Removal of Directors

3 Different Methods for the Removal of Directors

Online Legal India LogoBy Online Legal India Published On 24 Sep 2022 Updated On 17 Jan 2023 Category Business

A company's directors can be dismissed or elected out by shareholders during a general meeting. There is an exemption, however, in circumstances when the director is chosen by the Union government or the Tribunal under Section 242 of the Act. Let us now look at the process of the removal of a Director from a Private Limited Company.

Conditions in which the removal of a Director from a Private Limited Company happens:
 

  • Removal of a Director suo-moto by the Board.
  • Director himself gives the resignation
  • Vacation of the Officer: The Director does not attend three continuous board meetings of the company or business.

Different Types of Directors

According to the Act of 2013, there are four types of directors: Non-Executive Director, Executive Director, Nominee Director, and Additional Director. The following is the method for the removal of these directors:

1. EDs and NEDs
 

The method for removing EDs and NEDs is substantially the same as for managing directors, i.e., by shareholders as per Section 169 or by the board of directors as per the AOA authorities. In the case of EDs, the conditions of their participation with the firm may also be crucial in determining whether they should be removed.

2. Nominee directors
 

The nominee directors might be appointed by either:

  • A financial establishment

  • Through a Shareholder Agreement

The authority with the right to appoint also has the power to remove.

3. Additional directors
 

Under the powers granted by the AOA, the board of directors may appoint an additional director, and the board of directors may dismiss another director until the shareholders confirm their appointment at a general meeting.

4. Managing Director
 

A managing director is appointed in both a managerial and a director function. As a managing director, his conditions of participation are often established by a written letter. As a result, the board has the authority to terminate the services of a managing director, and section 169 is not applicable in this case.

The Removal of Director suo-moto by the Board

Step 1:
 

The special notice needed by section 169 must be delivered in accordance with the rules of section 115, which specify the qualifying criteria and how the resolution will be disseminated.

Step 2:

 

  • Special notification for the removal of the director must be given to the company minimum of fourteen days prior to the concerned meeting at which it is to be moved, in line with Section 115 of the Act.
     
  • Check that the notification of removal of a director is not precluded by Section 242.
     
  • Ensure that the director whose removal notification has been obtained is not a director appointed in accordance with Section 163's proportional representation concept.

Step 3:
 

Upon receiving notice of intention to propose any resolution for the removal of a director, the company should promptly provide notice of said resolution to its members in the same manner that it provides notice of the meeting.

Step 4:
 

If it is not feasible for the firm to give notice to all members of the company, publish an advertisement in a newspaper with an acceptable circulation at least seven days before the date of the meeting.

Step 5:
 

Upon receipt of the notice, a copy shall be delivered to the director involved, and in accordance with natural justice principles, the director shall be informed of their opportunity to be heard at a general meeting.

Step 6:
 

Prepare a notice of the board meeting and draught resolutions to be passed during the meeting. Send a notification of the board meeting to all directors who match the following criteria:

  • The notification must be given seven days before the board meeting date.
  • Alternatively, the notification must be delivered in accordance with Section 173(3) of the Act & Clause 1 of the Secretarial Standard-1.

Step 7:
 

Call a board meeting and enact motions for:

  • The removal of a director is subject to shareholder approval in a general meeting by ordinary resolution.
  • Fix the day, date, time, and location of the general meeting, and approve the notification of the general meeting.

Step 8:
 

  • Prepare draught minutes of the board meeting & distribute them to all directors for feedback within fifteen days of the meeting's end. All directors must convey their views on the draught disseminated minutes within seven days of the draught minutes being circulated.
     
  • Finalize the minutes by adding any comments offered or proposed by any director. Within thirty days after the fulfilment of the board meeting, record the minutes in the board meeting's minute book.
     
  • Board meeting minutes must be dated and signed by the chairman of that meeting or the chairman of the following meeting.
     
  • The signed minutes, duly certified by the Company Secretary/any director appointed in the absence of the Company Secretary, shall be propagated within fifteen days of signing to all directors as of the date of the meeting or appointed afterwards, except those directors who have waived receipt of such signed minutes.

Step 9:
 

If the business receives a removal notice, the director can submit a written submission opposing his removal and request that the company tell the company's members. If the director recommends that the business communicate its representation to the company's members, & the representation is not extensive, and time allows, the company shall.

Step 10:
 

At least 21 days before the general meeting, provide notice to all shareholders, directors, auditors, secretarial auditors, and Debenture Trustees of the corporation. However, information may be given in a shorter period of time if consent is given in writing, by physical or electronic means, by not less than 95% of the members entitled to vote at such meeting in the case of an Annual General Meeting; however, if the matter is overtaken in an Extraordinary General Meeting (EGM), then a relatively short notice of general meeting may be given subject to:

  • If the corporation has share capital, the permission of the majority of voting members who represent at least 95% of the company of such portion of the company's paid-up share capital confers voting rights at the meeting.
     
  • In the absence of share capital, the assent of members holding at least 95% of the total voting power is required at the meeting. However, private firms may choose their own rules for General Meeting notification.

Step 11:
 

Call a general meeting and vote on an ordinary resolution to remove the director. However, a separate resolution is necessary for the instance of the dismissal of an independent director who has been re-appointed for a second time in office.

Step 12:
 

Keep accurate records for:

  • The total number of people at the meeting and their shareholding arrangement.
  • The number of shares held by members who voted in support of the proposed resolutions.
  • The number of shares held by members who voted against the proposed resolutions.

Step 13:
 

Prepare draught minutes of the shareholders' meeting and transmit them to the meeting's chairman for final approval.

Step 14:
 

Submit e-form MGT-14 within thirty days of the general meeting resolutions being passed.

Step 15:
 

Submit e-Form DIR-12 with attachments to the Registrar of Companies (ROC) within thirty days of the resolution's passage. Please keep in mind that the e-form DIR-12 for Director removal is not in STP mode.

Step 16:
 

Enter the relevant information in the register of directors, key managerial employees, and shareholdings.

Director himself gives his Resignation

Step 1:
 

If the Company's Director desires to retire from the position of director, he or she may do so by first passing a resolution to the Company.

Step 2:
 

The company's concerned director tenders their resignation to the Board. In this case, the following process will be followed to remove the director's name from the register of directors:

  • The firm will have a Board Meeting after providing seven days' notice to the company's board members.
     
  • The Board of Directors will meet to debate and determine whether or not to accept the director's resignation.
  • Once the Board members accept the director's departure, a Board resolution accepts the resignation.

Step 3:
 

The first and most important alternative is for the Company to approve a joint resolution authorising the notice or letter of resignation & commission to submit form DIR11 detailing the grounds for the departure, as stated in section 168(1) of the Companies Act of 2013.

Step 4:
 

In accordance with Rule 16 of the Companies Rule, 2014 (Appointment & Qualification of Directors), the resignation report or notice, as well as the reasons for the resignation, must be shared with the Registrar of Companies using 'Form DIR11′ within thirty days of the date of removal of the Director.

Step 5:
 

In addition to filing eForm 'DIR11,' the Company must give a notice/letter of resignation. This is the Company's program due to the Managing Director's departure; Companies Act 2013.

Submitting DIR - 11 is the duty of the director while filing DIR - 12 is the responsibility of the business, and both forms must be filed to the Registrar of Companies together with the required papers, such as a resignation letter and a Board Resolution.

Documents to be Submitted

1. Resignation notice filed with the Company

2. Proof of delivery

3. Form of acknowledgement, if received.

The Director does not attend three continuous board meetings of the company
 

  • If the director fails to attend a Board meeting for twelve months, the defection must be treated seriously. The time is calculated from the day he/she was unable to attend the first meeting & any of the assembly, despite being given enough notice for all sessions.
     
  • He/she shall be marked as having abandoned the office, and numerous procedures will be followed in accordance with Sec 167 of the Companies Act, 2013.
     
  • A Form (DIR-12) should be filled out for the missing Director's name. Furthermore, upon the completion of the requirements, the appropriate Director's name will be deleted from the Ministry of Corporate Affairs.

Documents Needed for Removal of Directors
 

The below-listed documents are required for the removal of directors from a private limited company:

1. Photograph: A passport-sized photograph of the appointed director.

2. Pan card: The director to be designated self-attested pan card

3. Residence proof: Aadhar card/Voter ID/Passport/Driving licence

4. Certificate of Digital Signature

5. The previously specified identity evidence (passport/Election card/Driving license/Aadhar card)

6. The director's mobile phone number and personal and official email addresses

7. If the director is a non-resident of India, he or she is required to apostil all documents.

8. Resignation notice submitted to the firm

9. Proof of delivery

10. Form of acknowledgement if received.

Conclusion

The ability to remove a Director has consistently been granted to Shareholders since we all recognise that Directors are ultimately accountable to Shareholders. Nothing has changed in terms of procedure under the Companies Act of 2013. Investors may remove any Director before the expiry of their residency, with the exception of any Director nominated under the concept of proportional representation under Section 163 and any Director appointed by the Tribunal for the prevention of tyranny and mismanagement under Section 242.


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