Remove Directors

INR 3899 All Inclusive

Basic

  • Board Resolutions
  • Remove Director MCA Filing

Removal of Director from a Company

In a corporate environment, directors play a pivotal role in overseeing the management and operational activities of a business, while shareholders are the ultimate owners of the company. There may come a time when shareholders decide to remove a director due to concerns about performance, behavior, or other issues, or a director might opt to resign voluntarily. The removal of a director is a significant corporate action, necessitating careful consideration and strict adherence to the legal requirements stipulated by the Companies Act 2013 or other relevant local regulations. Whether the removal is initiated through an ordinary resolution, a board resolution, or a judicial order, it is essential that the process is conducted fairly, transparently, and always in the best interest of the company.

At Allycon, we specialize in guiding you through the complexities of the director removal or resignation process, ensuring complete compliance with legal standards and a meticulous approach to detail. Let our team of experts help you navigate this crucial corporate transition smoothly and effectively. 

Contact us today to begin your journey.

Reasons for Director Removal

According to the Companies Act 2013, every private limited company is required to appoint a minimum of two directors to initiate its operations. Shareholders possess the authority to remove a director during a General Meeting, with the exception of directors appointed by the government. A director may face removal under several circumstances, including but not limited to:

  • Disqualification: If the director is deemed disqualified according to the criteria established in the Companies Act.
  • Absenteeism: Failing to attend board meetings for over a year without formal leave.
  • Violating Provisions: Engaging in prohibited transactions as outlined in Section 184 of the Companies Act.
  • Legal Restrictions: Being barred from participation due to a court or tribunal order.
  • Criminal Conviction: Being convicted by a court for a criminal offense punishable by a term of at least six months.
  • Non-compliance: Failing to meet the regulations and obligations as mandated by the Companies Act, 2013.
  • Voluntary Resignation: Choosing to resign from the board.

Methods for Director Removal from a Company

There are three primary methods to remove a director from their position:

  1. Resignation by Directors: Directors can choose to resign voluntarily from their roles.
  2. Absenteeism from Board Meetings: If a director does not attend any board meetings for a continuous period of twelve months, this may trigger their removal.
  3. Shareholder-initiated Removal: This involves shareholders voting to remove a director during a General Meeting.

Law Governing the Director Removal

The removal of a director is governed by several sections of the Companies Act, 2013:

  • Section 169: This section outlines the legal process for removing a director, detailing the necessary steps and guidelines.
  • Section 115: While primarily focused on appointing new directors, understanding this section is crucial for comprehending the overall director governance framework, including removal procedures.
  • Section 163: This section deals with the election of directors, ensuring fair representation, which is vital during removal processes.
  • Rule 23 of the Companies (Management and Administration) Rules, 2014: This rule provides specific guidelines for the proper conduct of company operations, including the appropriate methods for director removal.

Essential Requirements for Director Removal

To ensure the lawful removal of a director, several critical steps must be adhered to:

  1. Issuance of Special Notice: Under Section 115 of the Companies Act, a special notice must be issued to initiate the removal process.
  2. Notice Period to Director: The director in question must receive this special notice at least 14 days prior to the vote on their removal resolution, allowing them adequate time to prepare a response.
  3. Right to be Heard: The director facing removal has the right to present their case, including a written representation that may be circulated among members or read aloud at the meeting.
  4. Restriction on Reappointment: Once removed, the director is ineligible for reappointment to the board.
  5. Filing of Form DIR-12: The removal of a director must be documented through the completion and submission of Form DIR-12 as mandated by the Companies Act 2013.

Procedure for Director Removal

The process for removing a director involves several steps:

  1. Director’s Voluntary Resignation:

    • Essential Obligations: A director’s resignation takes effect on the date the company receives the notice or on a later date specified within the notice.
    • Ongoing Accountability: Even after resignation, the director remains liable for any offenses committed during their term.
    • Formal Acknowledgment: Upon receiving the resignation, the Board must formally acknowledge it. The company is then obligated to inform the Registrar of Companies about the resignation and include it in the directors’ report presented at the next General Meeting, as per Section 168 of the Companies Act, 2013.

  2. Mandatory Requirements:

    • Meeting Scheduling: Arrange a Board of Directors meeting following Section 173 and Secretarial Standard-1 (SS-1).
    • Notification: Notify all directors at their registered addresses about the board meeting at least 7 days in advance. In urgent cases, a shorter notice may be acceptable.
    • Meeting Documentation: Ensure the meeting notice includes the agenda, explanatory notes, and a draft resolution.
    • Conducting the Board Meeting: Hold the meeting to acknowledge the resignation letter submitted by the director.
    • Delegation for ROC Filings: Assign a Company Secretary, CFO, or director to submit the necessary forms and documentation to the Registrar of Companies.
    • Disclosure Requirements for Listed Companies: Public companies must promptly report the resignation to the stock exchange, adhering to specific timelines as mandated by the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
    • Distribution of Draft Minutes: Send draft minutes to all directors for their review within 15 days after the board meeting.

  3. Filing Form DIR-12 with the Registrar of Companies (ROC):

    • Within 30 days of receiving the resignation notice, the company must submit Form DIR-12 to the ROC along with:
      • A certified true copy of the Board Resolution.
      • The resignation notice from the director.
      • Proof of the director’s cessation from the board.

  4. Submission of Form DIR-11 by the Resigning Director:

    • The resigning director can send a copy of their resignation to the ROC using Form DIR-11 within 30 days from the resignation date. This submission should include:
      • The resignation notice submitted to the company.
      • Evidence of the notice being dispatched.
      • An acknowledgment from the company confirming receipt of the resignation.

  5. Updating the Register of Directors:

    • The company must update the Register of Directors and Key Managerial Personnel to reflect the resignation and any other necessary changes.

Director Absence from Board Meetings for 12 Months

According to Section 167 of the Companies Act, if a director fails to attend any board meetings for twelve consecutive months, they are deemed to have vacated their position. The following procedure must be followed in such cases:

  1. Acknowledgment of Vacancy: Recognize that the director’s position is automatically vacated under the applicable corporate governance laws, specifically Section 167.
  2. Filing of Form DIR-12: The company must file Form DIR-12 with the ROC to notify them of the director’s resignation or removal, even in cases of absence from meetings.
  3. Update on MCA Database: Once the necessary formalities, including the filing of Form DIR-12, are completed, the director’s name will be officially removed from the Ministry of Corporate Affairs (MCA) database, reflecting the vacancy.

It is crucial for companies to follow these steps meticulously to maintain compliance with corporate governance requirements and ensure accurate records with the MCA.

Director Removal by Shareholders

To remove a director through a shareholder resolution, typically an Ordinary Resolution unless specified otherwise in the company’s articles or applicable laws, the following steps should be adhered to:

  1. Board Meeting Notice: Schedule a Board Meeting and provide a minimum of seven days’ notice to all directors, including the agenda item regarding the proposed removal of the director.
  2. Resolution to Convene an EGM: During the Board Meeting, pass a resolution to hold an Extraordinary General Meeting (EGM) and propose a resolution for the removal of the director, subject to shareholder approval at the EGM.
  3. Issuing EGM Notice: Dispatch notices for the EGM to all shareholders, ensuring a minimum notice period of 21 days, excluding the day the notice is sent and the day of the meeting.
  4. Voting at EGM: Present the removal resolution to shareholders during the EGM for a vote. If a majority supports the resolution, it is passed.
  5. Director’s Right to be Heard: The director facing removal should have the opportunity to present their case or explanation to the attendees of the meeting.
  6. Filing Forms DIR-11 and DIR-12: After the resolution is passed, complete and submit Form DIR-11 (by the outgoing director, if applicable) and Form DIR-12 (by the company) to the ROC, along with the necessary attachments, including the resolutions passed.
  7. Update with MCA: Once the forms are successfully submitted and all procedural formalities are completed, the removed director’s details will be officially updated in the Ministry of Corporate Affairs (MCA) database.

Adhering to these procedures carefully is essential to ensure legal compliance, as mandated by the Companies Act, when removing a director via an Ordinary Resolution.

At Allycon, our experts are available to assist you throughout this process, ensuring a smooth and compliant director removal.

Penalties for Non-compliance

It is imperative for companies to comply with the legal requirements surrounding the removal of directors. Failure to do so can lead to significant penalties, including:

  • Fines: Companies may face fines for each defaulting day, with the potential for the penalty amount to escalate depending on the severity of the violation.
  • Liability for Directors: Directors involved in non-compliance may face legal repercussions, including personal liability for damages incurred due to their actions.
  • Possible Legal Action: Affected parties, including shareholders and creditors, may pursue legal actions against the company or directors, further complicating the company’s legal standing.

To avoid these consequences, it is crucial for companies to follow the prescribed procedures meticulously when removing a director.

Why choose IndiaFilings for Director removal?

The removal of a director from a company is a significant action that necessitates adherence to the legal protocols established in the Companies Act, 2013. Whether it’s through voluntary resignation, absenteeism, or shareholder removal, each method comes with its own set of requirements and implications.

At Allycon, we understand the complexities surrounding the removal of directors and are here to provide the necessary guidance and support to ensure compliance with all relevant laws. Our team of experts can assist you in navigating the intricacies of this process, helping you make informed decisions that align with your company’s objectives. 

Reach out to us for a consultation today!

Related Business Registrations

In addition to registration or incorporation, a business may require other registrations depending on the business activity undertaken. Talk to an Advisor to find out registrations your business may require post registration.