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Removing a Director Under Companies Act

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Removal of Director – Overview

It is possible to add or remove a director from the company at any time. There are different reasons why a director is removed and there are three different procedures based on the reason. Irrespective of that, AccountsWaale can help you with removing a director from your company and make the whole process easy for you.

Removal of Director: Reasons

A director can be removed for any of the following reasons:

  • If they incur any of the disqualifications specified under the Companies Act
  • If they absent themselves from board meetings over 12 months
  • If they enter into contracts or arrangements against the provisions of Section 184 of the Companies Act
  • If they are disqualified by an order of a court or tribunal
  • If they are convicted by a court of any offence and sentenced to imprisonment for not less than six months
  • If they have not abided by the terms and protocols mentioned in the Companies Act of 2013
  • If they have resigned voluntarily from their position.

Ways to Remove a Director

Director removal

There are 3 ways to removal of director from a company:

1. Removal of director – When the Directors Tender Their Resignation

The steps to be followed in this scenario are:

  • Step 1: Holding a board meeting by giving seven days of clear notice
  • Step 2: In the meeting, the board members will take note of the resignation
  • Step 3: Then they have to pass a resolution in a particular format to that effect
  • Step 4: After that, Form DIR-11 needs to be filed by the resigning director in his individual capacity
  • Step 5: The company has to file Form DIR-12 with the registrar of companies (RoC) along with the registration letter and the board resolution
  • Step 6: When all the forms are filled and the formalities for the Removal of Directot are done, the name of the director will be removed from the master data of the company on the Ministry of Corporate Affairs (MCA) website.

2. Director Remains Absent from the Board Meetings for 12 Months

  • Step 1: If a director absents himself from all the meetings of the removal of board of directors held over a period of twelve months, with or without seeking leave of absence from the board, they are considered to have vacated their office as per Section 167
  • Step 2: A Form (DIR-12) must be filed
  • Step 3: Upon completion of the formalities, the concerned director’s name will be removed from the database of the Ministry of Corporate Affairs (MCA).

3. Removal of Director by Shareholders

  • Step 1: A notice is sent to all the shareholders for a board meeting required to be conducted within seven days from the date of the issue
  • Step 2: Step 2: A resolution is passed to have a general meeting and then for the director removal, subject to the approval of the shareholders on the day of the meeting
  • Step 3: After providing a 21-day notice, the second meeting of shareholders is held to vote on the resolution passed earlier and who is being removed as the director by shareholders will be allowed to speak on their removal
  • Step 4: The shareholders must file Form DIR-12, along with the attachments of the board resolution, and an ordinary resolution
  • Step 5: Once all the formalities are over, the name of the concerned director is removed from the database of the Ministry of Corporate Affairs (MCA) and its website.

This is the simplified version of the whole process.The removal of director procedure has to be carried out carefully and should follow the procedure laid down in the Companies Act.

Our team at AccountsWaale will walk you through the entire process and will be there to help you at every step.

Consequences of Not Filing Form DIR-12:

DIR-12 has to be filed within 30 days from the date of resignation. If the company fails to do so, the following penalties will apply:

  • After 30 days – within 60 days: twice the government fees
  • After 60 days – within 90 days: 4 times the government fees
  • If it exceeds 90 days: 10 times the government fees
  • If it exceeds 180 days: 12 times the government fees and will be booked for the compounding offence as well

Documents Required for a Director Removal

The following documents are needed for removal of director

  • Notice of Board Meeting: The first step in the removal of a director is to hold a board meeting and pass a resolution for the removal of the director. A notice of the board meeting must be sent to all the directors of the company, and the resolution must be passed with a majority vote
  • Special Notice to Director: A special notice must be sent to the director who is being removed. This notice should contain the reasons for the removal of the director, along with a copy of the board resolution
  • Resignation Letter: If the director being removed wishes to resign voluntarily, a resignation letter should be obtained and filed with the MCA
  • Form DIR-12: Form DIR-12 is the form used to file the details of the removal of the director with the MCA. This form must be filed within 30 days of the removal of the director
  • Board Resolution: Certified resolution passed in favour of the director removal should be prepared and file directly with the MCA
  • Declaration by Director: A declaration must be obtained from the director being removed stating that they have no objection to the removal.

Eligibility Criteria to be a Director

To be eligible to be a director in a company in India, an individual must meet the following eligibility criteria:

  • The individual must be at least 18 years of age
  • The individual must have a valid DIN issued by the MCA. If the individual does not have a DIN, they can apply for it online
  • The individual must not be disqualified under the Companies Act, 2013. This means that the individual must not have been declared bankrupt, convicted of an offense, or disqualified by a court or tribunal
  • The individual must give their consent by filing Form DIR-2 with the MCA
  • The individual must be appointed with an appointment letter and must be filed with the MCA in Form DIR-12
  • Resignation: A director can also resign voluntarily by filing a resignation letter with the company and the MCA.

Why AccountsWaale?

Here is why you should choose AccountsWaale for the removal of director from your company:

  • Simple and speedy process
  • Experts will guide you through the whole process
  • A resolution drafted and forms filled & filed for you
  • You get the best support
  • All your queries will be answered.

The Glossary

AoA

Articles of Association

DIN

Director Identification Number

DSC

Digital Signature Registration

ROC

Registrar of Companies

MCA

Ministry of Corporate Affairs

FAQ's on Removing a Director Under Companies Act

A director can be removed in three ways:
  • By the director by giving their resignation
  • If the director is absent from board meetings for 12 months
  • By the shareholders, if they deem it necessary.
Yes, a company director can be removed without their consent. However, such removal calls for a strict procedure to be followed.
The minimum number of directors required is based on the type of company. For a one-person company, it is 1, for a private company it is 2, and a public company needs to have at least 3 directors.
A person cannot be appointed as a director if they don’t qualify under the AoA, if they are undischarged bankrupt, or if they are restricted by a court order.
A private company can have a maximum of 15 directors.
Yes, the process is 100% online, we will take care of the physical actions to be performed. We will provide you with a dashboard on which you can comfortably do everything.
Yes, a person with a criminal record can be a director of a company, as long as they are not restricted specifically by a court order.

Removing a director from a company in India, as per the Companies Act, 2013, can be done through two main approaches:

1. Ordinary Resolution by Shareholders:

  • A majority of shareholders holding voting rights can pass a resolution at a General Meeting removing the director.
  • This requires special notice to the company and the targeted director, followed by due process as defined in the Act.

    2. Court Order:
  • Shareholders or company stakeholders can petition the court for director removal based on specific grounds like breach of duty, misconduct, incapacity, etc.
  • The court will then decide based on presented evidence and legal framework.

The Companies Act outlines various situations justifying director removal:

  • Failure to comply with provisions of the Act or company regulations.
  • Negligence, default, breach of duty, or lack of good faith.
  • Loss of qualification for directorship.
  • Conviction of certain offenses.
  • Insolvency or incapacity to perform duties.
  • Absence from Board meetings for a specified period.
  • Other grounds specified in the company's Articles of Association.

The case law for removal of directors in India is vast and complex, encompassing various aspects of the process and different grounds for removal. Here's a summary of some key cases, categorized by their focus:

Due Process and Fair Hearing:

  • State Bank of India v. Prem Nath (1996): This landmark case established the fundamental principle that directors have the right to a fair hearing before being removed. It emphasized the importance of providing the director with adequate notice of the proposed removal, a clear statement of the allegations against them, and an opportunity to present their defense.
  • Tata Consultancy Services Ltd. v. Cyrus Investments (P) Ltd. (2021): This case reaffirmed the importance of following due process before removing a director, even if the company is facing financial difficulties. It held that the National Company Law Tribunal (NCLT) cannot order the reinstatement of a director removed without proper adherence to legal procedures.

    Grounds for Removal:
  • P.K. Gupta v. State Bank of India (2006): This case established that directors can be removed for failing to perform their duties diligently and honestly. It highlighted the importance of upholding fiduciary duties and acting in the best interests of the company.
  • Vijay Kumar Goyal v. State Bank of India (2007): This case recognized the right of shareholders to remove directors based on loss of confidence, even without specific proof of misconduct. It emphasized the importance of shareholder trust and the ability to hold directors accountable for their performance.
  • Shapoorji Pallonji and Co. Ltd. v. ICICI Bank Ltd. (2019): This case dealt with the removal of directors appointed by minority shareholders. It clarified that the removal process for such directors must also comply with the principles of due process and fair hearing.

    Specific Situations:
  • In re: Hindustan Construction Co. Ltd. (2002): This case addressed the removal of a director due to disqualification under the Companies Act. It held that the disqualification itself does not automatically lead to removal; the company must still follow the established procedures for removal.
  • Ajay Piramal vs. Mukesh Ambani (2016): This case dealt with the removal of a director appointed by a subsidiary company. It clarified that the removal process for such directors should be conducted as per the bylaws of the subsidiary company, not the parent company.
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