Removal of a Director Under the Companies Act, 2013

Introduction

The directors of a Company are responsible for managing and looking after the day to day affairs of the Company. The shareholders are the owners of the Company and they appoint the directors to act as their representatives. The Companies Act, 2013 has clearly bifurcated the rights and responsibilities of the directors and shareholders. 

As a general rule, the appointing authority shall have the power to remove a director. 

Applicable provisions of the Companies Act, 2013:

• Section 169 of the Companies Act 2013;
• Section 115 of the Companies Act 2013 and
• Rule 23 of the Companies (Management and Administration) Rules, 2014   

Mandatory Requirements for removal of director

1. It is mandatory to issue Special Notice u/s 115 of the Companies Act, 2013 for removal of director.
2. Special Notice shall be sent to concern director at least 14 days before passing the resolution.
3. It is mandatory to give opportunity of being heard to the concerned director and representation of such director shall be in writing.
4. The director who has been removed from office shall not be re-appointed.

Provisions of Section 169 of the Companies Act, 2013

Pursuant to provisions of Section 169 of the Companies Act, 2013, a Company may, by passing an ordinary resolution in its extra-ordinary general meeting, remove a director before the expiry of the period of his office after giving him a reasonable opportunity of being heard. 

In case of an independent director which is re-appointed for second term under section 149 of the Companies Act, 2013 shall be removed by the company only by passing a special resolution and after giving him a reasonable opportunity of being heard.

Exceptions under Section 169 for removal of director are as follows:

The Company can not remove the following mentioned persons from the position of director:

• A director which is appointed by the Tribunal;
• The Company has exercised the option to appoint not less than 2/3^rd of the total number of directors according to the principle of proportional representation.

Provisions of Section 115 of the Companies Act, 2013

Pursuant to Section 115 of the Companies Act, 2013 read with Rule 23 of the Companies (Management and Administration) Rules, 2014, a special notice is a notice of an intention to move a particular resolution as required under the provisions of the Companies Act, 2013 or pursuant to the articles of association of the company. The special notice can be given by such number of members holding not less than 1% of the total voting power or holding shares on which an aggregate sum of not less than Rs. 5 Lakh has been paid up on the date of such notice. The Special Notice shall be sent at-least 14 days prior to the date of the general meeting where specific agenda for which this notice is to be sent shall be considered. 

 A special notice shall be required of any resolution, to remove a director or to appoint somebody in place of a director so removed at the meeting at which he is being removed.

Procedure required to be followed by the Companies on receipt of Special Notice:

• Dispatch of notice of the Board Meeting at least 7 days before the meeting for taking note of Special Notice received from the shareholder/s of the Company. The Special Notice shall be annexed to the notice of the board meeting.
• The Company shall simultaneously send copy of such Special Notice to the concerned director. 
• Convening and conducting of the board meeting where noting of the special notice received from the shareholder/s would be done. Fixing of date, time and venue for holding an Extra-ordinary General Meeting (EGM). 
• Dispatch of the notice of the EGM 21 clear days before the EGM or as specified in the Articles of Association (AOA) of the Company. Where the meeting is to be held by the shorter notice, the Company is required to take shorter consent from 95% (Ninety-Five percent) of the shareholders entitled to vote at such meeting.
• Where it is not practicable to give the notice in such manner to the members, the notice shall be published in English language in English newspaper and in vernacular language in a vernacular newspaper which have wide circulation in the State where the registered office of the company is situated. Further, such notice shall also be posted on the website, if any, of the company. The notice shall be published at least seven days before the meeting, exclusive of the day of publication of the notice and day of the meeting.
• Convening and conducting of the EGM where the director being removed would be given an opportunity of being heard and then an ordinary resolution shall be passed.
• Form MGT 14 and Form DIR 12 are required to be filed with Register of Companies (ROC), within 30 days of passing of such resolution.

It may be noted that Form DIR 12 is an approval form and the ROC may send the form for resubmission for the requirement of the additional documents. The additional documents may include:

1. Copy of representation letter by the concerned Director;
2. Copy of Special Notice;
3. Copy of Affidavit from the Director who has signed the form that they have complied with all the legal requirements for removal;
4. Copy of Indemnity from the Director who signed the form;
5. Copy of certificate from Practising Company Secretary who has signed the form;
6. Copy of proof of dispatch of documents to the director being removed; and 
7. Copy of minutes of board and extra-ordinary general meeting and attendance register thereof.

This list is inclusive and it is at the discretion of the ROC, based on the situation.

After resubmission of Form DIR 12 and upon satisfaction of the ROC, Form DIR 12 would get approved. The timeline for approval from the date of filing of Form DIR 12 ranges approximately between 3 to 6 months.

Penalty for failure to comply with provisions of the Companies Act, 2013

Contravention of Section 169

If a company is in default in complying with any of the provisions of section 169, the company and every officer of the company who is in default shall be liable to a penalty of Rs. 50,000, and in case of continuing failure, with a further penalty of Rs. 500 for each day during which such failure continues, subject to a maximum of Rs. 3,00,000 in case of a company and Rs. 1,00,000 in case of an officer who is in default.

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

As per rule 30 of Companies (Management and Administration) Rules, 2014 contravention of rules made under section 169, the company and every officer of the company who is in default are punishable with a fine upto Rs.5,000, where the contravention is a continuing one then the fine shall be Rs. 500 for every day of contravention. 

The offenses committed under section 169 of the Companies Act, 2013 read with rule 23 of the Companies (Management and Administration) Rules, 2014 are compoundable under section 441 of the Companies Act, 2013.

Conclusion: Removal of director is an inherent right of the shareholders and a director can be removed from his office if he is incompetent or unfit to hold his position as a director of the Company. However, it is always better to try all the legal options before initiating the removal of director. The removal of director being very sensitive and rare activity, the due care and diligence ought to be exercised if one wants to invoke the above provisions to remove a director. 

Author: Ms. Prajakta V Gokhale, Senior Associate.

Disclaimer: The content of this article is intended to provide a general guide to the subject matter and that the same shall not be treated as legal advice. For any queries, the author can be reached at prajakta@samistilegal.in