Director Removal or Resigning, how to go about that?

Director (Important Batsman in the company)

The first thing which investors look before making an investment is about the directors of the company as directors are custodians of the rights of shareholder and have a responsibility to protect the interest of the company. The director has dual roles to play, one is a fiduciary relationship and another as an agent of the company as he is charged with the conduct and management of the company. All the contracts entered by the director are binding upon the Company if they are authorized by Article of Association of Company or by internal rules of the company. A director at the time of his appointment has to submit a declaration specifically mentioning that he has not been prohibited by any law of the country from being appointed as Director. It is the duty of the director to work for the benefits of all shareholders and needs to fulfill his obligations with utmost good faith, skill, and diligence. Further, the director must not involve himself in any situation in which he has a direct or indirect conflict of the interest of the company. Because of the vital position of the Director in the company, for certain formalities under Companies Act 2013, the director is made personally liable and there are provisions for imprisonment of the director as well. Under Companies Act 2013, a Director can be removed from his post immediately upon happening of any of the following events:

  • he is declared a person of unsound mind by a competent court;
  • he is an undischarged insolvent;
  • he has applied to be adjudicated as an insolvent and his application is pending;
  • he has been convicted by a court of any offense, whether involving moral
  • turpitude or otherwise, and sentenced in respect thereof to imprisonment for not less than six months and a period of five years has not elapsed from the date of expiry of the sentence:
  • an order disqualifying him for appointment as a director has been passed by a court or Tribunal and the order is in force;
  • he has not paid any calls in respect of any shares of the company held by him, whether alone or jointly with others, and six months have elapsed from the last day fixed for the payment of the call;
  • he has been convicted of the offense dealing with related party transactions under section 188 at any time during the last preceding five years.

In contravention of this section, if a person continues to function as director of Company even after knowing that he is disqualified for holding the office of the director than he shall be punished with imprisonment or fine up to Rs. 5,00,000/- or both.

What if the Director is willing to resign his position?

Director is at freedom to resign from the office, by giving a notice in writing to Company and the board showing his willingness to resign from the post. The resigning director is required to inform the Registrar of Companies within 30 days from the date of giving notice of his decision. In case all the directors give resignation than the Central government will appoint directors themselves till the new directors are not appointed by shareholders of the company in general meeting.

What has to be done to remove a Director?

According to the Companies Act 2013, any Director can be removed before his tenure by following the below-mentioned procedure:-
(1) By ordinary resolution, remove a director, in before the expiry of the period of his office after giving him a reasonable opportunity of being heard (only when the director is not appointed by the Tribunal)
(2) A special notice shall be required of any resolution, to remove a director under this section, or to appoint somebody in place of a director so removed, at the meeting at which he is removed.
(3) On receipt of notice of a resolution to remove a director.
(4) Where a notice has been given of a resolution to remove a director under this section and the director concerned makes with respect thereto representation in writing to the company and requests its notification to members of the company, the company shall, if the time permits it to do so. (a) In any notice of the resolution given to members of the company, state the fact of the representation having been made; and (b) Send a copy of the representation to every member of the company to whom notice of the meeting is sent (whether before or after receipt of the representation by the company), and if a copy of the representation is not sent as aforesaid due to insufficient time or for the company’s default, the director may without prejudice to his right to be heard orally require that the representation shall be read out at the meeting.

Can an another person be appointed in place of the director removed?

A vacancy created by the removal of a director may 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 or can be appointed by the company in general meeting or by the Board A director so appointed shall hold office until the date up to which his predecessor would have held office if he had not been removed.If the vacancy is not filled at the general meeting in which director was removed, it may be filled as a casual vacancy in accordance with the provisions of this Act. Important: The director who was removed from office shall not be re-appointed as a director of the Board of Directors.

Informing the Registrar of Companies:

A company needs to intimate changes among Managing Director, Directors, Manager and Secretary of a company by filing eForm DIR-12 with Registrar of Companies (ROC) within 30 days from the date when such change takes place.

Wazzeerians understand the hard decision that the board takes in these situations, we have a dedicated team of Lawyers and CAs who can get this procedure done with simplicity and ease. We would be happy to hold your hand in your tough times too, let’s connect.