Legal AdvicePrivate Limited

How to Remove a Director from a Private Limited Company

As mandated by the Companies Act, 2013 (‘The Act’), A Private Limited Company is required to have a minimum of 2 directors before the commencement as per sec. 149 of the Act. To know more about how to remove a director from a private limited company, keep on reading.

A director of a company can be removed or voted out by the shareholders in a general meeting. However, there is an exception in cases where the director is appointed by the central government or by the Tribunal as per sec. 242 of the Act. lets see how to Remove a Director from a Private Limited Company

There are three possible cases in which the removal of a director of a company happens:

  1.     The Removal of a Director suo-moto by the Board
  2.     The Director himself gives his resignation
  3.     Vacation of the Office: The Director does not attend three continuous Board Meetings of the company

Remove a Director from a Private Limited Company

The reasons for which a director can be removed as per the Act are:

  1. Sec 164: If the director incurs any of the disqualifications as provided by this section.
  2. Sec 167 (1) (b): If the director Is absent from the Board meeting for over 12 months
  3. Sec 168: Voluntary resignation from the director
  4. Sec 167 (1) (e): Is disqualified by the court/Tribunal
  5. Sec 167 (1) (c) and (d): If the director enters into contracts against the provisions of section 184
  6. Sec 167 (1) (f): Is convicted under charges and is sentenced for imprisonment for not less than 6 months

Different Types of Directors

Under the provisions of Act, 2013 there are different types of directors, Executive Director, Non-Executive Director, Nominee director, Additional director. The procedure for removal of these directors are distinguished below:

1) EDs and NEDs– The process of removal of EDs and NEDs is largely the same as managing directors i.e.by the shareholders under section 169 or by the board of directors under powers bestowed by the AoA. In case of EDs, the terms of their engagement with the company may also be relevant to see for their removal.

2) Nominee directors- The nominee directors can either be appointed by:

  • A financial institution
  • By way of Shareholder Agreement

The authority vested with the power of appointment also has the power of removal. We can also refer to a judicial pronouncement in this regard, in the case of Farrel Futado v. State Of Goa And Others, it was held that –

[‘It is now a well-settled principle of law laid down by various decisions of the apex court, that the power of appointment includes the power of removal. The power of removal in the present case flows from the right of appointment by the Administrator under Article 68(1) of the articles of association…]

3)      Additional directors – The board of directors under the powers given by the AoA may appoint an additional director, and until their appointment is regularised by the shareholders at a general meeting, the board of directors can remove an additional director.

4)      Managing Director – A managing director is appointed in a dual capacity, i.e. as a managerial personnel and as a director. As a managing director his terms of engagement are usually determined by way of a formal letter. Therefore, termination of the services of a managing director is within the powers of the board and section 169 shall not be referred to in this regard.

In the case of S. Varadarajan v. Venkateshwara Solvent Extraction (P) Ltd: : 1994 80 CompCas 693 Mad, (1992) IIMLJ 130[7], it was held that section 284 does not come in the way of removal of the managing director by the board. Similar decision was taken in the case of Major General Shanta Shamsher v. Kamani brothers: : AIR 1959 Bom 201, (1958) 60 BOMLR 1024, 1959 29 CompCas 501 Bom.

The Removal of a Director suo-moto by the Board

Step 1:  The special notice required under section 169 shall be given as per the provisions of section 115 which prescribes the eligibility criteria and the manner in which the resolution will be circulated.

Step 2: 

  1. a) A special notice for the removal of the director is to be furnished by a number of members in accordance with the section 115 of the Act to the company at least 14 days before the meeting at which it is to be moved.
  2. b) Ensure that the notice for removal of a director is not barred by Sec 242.
  3. c) Ensure that the director of whose removal notice has been received is not a director who was appointed under section 163 with the principle of proportional representation.

Step 3: After receiving the notice of intention to move any resolution for the removal if a director, the company shall immediately give notice of said resolution to the members of the company in the same way as it gives notice of the meeting.

Step 4: Publish an advertisement, in case it is not possible for the company to give notice to all the members of the Company, in the newspaper having an appropriate circulation within a period of not less than 7 (seven) days before the date of meeting.

Step 5: On receipt of notice, the copy of the same shall be sent to the director concerned and in furtherance of principles of natural justice, the director must be intimated about his opportunity to be heard in a general meeting.

Step 6: Prepare notice of board meeting along with draft resolution(s) to be passed in the board meeting. Send notice of board meeting to all the directors complying with the following conditions:

A)The notice must be sent 7 days before the date of board meeting

B)Or The notice must be sent in such a manner as prescribed under Sec. 173(3) of the Act and clause 1 of the Secretarial Standard-1.

Step 7: Convene the board meeting and pass board resolutions for:

  1. Removal of director subject to the approval of shareholders in general meeting by way of ordinary resolution.
  2. Fix day, date, time and venue for calling general meeting and Approve the notice of general meeting

Step 8:

A.Prepare draft minutes of the board meeting and circulate, within a period of fifteen days from the date of conclusion of that meeting, to all directors, for their comments. All directors shall communicate their comments, if any, on the draft circulated minutes within a period of seven days from the date of circulation of the draft minutes.

B.Add the suggested comments given or suggested by any director and finalize the minutes. Enter the minutes, in the minute book of the board meeting, within thirty days from the date of conclusion of the board meeting.

C.Minutes of the board meeting shall be signed and dated by the chairman of that meeting or by the chairman of the next meeting.

D.The signed minutes duly certified by Company Secretary/any director where Company Secretary is not appointed shall be circulated within 15 days of signing to all the directors as on the date of meeting or appointed thereafter, except those directors who have waived to receive such signed minutes.

Step 9: The director, whose removal notice is received by the company, can make a representation in writing against his removal and can make a request to the company to notify it to the company’s members. If the director requests the company to notify its representation to the members of the company and the representation is not lengthy and if the time permits, the company must.

Step 10: Send notice of the general meeting to all directors, shareholders, auditors, secretarial auditors and Debenture Trustee, if any, of the company at least 21 days before the date of the general meeting. However, notice may be given at a shorter period of time if consent in writing is given thereto, by physical or electronic means, by not less than ninety five percent of the members entitled to vote at such meeting in case the matter is considered in Annual General Meeting, however, if the matter is taken up in an Extraordinary General Meeting, then shorter notice of general meeting may be given subject to:—

(a) in case company have share capital, consent of majority members entitled to vote and who represent not less than ninety-five per cent. of such part of the paid-up share capital of the company as gives a right to vote at the meeting; or

(b) in case a company has no share capital, consent of members not less than ninety-five per cent of the total voting power is exercisable at that meeting. (However, private companies can opt their own regulations with respect to notice of the General Meeting.)

Further, it is not necessary to give reasons in an explanatory statement for removal of director as required under section 102 of the Companies Act, 2013.

Step 11: Convene general meeting and pass ordinary resolution for removal of director. However, special resolution is required in case of removal of a director who is an independent director re-appointed for a second term.

Step 12: Maintain proper record for:

  1. i)       Total number of members present at the meeting with their shareholding pattern.
  2. ii) Members who voted in favor of the proposed resolutions and number of shares held by them.

iii)    Members who voted against the proposed resolutions and number of shares held by them.

Step 13: Prepare draft minutes of shareholders’ meeting and for finalization, send the draft minutes to the chairman of that meeting.

Step 14: File e-form MGT-14 within 30 days of passing the general meeting resolutions.

Step 15: File e-Form DIR-12 along with attachments with the Registrar of Companies within thirty (30) days of passing of resolution. Please note that e-form DIR-12 for removal of Director is not in STP mode.

Step 16: Make necessary entries in the register of directors, key managerial personnel and their shareholding.

The Director himself gives his resignation

Step 1: The Director of the Company may wishes to resign from the post of a director, then he/she can continue by passing a resolution firstly to the Company

Step 2: The concerned director of the company gives his resignation to the Board. In this type of situation, the following procedure will be done to remove the name of the director from the register of directors:

  1.  The company will conduct a Board Meeting by circulating seven days of clear notice to the board members of the company.
  2. In the Board Members meeting, they will discuss and decide on whether to take the resignation of the director or not.
  3. Once the Board members accept the resignation of the director, a Board resolution is passed accepting the resignation of the director in the following format:

‘RESOLVED THAT the resignation of Mr. ABC be and is hereby accepted with immediate effect’

‘FURTHER RESOLVED THAT the Board meeting places on record its admiration and appreciation for the assistance and counseling furnished by Mr. ABC during his incumbency as Director of the Company’

‘RESOLVED FURTHER THAT the directors of the company be and are hereby collectively passed resolution to do all the deeds, acts and things which are the important requirement to the resignation of the aforesaid individual from the directorship or director position of the Company’

Step 3: The first and principal option is to be the Company passing a joint resolution to authorize the notice or letter of resignation and commission to file form DIR11 defining the reasons behind the departure, as per the provision specified in section 168(1) of Companies Act, 2013.

Step 4: As per rule ’16 of Companies Rule, 2014 (Appointment and Qualification of directors)’, the resignation report or notice and ideas for the resignation has to be shared with the Registrar of Companies (ROC) using ‘Form DIR11′, within ’30 days’ of the date of removal of Director.

Step 5: In extension to filing eForm ‘DIR11’, the Company requires to provide the notice or letter of resignation necessarily. This is the scheme for the Company through the resignation of the Managing Director; companies act 2013.

Filing of DIR – 11 is the responsibility of the director and filing the form DIR – 12 is the company’s responsibility and both the forms has to be submitted with the Registrar of Companies along with the needed documents such as Resignation letter and the Board Resolution.

Documents to be submitted are:

(1)   Notice of resignation filed with the Company

(2)   Proof of dispatch

(3)   Acknowledgment of form, if received.

The Director does not attend three continuous Board Meetings of the company

1)       If a director didn’t serve the Board meeting for 12 months, then the defection has to be taken severely. The duration is measured from the day on which he/she was not accessible from the first meeting and to any of the assemblies, even after granting him/her due notice for all the sessions.

2)       It will be noted that he/she has abandoned the office, and several steps will be taken as per section 167 of the Companies Act, 2013.

3)       Correspondingly, a Form DIR-12 should be applied on the missing Director’s name. Further, after the formalities, the respective Director’s name will be removed from the Ministry of Corporate Affairs.

Consequences of Not Filing the Form Dir-12

In 30 days of the date of the resignation, if the company fails to or doesn’t file the ‘form DIR-12’, the below mentioned penalty will be applied.

1)One-time of concrete Government fees until 15 days;

2) If it surpasses more than 15 days, then it’s two times of the original government penalty;

3) A penalty of 4 times of the exact government charges is applicable if it passes 30 days to 60 days;

4)  In case it surpasses 180 days, then ten times of the actual administration fees are relevant;

5) The penalty is also relevant to the company, which fails to file the form DIR -12 within 300 days from the date of reaching the resolution. The company has to pay 12 times the exact government fees and the compounding offense as well.

Documents Needed for Removal of Director

1)       Photograph: Passport size photo of the director to be designated

2)       Pan card: Self-attested pan card of the director to be designated

3)       Proof of residency: Aadhar card/ Voter ID/ Passport/ Driving license

4)       Digital signature certificate: Dsc of the ongoing director and director to be eliminated/Removed

5)       Identity proof before-mentioned as passport/Election card/Driving license/Aadhar card

6)       Mobile number and personal & official email ID of the director

7)       It is mandatory to apostle all the documents apostilled if the director is a non-resident of india.

8)       Notice of resignation filed with the company

9)       Proof of dispatch

10)   Acknowledgment of form, if received.

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