Director Management

Removal of Director from a Company

Company Directors oversee 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.

IndiaFilings specialises in navigating the intricacies of the director removal or resignation process, ensuring full compliance with legal standards and meticulous attention to detail. Let our experts assist you in navigating this critical corporate transition smoothly and effectively. Contact us today to get started.

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.

• 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 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:

• Resignation by Directors: Directors resign voluntarily by giving notice to the company.
• Director Absence from Board Meetings: A director who fails to attend board meetings for 12 months may be deemed to have vacated office.
• Shareholder-initiated Removal: Shareholders may remove a director through an ordinary resolution at a General Meeting, following statutory procedure.

Law Governing the Director Removal

• Section 169: Explains how a company can legally remove a director and the required steps.
• Section 115: Relevant for special notices and related procedural requirements.
• Section 163: Relates to representation and procedural fairness in director selection and removal.
• Rule 23 of the Companies (Management and Administration) Rules, 2014: Specific procedural guidelines for proper removal.

Essential Requirements for Director Removal

• Issuance of Special Notice: A special notice must be issued to initiate the removal process.
• Notice Period to Director: The director must receive the special notice at least 14 days before the resolution is voted on.
• Right to be Heard: The director facing removal must be allowed to make written representations or speak at the meeting.
• Restriction on Reappointment: Once removed, the director is typically ineligible for immediate reappointment.
• Filing of Form DIR-12: The company must file Form DIR-12 to officially notify the Registrar of Companies.

Procedure for Director Removal

The procedure involves multiple steps depending on the method used. Below are key procedural elements for common scenarios.

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, whichever is later. Even after stepping down, a resigned director remains accountable for any offences committed during their term.

Mandatory Steps on Resignation

• Schedule a Board Meeting in line with Section 173 and Secretarial Standard-1 (SS-1).
• Send Board Meeting notices to all directors at least 7 days before the meeting (shorter notice in urgent cases).
• Prepare meeting documents including agenda, explanatory notes and draft resolutions.
• Acknowledge resignation in the Board Meeting and assign responsibility for ROC filings.
• Public companies must notify stock exchanges per Regulation 30 & 46(3) of the SEBI LODR Regulations, 2015.
• Circulate draft minutes to directors within 15 days after the meeting.

Submission of Forms

File Form DIR-12 with the Registrar of Companies within 30 days of the director's resignation, attaching a certified copy of the Board Resolution, the resignation notice and proof of cessation. The resigning director may also file Form DIR-11 within 30 days to notify the Registrar.

Director Absence from Board Meetings for 12 Months

If a director fails to attend any board meetings for twelve months without leave, their office may be vacated under Section 167. Companies should acknowledge the vacancy, file DIR-12 and update the MCA database to reflect the change.

Penalties for Delayed Submission of Form DIR-12

Penalties escalate with delay: 30–60 days — double the government fees; 60–90 days — four times the fees; beyond 90 days — ten times; beyond 180 days — twelve times and potential legal action. Timely filing is essential to avoid these consequences.

Why choose IndiaFilings for Director removal?

• Expertise and Experience: Professionals well-versed in corporate law and director removal procedures.
• Compliance Assurance: Steps executed to minimize legal risk and ensure statutory compliance.
• End-to-End Support: From consultation to submission of DIR-12, IndiaFilings handles the full process.
• Customized Solutions: Tailored advice based on the company's unique circumstances.