Directors play a crucial role in managing a company’s day-to-day affairs, ensuring compliance, and guiding its strategic direction. However, circumstances may arise where a director may need to be removed either due to poor performance, misconduct, disqualification, or voluntary resignation. The removal of a director is a significant corporate action that must be conducted fairly, transparently, and in accordance with the Companies Act, 2013 and applicable regulations.
Whether initiated by shareholders, the board, or due to a judicial order, the process requires careful adherence to prescribed legal procedures to ensure compliance and avoid future disputes.
REASONS FOR DIRECTOR REMOVAL
As per the Companies Act, 2013, a private limited company must have at least two directors to operate. However, a director may be removed under various circumstances, such as:
- Disqualification under the provisions of the Companies Act
- Absence from board meetings for over 12 months
- Involvement in prohibited transactions violating Section 184
- Disqualification by a court or tribunal order
- Conviction for a criminal offence with a sentence of six months or more
- Non-compliance with provisions of the Companies Act, 2013
- Voluntary resignation by the director
METHODS FOR DIRECTOR REMOVAL
There are three primary methods for removing a director from a company:
- Resignation by Director – The director voluntarily submits a resignation.
- Absence from Board Meetings – If a director fails to attend any board meeting for 12 months, their office becomes vacant automatically.
- Shareholder-Initiated Removal – Shareholders may remove a director by passing an ordinary resolution in a general meeting.
GOVERNING PROVISIONS
The removal of a director is primarily governed by the Companies Act, 2013, which includes:
- Section 169 – Governs the removal procedure and shareholder rights.
- Section 115 – Relates to special notices required for resolutions.
- Section 163 – Ensures fair representation in directorship appointments.
- Rule 23 of the Companies (Management and Administration) Rules, 2014 – Provides procedural guidelines for proper administration.
ESSENTIAL REQUIREMENTS FOR DIRECTOR REMOVAL
Before removing a director, a company must comply with certain mandatory requirements:
- Special Notice – A special notice under Section 115 must be issued to propose the removal resolution.
- Notice to the Director – The concerned director must be notified at least 14 days before the resolution is taken up.
- Right to Representation – The director has the right to submit a written representation or present their case before the shareholders.
- Restriction on Reappointment – Once removed, the individual cannot be reappointed as a director in the same company.
Filing with ROC – The company must file Form DIR-12 to record the removal officially.
Adhering to these steps ensures a legally compliant and transparent removal process.
PENALTIES FOR DELAYED FILING OF FORM DIR-12
Delay in filing Form DIR-12 beyond 30 days of cessation attracts additional government fees as follows:
- Delay up to 60 days: Twice the normal fees
- 60–90 days delay: Four times the normal fees
- Beyond 90 days: Ten times the normal fees
- Beyond 180 days: Twelve times the normal fees, with possible prosecution or compounding action
Hence, timely filing is critical to avoid penalties and maintain compliance
CONSEQUENCES AND CONSIDERATIONS OF DIRECTOR REMOVAL
Removing a director has several implications for both the company and the individual:
- Cessation of Authority: The director loses all rights to act on behalf of the company.
- Legal Exposure: Improper procedure can result in disputes or litigation.
- Reputation Risk: The process must be handled discreetly to avoid reputational harm.
- Compliance Updates: The company must update relevant authorities and registrations such as:
- GST
- Shops & Establishments Act
- Factories Act
- FEMA
- EPF & ESI
- Other labour or industry-specific laws
Updating these records ensures proper governance and compliance with all statutory frameworks.