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Removal of Director

What Are the Legal Provisions for Take off Director From a Company

When a director fails to perform his/her duties, he/she should be removed. In this article, we'll show you What are the Situation a Director Can Be Removed

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A director, appointed by shareholders to oversee a company’s affairs, must be an individual due to the company’s artificial person status. The director plays a crucial role in the company’s operations and decision-making. However, circumstances may necessitate the removal of a director. Here’s everything you need to know.

You might wonder if a director can be removed from a company against his or her will by the company’s shareholders.

Yes is the simple answer to this question. Except in the following instances, a director can be removed by the company’s shareholders:

  1. A director proposed to be dismissed is not appointed by the Central Government.
  2. Section 242 of the Companies Act, 2013 prohibits the Tribunal from appointing a director.

The removal of a director is not as simple as it appears. Every document would be scrutinized twice or thrice by the Registrar of Companies in order to decide whether a director should be removed.

Shareholders have the ability to remove a director from their position before the end of their term of office by passing an ordinary resolution as per Section 169 of the Companies Act of 2013. However, before taking this action, the director must be given a fair opportunity to be heard. The Companies Act of 2013 outlines the specific procedures for removing a director.

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Removal of a Director under Section 169 of the Companies Act 2013

According to the 2013 Act, a company can only remove a director in a general meeting by passing an ordinary resolution. However, this applies only if the director was not appointed under the principle of proportional representation or under section 163.

Legal Provisions for Take off Director From a Company

Section 169 of the Companies Act, 2013 contains detailed clauses for the Take off of directors. Under this section, shareholders of the company can dismiss a director who is not a director appointed by the tribunal under Section 242 (before the end of his/her term of office, after giving them a reasonable opportunity to be heard).

Except where the company has exercised the option provided by Section 163 to assign not less than two-thirds of the total number of directors according to the principle of proportional representation, nothing in this subsection applies.

Documents to Be Attached with DIR-12

  1. Board Meeting CTC
  2. The General Meeting adopted a CTC of Ordinary Resolution.
  3. The director’s copy of the Special Notice will be removed.
  4. General Meeting Notice with Explanatory Statement
  5. Notice was sent to the director in question.

Situation Where a Director Can Be Removed

Failing to attend three consecutive board meetings in a row:

Let’s assume a removal director does not participate in a board meeting for a period of 12 months, commencing on the day he or she was absent at the first board meeting and after giving due notice for all meetings. In that case, it will be assumed that he/she has vacated the office, and a Form DIR – 12 will be filed in his name, and his name will be removed from the Ministry of Corporate Affairs.

Suo Moto Take off of Director by the Board

By complying with Section 169 of the Companies Act, 2013, the company has the power to dismiss a director suo moto by issuing a special notice.

A specific process must be followed to dismiss a director’s data from the Ministry of Corporate Affairs (MCA). The Steps for removing directors is outlined below.

Step 1: Issue of Special Notice U/S 115 of Companies Act, 2013

The first step is to publish a special notice under Section 115 of the Companies Act of 2013. Special notice must be issued at least 14 days prior to the meeting, except for the day on which the notice does serve, according to Section 115 of the Companies Act, 2013.

Step 2: Issue of Notice to Members of the Company

The second step is to notify all of the company’s members via notice to members, just as it would in the case of a general meeting. The company should make certain that notice is sent to all of its shareholders.

Step 3: Intimation to the Proposed Director to be Removed

Once the company informs the shareholders via an issue of notice, the third step is sending an intimation to the proposed director to be removed from the company’s board.

Step 4: Convene a General Meeting for the director’s removal

The fourth and most vital step is convening a general meeting for approval of at least 90% of shareholders for the expulsion of the proposed director in the general meeting and proceeding further for removal.

Step 5: Opportunity for the right to be heard

Once shareholders agree in a general meeting to dismiss a director, the concerned director must be given a chance to be heard before being eliminated from the company’s management and control board.

Step 6: Filling out Form DIR-12 with ROC

Once a shareholders meeting is called, the next phase is to notify the Registrar of Companies (ROC) by submitting form DIR-12 to the ROC within 30 days of the meeting’s conclusion.

Step 7: Director’s Appointment in Case of Casual Vacancy

When any director is removed, it is obvious that a casual vacancy arises due to his removal, so any company needs to fill this casual vacancy simultaneously with the removal.

Step 8: Appointment of Director Due to Casual Vacancy to Be Intimated

Once a company makes provision for the appointment of a new director due to a casual vacancy, it is vital to inform ROC in e-form DIR-12 about his appointment within 30 days from the date of a general meeting.

Penalty for Failure to Comply With Provisions of the Companies Act, 2013

Failure to comply with the provisions of the Companies Act, 2013, particularly Section 169, carries penalties for the company and its officers. Here is an overview:

Contravention of Section 169

  • In case of default in complying with Section 169, the company and every officer in default may face a penalty of Rs. 50,000.
  • For continuing failures, an additional penalty of Rs. 500 per day during the non-compliance period may apply.
  • The maximum penalties are capped at Rs. 3,00,000 for the company and Rs. 1,00,000 for the officer in default.

Contravention of Rule 23 of the Companies (Management and Administration) Rules, 2014

  • Rule 30 of the Companies (Management and Administration) Rules, 2014 states that contravention of rules under Section 169 may lead to fines.
  • The company and officers in default can be fined up to Rs. 5,000. In case of a continuing contravention, a daily fine of Rs. 500 may apply.

It’s important to note that offenses under Section 169, read with Rule 23, are compoundable under Section 441 of the Companies Act, 2013. Removal of a director is a legitimate action, but careful consideration of legal options and due diligence is advised before initiating such a process. The removal of a director is a sensitive matter, and proper procedures should be followed to avoid legal complications

Important Points of Consideration Regarding the Removal of the Director as per Companies Act, 2013

The key Considerations for Director Removal under the Companies Act, 2013, are as follows:

Grounds for Removal

   – The Companies Act, 2013, outlines grounds for director removal, including non-performance, breach of trust, fraud, misappropriation of funds, or actions against the company’s interests.

Initiating the Removal Process

   – Shareholders, the board, or the central government can initiate removal. A resolution, passed by a two-thirds majority at a general or board meeting, triggers the process.

Notice of the Meeting

   – A meeting notice, issued at least fourteen days before the meeting, must inform members, directors, and auditors about the intent to remove a director, providing reasons.

Opportunity to be Heard

   – Directors facing removal must be given a chance to be heard, informed of allegations, and allowed to present their case, adhering to the principles of natural justice.

Intimation to the Registrar

   – After passing the removal resolution, the company must inform the Registrar of Companies (ROC) within thirty days for record update.

Remuneration and Compensation

   – If a director is removed before term expiry, compensation is provided, capped at three years’ remuneration. Misconduct-related removal doesn’t entail compensation.

Forms Involved in Removal of Director

The two forms involved in removal of Director are as follows:- 

  1. E-form MGT-14 
  2. E-form DIR-12

Frequently Asked Questions

What legal provisions govern the removal of a director from a company?

The removal of a director from a company is governed by the Companies Act of 2013 in India.

Under what circumstances can a director be taken off or removed from a company?

Directors can be removed for various reasons, including misconduct or negligence, loss of qualification, insolvency or bankruptcy, shareholder consent, or by board resolution under specific circumstances.

Is there a specific procedure outlined in the law for the removal of a director?

Yes, the Companies Act 2013 outlines the procedure for director removal. It involves providing notice to the director and shareholders, conducting meetings, passing resolutions, and filing necessary documents with the MCA.

What role do shareholders play in the process of taking off a director from a company?

Shareholders play a key role in the removal process by voting at general meetings. They can also initiate removal by requisitioning a meeting with specific proposals and have the right to be informed and question the proposed removal.

Can a director be removed by the board of directors or only through shareholder consent?

A director can be removed either by shareholder consent through a general meeting or by the board of directors under specific circumstances like insolvency or mismanagement.

What notice periods and meeting requirements are involved in the removal of a director?

A director can be removed either by shareholder consent through a general meeting or by the board of directors under specific circumstances like insolvency or mismanagement.

Are there any statutory grounds or reasons that justify the removal of a director from a company?

Statutory grounds include misconduct, negligence, disqualification, while contractual and common law grounds may also apply, such as breach of the company's articles of association or mismanagement.

Can a director legally challenge their removal, and what are the potential consequences for the company?

A removed director can challenge the removal in court on grounds of procedural irregularity or unfairness. If the removal is deemed invalid, the company might face legal consequences.

Is there a difference in the process for removing executive and non-executive directors?

There may be a difference in the process for removing executive and non-executive directors, depending on the specific circumstances and the company's articles of association.

What documentation and formalities are involved in notifying regulatory authorities about the removal of a director?

The company must file the removal resolution, relevant documents, and updated director information with the MCA. Specific forms and formats may be required depending on the removal grounds.

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