The clause has also been referred to as the ‘reasonable cause’ standard clause, as it requires the firm to act reasonably in removing a director. For an Article to contain such a clause, it needs to meet certain requirements set out by the Companies Act. The law of removal of directors is governed by these requirements and the principles of good corporate governance.
Procedure for the Removal of a Director
The Board of directors manages the company’s day-to-day operations and serves the company’s shareholders by implementing policies and decisions that benefit the company and the shareholders. The Companies Act provides them with certain rights and deals with the appointment and resignation and removal of directors
- Members (percentage of required shares) must notify the company of their intention to apply for the removal of the director at least 14 days before the meeting, excluding the date of notification and the day of the meeting
- Shareholders may send a special notice to the company if they hold shares for which at least ₹ 5,00,000 have been paid as of the record date
- The company must notify the relevant directors as soon as it receives the proposed resolution
- Directors seeking dismissal must notify the association in writing of the objection and request that it be sent to members (Section 169 of the Companies Act, 2013)
- If the written notice of dismissal of the director is reasonable and is received before the meeting, the association must notify the members
- He must note that the statement was received, publish a resolution proposal, and send a copy to all members
- Hold general meetings and ordinary resolutions and dismiss directors.
Scrutiny of Law of Removal of Directors
Since now you have a clear idea of the director’s removal process, let’s have a look at the law that supports these factors
Removal of Director With Members
SECTION 169
Law 169 (1). A company may, by ordinary resolution, remove a director, not being a director appointed by the Tribunal under section 242, before the expiry of the period of his office after giving him a reasonable opportunity of being heard: Provided that nothing contained in this subsection shall apply where the company has availed itself of the option given to it under section 163 to appoint not less than two-thirds of the total number of directors according to the principle of proportional representation.
Meaning: An ordinary resolution passed at a general meeting of members of a company powers the board of directors to remove a director before the period of office expires, provided that it is only through a decision of the members. Companies Act 2013, Section 114. A resolution may be passed at any general meeting
It should be ensured that the director concerned was not appointed by the tribunal under Section 242 which deals with the Tribunal’s powers for preventing unlawful oppression and mismanagement of a company.
The director may not be removed unless the company has provided itself with the option given to it under Section 163 of the new Companies Act to appoint not less than two-thirds of the directors per the principle of proportional representation. In addition, if the company has availed itself of the option given to it under Section 163 to appoint not less than two-thirds of the directors per the principle of proportional representation, then the action of removal cannot be taken.
Section 163 gives special powers to vote and appoint a director to a minority member and such director should not be subject to removal under this section.
Special Notice
Law 169 (2). A special notice shall be required of any resolution, to remove a director under this section, or to appoint somebody in place of a director so removed, at the meeting at which he is removed. Analysis
Meaning: Sub-section 2 outlines the first step in removing the director. Subsection 5 also requires the appointment of an individual in place of the director removed.
Under sec 115 of companies act 2013, a company must give special notice to its members if at least one percent of the company’s total voting power is held by members and the sum on which the Central government has issued a prescription for the amount paid upon shares is ₹ 5 lakhs or more. The method for notifying the members of the resolution will also be set by the central government.
Director Entitled to Be Heard
Law 169 (3). On receipt of notice of a resolution to remove a director under this section, the company shall forthwith send a copy thereof to the director concerned, and the director, whether or not he is a member of the company, shall be entitled to be heard on the resolution at the meeting.
Meaning: Subsection {3} defines the steps that a company must take to remove a director. When a director is notified of a resolution to remove him or her, the company must immediately send a copy of the resolution to the director and allow them to speak at the meeting. It is not specified what the word ‘forthwith’ means, but immediate action by the company on the part of no deliberate delay in compliance will be used to determine whether or not there was a delay.
Filling of Vacancy: Post-Removal
Law 169 (5). A vacancy created by the removal of a director under this section may, if he had been appointed by the company in a general meeting or by the Board, be filled by the appointment of another director in his place at the meeting at which he is removed, provided special notice of the intended appointment has been given under Sub-section (2).
Meaning
After the removal of a director has been accomplished, the given Subsection (5) describes the legal situation. In this situation, a new director may be appointed in his place if a vacancy has been caused by the removal. This rule applies if the director was removed by a general meeting or the Board of Directors.
How Vakilsearch Can Help in the Removal of Directors
Experts at Vakilsearch have all the required experience and expertise when it comes to the removal of directors. As you can see, removing the director from a registered company is not an easy task. It involves a lot of legalities that have to be accounted for. Noncompliance with any of these may result in undesirable consequences and penalties. It is better to get expert legal advice from our team of attorneys before initiating the process. However, our experts can help in the easy removal of directors. Reach out to us right now to remove a director from your company.
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