Removal of Director from a Company
Company Directors oversees the management and operations of a business, while shareholders own the company. Situations may arise where shareholders opt to remove a director due to inadequate performance or other concerns, or a director may choose to resign. Removing a director is a significant corporate action that requires careful deliberation and strict compliance with the legal framework provided by the Companies Act 2013 or applicable local laws. Whether initiated by an ordinary resolution, board resolution, or judicial order, the process must be conducted fairly, transparently, and in the company's best interest.
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Reasons for Director Removal
Under The Companies Act 2013, it's mandatory for a private limited company to appoint at least two directors to commence its operations.
Shareholders have the authority to dismiss a director during the General Meeting, barring instances of government-appointed directors. A director may be subject to removal under several conditions, including:
- Being disqualified as per the criteria set out in the Companies Act.
- Not attending board meetings for more than a year.
- Violating the terms of Section 184 of the Companies Act by engaging in prohibited transactions.
- Being prohibited from participating due to a court or Tribunal order.
- Conviction by a court for a criminal offence with a sentence of at least six months.
- Non-compliance with the regulations and requirements of the Companies Act, 2013.
- Choosing to resign voluntarily from the board.
Methods for Director Removal from a Company
There are three primary methods to remove a director from a company:
Law Governing the Director Removal
Removing a director is governed by the Companies Act, 2013, under Section 169.
Essential Requirements for Director Removal
To lawfully remove a director, specific critical steps must be followed:
Filing of Form DIR-12
Form DIR-12, mandated by the Companies Act 2013, must be filled out and submitted to document the official removal of a director. This form is a crucial part of the legal procedure for removing a director from their office.
Procedure for Director Removal
The procedure for removing a director from a company involves several steps, which are outlined below:
Director's Voluntary Resignation
A director's resignation becomes effective on the date the company receives the notice or on a later date specified by the director in the notice, whichever comes later. Even after stepping down, a resigned director remains accountable for any offences committed during their term. A director can step down from their position by submitting a written resignation to the company. Upon receiving this resignation, the Board is required to acknowledge it formally. The company must notify the Registrar of Companies about the resignation and include this information in the directors' report presented at the next General Meeting, as stipulated by Section 168 of the Companies Act, 2013.
Mandatory Requirements
The effective date of a director's resignation is either the date the company receives the notice or a later date specified by the director within that notice, depending on which comes last. Additionally, a director who resigns remains responsible for any legal infractions during their time in office.
The following Procedure is to be followed.
- Schedule a Board of Directors Meeting: Following Section 173 and Secretarial Standard-1 (SS-1), a board meeting should be arranged.
- Notification of Board Meeting: After receiving a resignation letter, the company must send out a board meeting notice to all directors at their registered addresses no later than 7 days before the meeting. In urgent situations, a shorter notice period is permissible.
- Preparation of Meeting Documents: The meeting notice should accompany the agenda, explanatory notes, and a draft resolution.
- Conduct the Board Meeting: The board should convene to acknowledge the resignation letter submitted by the director.
- Delegation for ROC Filings: Assign the Company Secretary, CFO, or director to submit the necessary forms and documentation to the Registrar of Companies.
- Disclosure Requirements for Listed Companies: Public companies must report the resignation to the stock exchange promptly, adhering to specific timelines based on the nature and origin of the event or information, as mandated by Regulation 30 & 46(3) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
- Distribution of Draft Minutes: Within 15 days following the board meeting, draft minutes should be sent to all directors via hand delivery, speed post, registered post, courier, or email for their review, per the established procedures for minute preparation and approval.
Alignment with Public Values and National Security:
The design should not be in conflict with public morals, sentiments, or the security of India. Designs deemed inappropriate by the government or other authoritative bodies won't qualify for registration. It's essential that the design can be registered under section 5 of the Design Act, 2000.
It's important to ensure these criteria are met when seeking registration under the English language provisions of the Design Act, 2000.