PROCEDURE OF REMOVAL OF DIRECTOR UNDER COMPANIES ACT 2013

Provisions related to removal of a director from a Company has  been prescribed under Section 169 of Companies Act 2013 specifically provides for removal of directors of a company.

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 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.

Read :  Format of Notice for Calling EGM for Removal of Director

Shareholders of the company are empowered to remove a director by passing an ordinary resolution at a general meeting of the Company prior to expiry of the period of his office.  However, the following directors cannot  be removed as per said provisions of section 169 until unless otherwise stipulated in the terms of the appointment:

  1.  Director appointed by Central Government under Section 408
  2. Director appointed by a Financial Institution /bank in accordance with the loan agreement
  3. Director of a private company holding office for life on April 1, 1952 by virtue of Articles or otherwise
  4. Where company availed an option to appoint not less than 2/3rd of the total number of directors under Section 265.

Brief Procedure to remove a Director from a Company:

Procedure

1. A special notice under section 115 is required to be given to the company for removal of directors, atleast 14 days before the date of meeting at which it is to be moved exclusive of the day on which notice is served and the day of meeting.

2. On receipt of notice of a resolution to remove a director, the company shall forthwith send a copy thereof along with a representation if any received from the director concerned and if a copy of the representation is not sent as aforesaid due to insufficient time or for the company’s default, the director shall be entitled to be heard on the resolution at the meeting.

3. Hold and convene a general meeting to remove a director by passing an ordinary resolution.

4. Advice the Chairman that the resolution can be moved only if the person who has given notice of the resolution is present and moves the same at the meeting and that the director sought to be removed has got a right of being heard at the meeting even if he is not a member of the company.

5. If the resolution is carried, inform the director concerned about that fact of his removal.

6. In the case of a listed company, inform the stock exchange/s where the securities of the company are listed about the removal of director.

7. File Form DIR 12 within 30 days of the removal of the director with the Registrar of Companies.

 

 

Provisions Contained under Companies Act 2013 and Rules are prescribed under  Section 115 andd 169 and rules as under:

SECTION 115

RESOLUTIONS REQUIRING SPECIAL NOTICE

“Where, by any provision contained in this Act or in the articles of a company, special notice is required of any resolution, notice of the intention to move such resolution shall be given to the company by such number of members holding not less than one per cent. of total voting power or holding shares on which such aggregate sum not exceeding five lakh rupees, as may be prescribed, has been paid-up and the company shall give its members notice of the resolution in such manner as may be prescribed.”

APPLICABLE RULES

COMPANIES (MANAGEMENT AND ADMINISTRATION) RULES, 2014

“Rule 23. Special Notice.—(1) A special notice required to be given to the company shall be signed, either individually or collectively by such number of members holding not less than one percent of total voting power or holding shares on which an aggregate sum of [not less than five lakh rupees][1] has been paid up on the date of the notice.

(2) The notice referred to in sub-rule (1) shall be sent by members to the company not earlier than three months but at least fourteen days before the date of the meeting at which the resolution is to be moved, exclusive of the day on which the notice is given and the day of the meeting.

(3) The company shall immediately after receipt of the notice, give its members notice of the resolution at least seven days before the meeting, exclusive of the day of dispatch of notice and day of the meeting, in the same manner as it gives notice of any general meetings.

(4) Where it is not practicable to give the notice in the same manner as it gives notice of any general meetings, the 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 and such notice shall also be posted on the website, if any, of the Company.

(5) The notice shall be published at least seven days before the meeting, exclusive of the day of publication of the notice and day of the meeting.

SECTION 169 OF THE COMPANIES ACT:

REMOVAL OF DIRECTORS:

(1) 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:

Provided that nothing contained in this sub-section shall apply where the company has availed itself of the option given to it under section 163 to appoint not less than two-thirds of the total number of directors according to the principle of proportional representation.

(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 under this section, the company shall forthwith 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.

(4) Where 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:

Provided that 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 notwithstanding that he is not a party to it.

(5) 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 under sub-section (2).

(6) 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.

(7) If the vacancy is not filled under sub-section (5), it may be filled as a casual vacancy in accordance with the provisions of this Act:

Provided that the director who was removed from office shall not be re-appointed as a director by the Board of Directors.

(8) Nothing in this section shall be taken–

(a) as depriving a person removed under this section of any compensation or damages payable to him in respect of the termination of his appointment as director as per the terms of contract or terms of his appointment as director, or of any other appointment terminating with that as director; or

(b) as derogating from any power to remove a director under other provisions of this Act.

CASE LAWS AND JUDGEMENTS MADE BY VARIOUS COURTS IN THE MATTER OF UNLAWFUL REMOVAL OF DIRECTORS:

In several Judgments, the court has declared such removal as invalid where the procedure and provisions of the Act were not followed. Further, where the Director’s right to make a representation, which is a statutory right of the Director, has not been provided to the director. In such cases such removal would be of no effect.

BHANKERPUR SIMBHAOLI BEVERAGES. VS SARABHJIT SINGH AND ORS

Where the director sought to be removed is not given the opportunity for making a representation which is his statutory right under Section 284 the resolution passed for removal would be of no effect. (Copy of the same is enclosed for your kind perusal)

 

Kerala High Court in QUEENS KURIES AND LOANS (P.) LTD. V. SHEENA JOSE [1993] 76 COMP CAS 821, that “……………………..omission to serve special notice is a serious error in the conduct of the proceedings. The directors have been denied their statutory right to the notice of making representation and to persuade the members to reject the resolution. A resolution removing the directors is violated by failure to fulfill the requirement of law. The resolution in removing the directors is, therefore, invalid” (Copy of the same is enclosed for your kind perusal)

 

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