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Resignation and Appoinment of Directors

Hitesh Khemchandani (Practicing Consultant) (43 Points)

03 November 2010

Dear All,

A Private limited company has four directors. Three Executives and One Non-Executive. All the four directors are also the shareholders of the company. Two executive directors want to resign from office and they want to appoint their spouses/relatives. Can the other two directors; one executive and the other non-executive director appoint the spouses/relatives as directors. The Articles empower the remaining directors to fill the casual vacancy

Can someone help me with the process and the resolutions required. Let me also if there another way.

Regards

Hitesh

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5 Replies

HARDIK (COMPANY SECRETARY NCFM (Corporate Governance )) (664 Points)
Replied 03 November 2010

first make appointment and then resignation.

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Yogesh Shah (Managing Corporate Finance) (1051 Points)
Replied 03 November 2010

Hi Khemhitesh,

This is the case of ‘Sec. 262 – Appointment of Director in Casual Vacancy’ (you have mentioned it also). Hence, in my opinion, there is no need to first appoint director and then to resign. Plus, as per Sec. 262, it’s not obligatory as well for the company to fill up the vacancy. But mind one that no. of directors should not fall below the statutory minimum.

OK, now move to procedural part – once the resignation is given by both directors, it will be effective immediately (except where AoA has provided that it must be accepted by BoD). Then hold Board Meeting and in that meeting fill up the vacancy by passing ordinary resolution. Since this a BoD meeting, no need to comply with Sec. 258 (i.e. appointment must be in GM with Ordinary Resolution). In private company there are no restrictions that you can’t appoint relatives as a director. So, remaining directors can appoint relatives as director.

Since I am still learning LAW, kindly rectify me if Im wrong.

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Hitesh Khemchandani (Practicing Consultant) (43 Points)
Replied 03 November 2010

Dear Friends,

Thanks for your guidance.

There has been another issue that has come. Now all the three Executigve directors want to resign. In this case i think appointment first and then resignation will be the only solution. But If I am correct for appointment i will have appoint the relatives as Additional director first and then the resignation can be made. The AOA permits the BoD to appoint additional directors.

Are there any restrictions for a company to continue with two additional directors and one Non-Executive director. What will be required during the annual general general meeting.

Let me know

Regards

Hitesh

Yogesh Shah (Managing Corporate Finance) (1051 Points)
Replied 04 November 2010

Hi Hitesh,

In my opinion, there are no restrictions. Pvt. Co. can continue with two additional directors and one non-executive director.

Additional Director shall hold office only UPTO the date of next AGM. Hence, in my opinion, co. should first appoint two additional directors. Due to this sufficient no. of directors will be maintained (since other three are resigning). Then, before AGM hold GM (i.e. EGM). In that EGM, regularise both additional directors.

Company can also wait till AGM. No need to take EGM. But it depends on Company. They have the option to regularise additioal director either in EGM or AGM.

In respect of regularisation, no special procedure is required. Just pass ordinary resolution. No need to comply with Sec. 173. Plus, as this is private co., hence no need to comply with Sec. 257.

Again the same thing - kindly rectify if Im wrong.

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