A company is a separate legal entity that is entitled to remove the director from its board before the expiry of their term. As per new company law, the company can pass an ordinary resolution to remove a director if the process is not followed as per the requirement of the law then the removal can be declared void.
A director of a company can be removed by shareholders or by the central government by the power vested with them from companies act 2013. The director of the company before removal is given proper notice, and he too has right to be heard before disqualification or removal from the company board.
Who can Remove Director of a Company
Removal of directors can be done by the company, shareholders of the company and also by the tribunal or by the central government.
Legal Right of the Shareholder
In a company, directors are always answerable to shareholders and hence as per companies act shareholders have the legal right to remove a director through the Annual General Meeting (AGM).
Only the shareholders of the company have the power to remove a director of the company as it is known to all, that directors of the company are answerable to shareholders as they have invested their money in the company objective.
The central government has the power to remove a person of managerial position in a company is recommended by National Company Law Tribunal (NCLT) once the case is referred to them by the govt in the following circumstances:
- The business practices performed are not based on correct business principles.
- The director/s are guilty of fraud or negligence in carrying out their duties.
- If the director concerned in the case is responsible for defrauding the creditors or members of the company.
Modes of Removal of Director
A director in a company can be removed through the following ways:
Where directors remove himself from the Board/Resigns
If the director resigns within the terms of his contract then in that scenario it is essential to notify the Registrar of companies regarding the resignation through Form DIR-12 and MGT-14 within 30 days of the resignation. Once the notice is sent to the Company registrar, the information will be assessed and once approved will be reflected in the register.
Procedure to be followed when the director removes himself from the board:
Step 1: A company board meeting will be held giving 7 days of notice. On the day board meeting is held the board can discuss whether to accept the resignation or to reject it.
Step 2: If the board accepts the resignation the director will pass a board resolution accepting it.
Step 3: Form DIR-11 and DIR-12 have to be filed by the director who has resigned along with the board resolution passed and with the copy of the resignation letter.
Once the forms are submitted with the ROC, they will examine the application and then remove the name of the director from the master data of the companies.
Where the director is removed suo-motto by the Board
The company act vests the right to remove the director by passing an ordinary resolution in the general meeting on the condition that the tribunal or central government did not appoint the concerned director.
Note: The resolution for the removal of the director will be an ordinary one unless the constitution provides otherwise.
In case where the director doesn't attend 3 board meeting in a row.
The director has not attended any board meeting in the last 12 months, or if he has missed 3 board meeting, then director then needs to vacate his seat as director.
Notifying the Change of Director/s
A notice to indicate a change of director is to be filed with the registrar of companies irrespective of the fact that the director ceased to hold the office due to resignation, removal, disqualification or death. Once the resolution is passed the companies need to file Form MGT-14 within 30 days of the passing of the resolution.
Not filing MGT-14 and DIR-12
Consequences of not filing MGT-14 and DIR-12 are severe as the MCA charges penalty for not filing special resolution within 30 days of passing.
- If it's been more than 15 days of the passing of 30-day limit, then 2 times the actual govt fee is charged.
- If more than 30 days of the passing of 30-day limit has been crossed then 4 times the actual government fees.
- If it's been more than 180 days than 10 times of actual govt fees is charged.
Where the Director is Disqualified
The disqualified director is not eligible to sit in the office of the company he currently was in or any other company for a period of 5 years. The MCA has now started publishing the list of disqualified directors on their website.
Procedure for Removal of Director
- A special notice is given to the directors informing them about the removal of the said director.
- A board meeting will be held where a resolution to hold EGM will be passed with the resolution of removing the director from the company board after the approval from the shareholders and creditors.
- In EGM a clear notice will be given. The members will also be asked to vote in context to remove the director, and if the majority is in favour, the resolution will be passed.
- Form DIR-11 and DIR-12 are to be filed after which the name of the director will be struck down from the MCA master data.
Reasons for Removal of Director from the Company
The removal of a director of a company can be for the following reasons :
- If the director has been convicted of any offence by the court and is imprisoned for the same for a period of 6 months.
- He has become insolvent
- The director has been declared of unsound mind by the court.
- He has not paid any calls concerning any shares of the company which he owns.
- The director of the company has failed to acquire Director Identification Number.
- The director has not completed the compliance of DIR-3 KYC form.
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