Legal Advice

What Are the Rules for the Removal of a Director?

A company is entitled to remove a director from its board. The rules of such removal are laid down in the Companies Act, 2013. This article briefs upon all the important information regarding the removal of a director.

The Board of Directors of a company are like agents that are responsible for the general management of the company. They always work for the betterment of the shareholders, and the company as a whole. The Companies Act, 2013 has bestowed upon them certain powers to effectively manage the company. One such important power is the removal of a director from the office.

What Are the Grounds for the Removal of a Director?

The shareholders can remove a director from his/her position on the following grounds:

  • If the director has become insolvent
  • If the director has been convicted by the court of law and has been penalised with imprisonment for not less than 6months.
  • If any court has declared the director to be of unsound mind.
  • If the Tribunal or Court has disqualified the director to be in such a position
  • The director has failed to acquire a Director Identification Number
  • On failure of non-compliance with the guidelines of the Companies Act,2013

What Are the Mandatory Requirements for the Removal Process?

  • Special notice has to be rolled out to remove a director
  • The special notice has to be signed either individually or collectively
    • by the members holding not less than one percent of the total voting power, or
    • Members holding shares on which an aggregate sum of not less than ₹5 lakhs has been paid until the date of the notice.
  • The removed director shall not be re-appointed as a director by the Board of directors.
  • The vacancy that shall be created by the outgoing director shall be filled in by appointing a new director in the same general meeting in which the director was removed.
  • The newly appointed director removal shall hold office until the expiry of his predecessor’s term in the office

REMOVE A DIRECTOR

How Can a Director Be Removed from the Company?

The board of directors can remove the director if any of the following three incidents occur:

Incident 1: If the director resigns by themselves

  • The board can convene a general meeting by giving clear notice of 7days.
  • On the day of the board meeting, the board members discuss and decide if the resignation shall be accepted or rejected.
  • If the resignation is to be accepted, the board has to pass a resolution to accept the resignation.
  • Forms DIR-11 and DIR-12 will have to be submitted along with a copy of the resignation letter and the board resolution to the Registrar of Companies.

Incident 2: If the director is removed by the board on a suo-moto basis

  • The company intimates all its members about the board meeting and the removal of the director.
  • The concerned director is intimated that the process of removal has begun.
  • The concerned director is given an opportunity to be heard. This is a must for any company. The director in question can provide a written statement and even request for it to be read out in the general meeting.
  • The company convenes a general meeting to vote on the removal and passes an ordinary resolution to remove the concerned director.
  • Form FIR-12 has to be filed with the RoC.

Incident 3: In case the director does not attend three board meetings in a row or any board meeting convened over a period of twelve months. The director is deemed to have vacated his/her office. Form DIR-12 has to be then submitted to the RoC.

What Happens if Form DIR-12 Has Not Been Filed on Time?

Each company must mandatorily submit the form DIR-12 to the Registrar of Companies within 30 days of the date of the board resolution passed for the removal of the director. Non-submission of the form within the prescribed time can make the company liable to pay huge penalties as follows:

If the company delays the submission of Form DIR-12 for

  • Up to 30 days, the company shall pay 2 times the standard fee
  • More than 30 days and up to 60 days, the company shall pay 4 times the standard fee
  • More than 60 days and up to 90 days, the company shall pay 6 times the standard fee
  • More than 90 days and up to 180 days, the company shall pay 10 times the standard fee
  • More than 180 days, the company shall pay 12 times the standard fee.

Conclusion

The removal of the director is a delicate process and has to be as per the procedure prescribed by the Companies Act,2013. Failing to do so could make the decision be held void if appealed in a court. To avoid this kind of situation, and the penalties for non-submission of forms, companies can opt to seek services from professionals like Vakilsearch. Vakilsearch can help to speed up the removal process, draft resolutions, submit mandatory forms on time, and even file them with the RoC.

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