Vacation Of Office Of Director Under Companies Act 2013 (Section 167)

Vacation of Office of Director

This section applies to both private and public companies. The office of a director is considered vacant in the following cases:

a) If the Director is Disqualified:

If the director of a company is disqualified as per section 164 of the Companies Act 2013, then he would have to vacate the office of the director. Therefore, you have to vacate the office of the director if any of the provisions of section 164 applies to you.

b) Absent in Board Meetings:

If the director of the company remains absent in all the Board meetings held within 12 months with or without seeking a leave of absence he needs to vacate the office of director. Such 12 months is not a calendar or accounting or a financial or previous year or any other year. The period of 12 months is counted from the date of his first absence in BM.

It states that if the director has a casual approach and he is not serious about his position then he should vacate the office as a director. This is because he thinks that there is no relevance in attending even one meeting held in a year i.e. within 12 months.

However, the fact is that this provision hardly affects the position of the director because nowadays the BM can also be attended to through video conferencing or other audiovisual means in addition to physically present as provided in section 173(2) of the Companies Act 2013.

c) Not obeying Section 184:

If the director of the company contravenes the provisions of section 184 about entering into contracts or agreements in which he is directly or indirectly benefited, then he would’ve to vacate the office as director.

Interested director means any director enters into by or on behalf of a company with anybody or group who is in any means has a connection, whether by himself or through his relatives or any other body as a partner, director or a member.

d) Disclosure:

The director of the company should’ve to vacate the office if he couldn’t disclose his interest in any contract or arrangement in which he is directly or indirectly benefited or interested, which is in contravention of the provisions of section 184.

e) Disqualification :

If the director of the company is disqualified by an order of a court or the Tribunal, he would’ve to vacate office immediately.

f) Punishment:

A director of the company if convicted by a court of any offense, involving moral turpitude or otherwise is sentenced to imprisonment for a minimum of 6 months.

g) Office can be Continued:

The office can be continued by the director if:

1. For a maximum of 30 days from the order of the disqualification or date of conviction;
2. Seven days from the disposal of appeal filed within 30 days of the order; and
3. Seven days from the disposal of the appeal further filed against order or sentence.

h) Removal:

If the director of the company is removed from his position in pursuance of the clauses of the Companies Act, 2013.

i) Ceases to hold Ex-Officio Position:

If a director was appointed based on his holding in any office or other employment in the subsidiary, holding, or associate company, ceases to hold such office or other employment in that company, he would’ve to vacate the office.

Small Shareholder’s Director

A person holding the office of small shareholders’ director shall vacate the office if it becomes vacant as per section 167 of the CA 2013.

Vacation of Office of Director of a Private Company

A private company may in its AoA, provide grounds for the vacation of the office of a director in addition to those specified above.

Punishment

If a person, continues to hold the office of the director even when he is aware of the fact that the office of director held by him has become vacant on pursuance to any of the disqualifications specified above, he shall be punishable:

with imprisonment for a maximum of one year; or

with a fine of ₹1,00,000 – ₹ 5,00,000; or

with both.

Office of Director Vacated by all Directors of a Company

When all the directors of a company vacate their offices under any of the disqualifications specified above, the promoter or Central government in absence of promoters can appoint the required number of directors. Such appointed directors can only hold office till the directors are appointed by the company in the general board meeting.

Section 167 of the Companies Act 2013

[Vacation of office of director]

(1) The office of a director shall become vacant in case—

(a) he incurs any of the disqualifications specified in section 164;

Provided that where he incurs disqualification under sub-section (2) of section 164, the office of the director shall become vacant in all the companies, other than the company which is in default under that sub-section.

(b) he absents himself from all the meetings of the Board of Directors held during twelve months with or without seeking a leave of absence of the Board;

(c) he acts in contravention of the provisions of section 184 relating to entering into contracts or arrangements in which he is directly or indirectly interested;

(d) he fails to disclose his interest in any contract or arrangement in which he is directly or indirectly interested, in contravention of the provisions of section 184;

(e) he becomes disqualified by an order of a court or the Tribunal;

(f) he is convicted by a court of any offense, whether involving moral turpitude or otherwise, and sentenced in respect thereof to imprisonment for not less than six months:

Provided that the office shall not be vacated by the director in case of orders referred to in clauses (e) and (f)—

(i) for thirty days from the date of conviction or order of disqualification;

(ii) where an appeal or petition is preferred within thirty days as aforesaid against the conviction resulting in sentence or order until expiry of seven days from the date on which such appeal or petition is disposed of; or

(iii) where any further appeal or petition is preferred against order or sentence within seven days until such further appeal or petition is disposed of.

(g) he is removed in pursuance of the provisions of this Act;

(h) he, having been appointed a director by his holding any office or other employment in the holding, subsidiary, or associate company, ceases to hold such office or other employment in that company.

(2) If a person, functions as a director even when he knows that the office of director held by him has become vacant on account of any of the disqualifications specified in subsection (1), he shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees, or with both.

(3) Where all the directors of a company vacate their offices under any of the disqualifications specified in sub-section (1), the promoter or, in his absence, the Central Government shall appoint the required number of directors who shall hold office till the directors are appointed by the company in the general meeting.

(4) A private company may, by its articles, provide any other ground for the vacation of the office of a director in addition to those specified in sub-section (1).