Procedure of removal of directors under Co. Act, 2013

Power to remove directors has always been bestowed on shareholders, as we all know that at the end of the day, directors are answerable to shareholders. Nothing has changed in the procedural aspect under Companies Act, 2013 as well. Shareholders can remove any director before the expiry of his tenure, except any director appointed by Tribunal for prevention of oppression and mismanagement u/s 242 and a director appointed under principle of proportional representation u/s 163.

Right to Remove a Director is Legal Right of Share Holders:

Section 169 and Chapter 7 of Companies Act, 2013 Right of Shareholders to remove a director in the General Meeting through Ordinary Resolution is a Legal Right. This legal right cannot be damaged or taken away by MOA, AOA or any other documents or Agreement.

Section 169 and Chapter 7 details the procedure of removal of director by shareholders as follows:-

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.

The provision relating to removal shall not apply where the company has availed itself of the option to appoint not less than 2/3RD (two – thirds) of the total number of directors according to the principle of proportional representation.

A special notice shall be required of any resolution, to remove a director, or to appoint somebody in place of a director so removed.

As per Section- 115 of Companies Act, 2013:-

Special notice To Company-There is a criteria, who can send the notice to the Company. Only shareholder/s holding not less than 1% of total voting power or holding shares on which an aggregate sum of not less than Rs. 5,00,000 has been paid up as on the date of notice, can send special notice to the Company for removal of director. The same should be signed by the concerned shareholder/s.

Date of meeting- Shareholders have the right to decide the date of meeting. However, the special notice shall not be sent earlier than 3 months (three months) from the date of meeting but at least 14 clear days before the date of the meeting, at which the resolution is to be moved.

On receipt of notice of a resolution to remove a director, the company shall immediately 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.

Intimation to Director- The Company shall forthwith send a copy of the notice to the concerned director.

Reasonable Opportunity of being heard- The director concerned may make representation in writing to the company and requests its notification to members of the company. The Director may request to send his representations along with the notice to the members and to be heard at the meeting. However, the rights may not be available, if on the application either of the Company or of any other person who claims to be aggrieved.

Intimation By Company to all shareholders:

1. The company shall, if the time permits it to do so;

(a) Company shall take immediate steps to send the notice to its members, at least 7 clear days before the meeting. The notice has to be sent in the same manner as in case of any other general meeting of the Company; and

(b) Send a copy of the representation to every member of the company to whom notice of the meeting is sent.

2. The company shall, if the time not permits it to do so;

Notice shall be published in English language in English newspaper and in vernacular language in a vernacular newspaper, both having wide circulation in the State where the registered office of the Company is situated. At the same time, the notice shall also be posted on the website, (if any). However, it shall be published at least 7 clear days before the meeting.

The copy of the representation need not be sent out and the representation need not be read out at the meeting if, on the application either of the company or of any other person who claims to be aggrieved,

The Tribunal is satisfied that the rights conferred by this sub-section are being abused to secure needless publicity for defamatory matter; and the Tribunal may order the company’s costs on the application to be paid in whole or in part by the director inspite of that he is not a party to it.

***Members may pass remove the director by passing ordinary resolution.

Appointment of director in place of removed director- A vacancy created by the removal of a director under this section may, if he had been appointed by the company in 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. A director so appointed shall hold office till the date up to which his predecessor would have held office if he had not been removed. If the vacancy is not filled, it may be filled as a casual vacancy. The director who was removed from office shall not be re-appointed as a director by the Board of Directors.

File Form- DIR-12 within 30 days of passing of resolution for appointment of Director.

Some Important Judgment come under Section- 284 of Companies Act, 1956 (Corresponding of Section-169 of Companies Act, 2013):

KHETAN INDUSTRIES PRIVATE LIMITED VS. MANJU RAVINDRA PRASAD KHETAN

In this case it was held by the court that the shareholders have a right to remove the directors under section 284 by passing ordinary resolution and section 284 provides an inbuilt mechanism for the enforcement of the right and civil court has no jurisdiction to entertain the suit for removal of director.

LIC of India v Escorts Ltd.

As per a milestone judgment given in LIC of India v Escorts Ltd. (1986) it was held that it is not necessary to give reasons in explanatory statement for removal of a director as desired by section 173(2) (corresponding Section-102) . Reason behind this judgment given by the court was that the company is acting on the basis of a special notice given by the shareholder u/s 284 and it is not a resolution proposed by the company.

Only shareholder/s holding not less than 1% of total voting power or holding shares on which an aggregate sum of not less than Rs. 5,00,000 has been paid up as on the date of notice, can send special notice to the Company for removal of director

PROCEDURE FOR REMOVAL OF DIRECTOR IN TABULAR FORM: