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Removal of Director from a Company
Directors play a crucial role in managing and operating a company, while shareholders hold ownership. Occasionally, shareholders may decide to remove a director due to performance issues or other concerns, or a director might choose to resign. Removing a director is an important corporate decision that must be handled with care and in strict compliance with the legal framework under the Companies Act 2013 or relevant local laws. Whether through a board resolution, shareholder resolution, or court order, the process should be fair, transparent, and in the best interests of the company.
At ND Salva, we specialize in simplifying the director removal or resignation process, ensuring full legal compliance and attention to every detail. Let our experts guide you through this crucial corporate change smoothly and efficiently. Contact us today to get started.
Reasons for Director Removal
According to the Companies Act 2013, every private limited company must appoint a minimum of two directors before starting operations.
Shareholders can remove a director during a General Meeting, except for government-appointed directors. Grounds for director removal include:
Disqualification under the Companies Act.
Failure to attend board meetings for over a year.
Breach of Section 184 of the Companies Act by engaging in prohibited transactions.
Court or Tribunal orders barring participation.
Conviction for a criminal offense with a sentence of six months or more.
Non-compliance with the Companies Act, 2013 regulations.
Voluntary resignation.
Methods for Director Removal
There are three main ways to remove a director:
Voluntary Resignation: Directors can resign from their posts at their own discretion.
Non-Attendance: Directors who miss board meetings for 12 consecutive months may be removed.
Shareholder Resolution: Shareholders can vote to remove a director during a General Meeting.
Legal Framework Governing Director Removal
Director removal is governed primarily by:
Section 169 of the Companies Act, 2013: Details the legal process for removing directors.
Section 115: Covers procedures around director appointments and removals.
Section 163: Focuses on director selection and fair representation.
Rule 23 of the Companies (Management and Administration) Rules, 2014: Provides procedural guidelines for director removal.
Essential Steps in Director Removal
To remove a director lawfully, the company must:
Issue Special Notice: As per Section 115, a special notice is required to initiate removal.
Provide Notice to Director: The director must receive at least 14 days’ notice before the removal vote.
Right to be Heard: The director must have the opportunity to present their case or submit a written defense.
Restriction on Reappointment: Removed directors cannot be reappointed immediately.
File Form DIR-12: This form must be submitted to officially notify the Registrar of Companies (ROC) about the removal.
Director Removal Procedures
Voluntary Resignation
The resignation takes effect on the date the company receives the notice or a later date specified.
The director remains liable for any offenses committed during their tenure.
The company must formally acknowledge the resignation and notify the ROC.
A Board Meeting should be scheduled, following notice and documentation protocols.
Public companies must disclose the resignation to stock exchanges as per SEBI regulations.
Form DIR-12 must be filed within 30 days with the ROC, along with supporting documents.
The resigning director may also file Form DIR-11 within 30 days.
Update the Register of Directors accordingly.
Removal Due to Non-Attendance
Directors absent from all board meetings for 12 months are deemed to have vacated their office.
Form DIR-12 must be filed to notify the ROC.
The MCA database will be updated to reflect this change.
Shareholder Removal
A Board Meeting is held to propose an Extraordinary General Meeting (EGM) for removal.
Shareholders receive a 21-day notice for the EGM.
Removal is decided by an Ordinary Resolution during the EGM.
The director has the right to present their side.
Form DIR-11 and DIR-12 must be filed post-removal.
The MCA records are updated accordingly.
Penalties for Late Filing of Form DIR-12
Failure to file Form DIR-12 within 30 days attracts penalties escalating with delay:
30–60 days late: Double the government fee.
60–90 days late: Four times the fee.
Beyond 90 days: Ten times the fee.
Beyond 180 days: Twelve times the fee plus potential legal action.
Timely filing is critical to avoid penalties.
Implications of Director Removal
Ends the director’s role and authority in the company.
Removed directors cannot act on behalf of the company.
Non-compliance with removal procedures may lead to legal challenges.
The company’s reputation may be affected; discretion is important.
Necessary updates may be required under various laws such as GST, Labour Laws, Foreign Exchange Regulations, etc., to reflect governance changes.
Why Choose ND Salva for Director Removal?
Expertise: Our team has deep knowledge of corporate laws and director removal procedures.
Compliance Focus: We ensure every step adheres strictly to the Companies Act 2013.
End-to-End Service: From consultation to filing all necessary forms, we handle it all.
Customized Approach: Tailored solutions suited to your company’s specific needs.
Trust ND Salva to manage your director removal efficiently, compliantly, and professionally, protecting your company’s interests throughout the process.
