Director Removal – Can a Director be Removed without Notice?

Introduction

As per the Company Act, the shareholders of the firm have the authority to remove a director of the company. An organisation has the right to remove a director even before the end of their term if they are inactive for a period of time, such as a year or twelve months, or if they refuse to attend any board meetings despite receiving many reminders or notices. The numerous steps for removing a director from the firm are detailed in this article.

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Functions of Director

As the person in charge of all business operations carried out within the company, a director plays an important function in the organisation. They are responsible for establishing and carrying out the company’s policy. In addition to this, directors are responsible for managing and handling several significant corporate processes. Therefore, corporate directors must be present at all meetings and take part in the fundamental tasks of the business. 

If a firm’s director is not involved in any of the activities or affairs of the company, then that director’s function becomes null and void and is not helpful to the company’s expansion. Therefore, it is apparent and wise to fire him or her from the organisation.

Three scenarios could lead to the dismissal of directors from the company. These are what they are:

• If the director failed to show up for three consecutive board meetings, 
• When a director gives the corporation notice of his or her resignation
• Suo-removal moto’s as a director by the board

Types of Directors in a Company

There are various kinds of directors in a company, and each one plays a unique role in the organisation. Let’s research each director individually.

• • Managing Director

A managing director is someone who has significant organisational management authority. The company’s bylaws, a contract with the company, a resolution passed at the general meeting of the company, or the board of directors may provide him with this authority.

• • Independent Director

A person must meet the requirements outlined in section 149(6) of the Companies Act, 2013, which specifies that an independent director is someone who is neither the managing director, a whole-time director, nor a nominated director. These requirements include:

• • 1. The individual must not be related to the company’s founders, directors, holding, subsidiary, or affiliate companies
    2. He must have the necessary expertise and, in the board’s opinion, exhibit integrity
    3. A person appointed as an independent director is not permitted to be a promoter of the company to which he has been appointed, or of any other company that is its holding, subsidiary, or associate company
    4. Except for his salary, the individual cannot have any other financial connection to the company, its holding company, subsidiary, or associate company
    5. He and his family members are not allowed to have any form of an ownership stake in the business. As long as the relative can own shares with a face value of up to ₹ 50 lakhs, which is equal to 2% of the paid-up capital. According to Section 149(4) of the Companies Act of 2013, each listed public company’s board of directors must consist of 1/3 of independent directors

• • Executive Director

The company’s full-time employed director is an executive director. They have greater accountability and are in control of the business operations. They must pay attention and exercise caution when performing their duties in the organisation

• • Non-executive Director

Non-executive directors don’t take part in the day-to-day activities of the business. The executive directors may be pushed to make decisions that are in the best interests of the company by them as they participate in planning or policy-making processes.

• • Female Director

A minimum of one female director must be appointed by any publicly traded entity as well as any other public corporation with a paid-up share capital of ₹  100 crore or more and a turnover of at least ₹  300 crore

The lady director may be chosen at any stage throughout the company’s registration process or even after incorporation. She will serve in that capacity until the organisation’s following annual general meeting (AGM), which will be held one year after the date of her appointment. She may also leave her position at any time by providing written notice to the business.

• • Additional Director

If the corporation so requests, the board of directors may name additional directors. An individual will not be named as a company’s additional director if their name was not put forward for election at the general meeting.

The additional director will serve for some time up until the time of the following annual general meeting (AGM) or the final date on which the annual general meeting should be convened, whichever comes first.

• • Alternate Director

The corporation must hire a replacement director if the current director hasn’t been in India for the past three months. If the company’s bylaws permit it or if a motion is approved at the general meeting, a corporation may name an alternate director.

The replacement director will serve until the end of the current director’s tenure or until that director returns to India, whichever comes first.

Can a Company Remove a Director?

A director removal occurs when the firm’s Board of Management decides Suo-moto to remove the director from the company. An organisation can dismiss any director, but there is a process for doing so. The grounds for taking such a step are numerous and differ from company to company. Connect with Vakilsearch to know more about any legal issue.

Which Laws or Provisions Control the Director’s Removal?

The 2013 Companies Act’s Section 169 addresses the dismissal of directors. The company must abide by this requirement or else The Companies Act of 2013’s criminal provisions would apply to the company and its officers.

What Steps are Involved in Director Removal?

Under Section 169 of the Companies Act 2013, shareholders have the right to oust a company’s director by adopting an ordinary resolution following a formal general meeting. However, there is one exception: if the director was chosen by the Central Government or the Tribunal, shareholders are not permitted to do so.

Procedures For Removing a Director include the Following:

1. A board meeting should be held by the corporation after giving all directors seven days’ notice. Additionally, a special notice outlining the specifics of the director’s termination will be addressed to the company’s directors
2. A motion to the director removal is then approved by the shareholders at an additional general meeting, which is held on the day the company’s board meeting is scheduled to take place
3. Once more, all company directors will receive unambiguous notice of the general meeting 21 days in advance. The members are expected to vote at this meeting on the removal of the director. The choice will be taken based on the majority vote, and the resolution will then be passed on the same
4. The director shall have the opportunity to be heard before the meeting and the adoption of the resolution
5. Following the same process, Forms DIR-11 and DIR-12 must be filed along with all necessary papers, such as Board Resolutions and Ordinary Resolutions
6. The director’s name will be removed from the MCAs, or Ministry of Corporate Affairs, portal when the paperwork has been submitted.

Conclusion

Reading through the aforementioned judicial rulings demonstrates that there are more than just the steps outlined in section 169 of the Act that must be followed to remove a director from their position. The provisions of section 169 have no bearing on a director’s right to be removed where that right is granted to the directors by the articles of a corporation.

Additionally, it is acknowledged by the courts that the explanatory statement to a notice to shareholders need not provide a specific justification for the dismissal of a director.

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