without notice if the company's articles of association permit it or if there are statutory provisions allowing for immediate removal in specific circumstances, such as gross misconduct. Shareholders may take swift action to remove a director in such cases without prior notice.
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