Removal of a Director

Pvt ltd 3109 views 5 replies

Viral Shah

Director

25 Points Joined June 2010

We have a pvt. ltd company formed 4 yrs ago. The formation of the company is b'ween my family & a cousin of mine. He holds 33% of the shares of the company & also is a director in the company. From my family, I, my father & my elder brother are the shareholders & i being also the director of the company. The majority shareholding of the company is with us. I want to remove this cousin director from the company due to his behavourial issues along with authority issues involved. He's a hot minded individual, & shouts or gets hyper at the smallest of the things, thus compelling me to come to this decision of removing from the company. Can anyone guide me thru this? I would be thankful to anyone who can help me.

I've been suffering from a little depression, & so our working is also getting affected.

I urge anyone who can help to guide me thru this without much complication.

Replies (5)

CA CS Akashdeep Singh

Practicing CA

1394 Points Joined June 2008

As you said you, your brother and father hold majority of shareholding in your company. So, you can remove any director by passing ordinary resolution in general meeting. You also have to appoint another director in same meeting because no of directors can not be less than 2 in Pvt Ltd. Co.

Ankur Garg

Company Secretary and Compliance Officer

114788 Points Joined January 2009

Dear Viral,

There is no need to worry. As per section 284 of the companies act, 1956 you may remove your cousin from the directorship. For that you have to hold a general meeting (GM) and pass an ordinary resolution to remove him. Passing ordinary resolution in your case is easy bcoz you hold 67% of the voting rights. Quorum is also not a problem bcoz you are 3 members at one side where as quorum is only 2 for a private company.

But there is one problem ----for calling GM you have to hold a board meeting (BM) where both the directors should be present for quorum. To solve this problem if you increase the strength of board by appointing additional director then again both the directors should be present for quorum. To deal with this problem put the agenda of appointment of new director in the GM and appoint someone from your family as a regular director.

Procedure for removal:

1. Hold a board meeting to approve the agenda and notice calling GM.

Here if you find it difficult to hold BM then approaches CLB u/s 186. Read section 186 of the companies act, 1956. CLB can help you as the holding of BM and GM is impracticable in your case.

2. On due date hold GM and pass OR to remove director u/s 284.

3. File form 32 within 30 days of GM regarding removal of director.

Revert if there is any doubt. Wait for other expert opinions.

Best Regards

Viral Shah

Director

25 Points Joined June 2010

Originally posted by : Ankur Garg

Thank you very much for your kind reply. But my worry is & I've also heard that there are chances of a director rejecting to be relieved of his status & may put the company into litigation. The reason i'm asking this is that we don't want any legal hassles to be dealt with.

Also I would like make things clearer as under;

I & my cousin are the only 2 directors in the company & also the joint signatories in banking & other formalities. My father & brother have invested their share & are share holders only. They are not directors.

I hope this makes my stand & query clearer to enable for guidance.

Thanks.

Dear Viral,

There is no need to worry. As per section 284 of the companies act, 1956 you may remove your cousin from the directorship. For that you have to hold a general meeting (GM) and pass an ordinary resolution to remove him. Passing ordinary resolution in your case is easy bcoz you hold 67% of the voting rights. Quorum is also not a problem bcoz you are 3 members at one side where as quorum is only 2 for a private company.

But there is one problem ----for calling GM you have to hold a board meeting (BM) where both the directors should be present for quorum. To solve this problem if you increase the strength of board by appointing additional director then again both the directors should be present for quorum. To deal with this problem put the agenda of appointment of new director in the GM and appoint someone from your family as a regular director.

Procedure for removal:

1. Hold a board meeting to approve the agenda and notice calling GM.

Here if you find it difficult to hold BM then approaches CLB u/s 186. Read section 186 of the companies act, 1956. CLB can help you as the holding of BM and GM is impracticable in your case.

2. On due date hold GM and pass OR to remove director u/s 284.

3. File form 32 within 30 days of GM regarding removal of director.

Revert if there is any doubt. Wait for other expert opinions.

Best Regards

Ankur Garg

Company Secretary and Compliance Officer

114788 Points Joined January 2009

Again I would say there is nothing to worry. Removal under section 284 is full proof if you fulfill the conditions of section 284. If you remove the person under section 284 there would be no question of his acceptance or non-acceptance.

Further as far as legal hassles are concerned –let me inform you that court has no role to play where section 284 involve. Kindly see the case below:

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.

If you have correctly followed the procedure given u/s 284, then you may refer the case mentioned above.

Best Regards

SURENDRA SAHU

Practicing Company Secretary

31 Points Joined October 2011

Mr. Garg prescribed good suggestion, BUT care to be taken of subsections 2, 3 & 4 which requires special notice and sending thereof to the director concerned to assure the compliance with the law of natural justice.