Section 169 of the Companies Act, 2013: Forced removal of Director by the Company

Who is a Director?

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Types Of Director

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Can a company remove a director?

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Which law/provisions governs the removal of a director?

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Is there any exception to removal of a director?

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What is the process to remove a director?

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Sub-head :

Incident 1 – Suo-Moto Via The Board

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Incident 2 – Self-Submission By A Director

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Incident 3: Absence Of The Director In Three Consecutive Annual Board Meetings

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About Participation in the Removal of the Director of a Company

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What are the prerequisites before removing a director?

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What are the forms involved in removal of director?

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Documents needed for Removal of Director

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What are the post compliances once a director has been removed from company?

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What if company fails to comply with provisions?

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Section 169

The removal of Directors is governed by Section 169 of the Companies Act of 2013 (previously Section 284 of the Companies Act of 1956). A shareholder has the legal right to remove a director at a general meeting using an Ordinary Resolution, as stated in Section 169 of the 2013 Companies Act. This right cannot be restricted by any clause in the MOA/AOA or any other document or agreement.

According to Section 169:

• After providing him with a reasonable opportunity to be heard, a company may remove a director who is not a director appointed by the Tribunal under Section 242 before the end of his term of office.
• At the meeting where the director is removed, there must be special notice of any resolution to remove the director in accordance with this section or to appoint a new director.
• The company is required to send a copy of the notice of resolution to remove a director under this section to that director right away. The director has the right to speak during the meeting, whether or not he is a company member.
• When a director requests notification to the company’s members following notice of a resolution to remove the director under this section, the company shall, if time permits, notify the members of the company by: (a) Mentioning the fact that the request was made in any notice of the resolution sent to company members; (b)send a copy of the representation to every company member who receives notice of the meeting (whether before or after receipt of the representation by the company). The director may demand that the representation be read aloud at the meeting if a copy of it is not sent as directed due to a lack of time or a company default.
• If a special notice has been given, the board or the company may fill the vacancy caused by the removal of a director during the general meeting. The newly appointed director will serve until the date that the predecessor would have been in office if he hadn’t been fired.

Applicability:

This section applies to all types of directors with the exception of those chosen by a tribunal or companies whose bylaws stipulate that at least two-thirds of the total number of directors must be appointed in accordance with section 163’s proportional representation rules.

In simpler terms, after convening a board meeting of directors to pass a resolution for director removal, the company calls an extraordinary general meeting and sends a special notice to the members of the company at least 14 days before the date of the meeting, in which they specify their intention for director removal. Any member, regardless of shareholding, may provide notice for the removal of a director under Section 169 of the 2013 Companies Act. The concerned director may submit a written objection to the proposed removal resolution whether or not he is a member of the company.

Provisional Aspects: Removal of Director under Companies Act 2013

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FAQ’s

1. Case – A company incorporated 12 years ago and it has two directors and both have decided to sell the company now. Thus two new directors have been appointed w.e.f 15.01.2021. Please clarify that we required a special resolution or process to remove/resignation of the primary directors.
2. Sir/Madam, I want to know that is the prior approval of Central Government and or any other department of it or NSE/BSE or Sebi compulsory, where the shareholders of a listed company wants to remover the present directors of the Company through EGM?
3. What are the rules for removal of directors?
   The shareholders can remove a director from his/her position on the following grounds: If the director has become insolvent. If the director has been convicted by the court of law and has been penalized with imprisonment for not less than 6months. If any court has declared the director to be of unsound mind.
4. What are the causes of removal of director?
   There are certain disqualifications, a director may attract which could act as a reason for his removal. The following are such disqualifications: The director is declared as a person of unsound mind by a competent court. The director is an undischarged insolvent.
5. Who has the power to remove a director of a company?
   The shareholders elect the directors of a company for managing the affairs of the company in accordance with the various provisions of Companies Act 2013. The Board of Directors or shareholders can also have power to remove the director of a Company under section 169 of the Companies Act, 2013
6. When can a shareholder remove a director?
   Under Section 115, the shareholders can raise a request for the removal of company directors. However, the eligibility criteria for the shareholder to raise the request is to have more than 1% of total voting power and hold stocks worth ₹5 lakhs individually or collectively.
7. Can you remove a company director without their consent?
   Yes, a company director can be terminated without their consent. However, such removal calls for a strict procedure to be followed.
8. Do you need a resolution to remove a director?
   Section 168(1) of the Act states that the shareholders can remove a director by passing an ordinary resolution at a meeting of the company.
9. On what grounds can the director be removed by the shareholders?
   In terms of the Companies Act, 2008, a director may be removed by an ordinary resolution passed by the shareholders at a shareholders’ meeting. The Act sets out the procedure that should be followed in such circumstances: The director in question must be given notice of the meeting and the resolution; and.