Can a Director Be Removed? Legal Procedure Explained

Removal of directors is a significant aspect of corporate governance, which gives shareholders the ability to protect the interests of a company. A director is a vital individual who manages and governs a company, but circumstances might arise when shareholders begin to lose confidence due to certain actions and events such as misconduct, non-performance, breach of fiduciary duties, and differences of opinion.

In this regard, it may be stated that under the Companies Act 2013, there are strict legal parameters for discarding directors prior to completing their tenure.

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Can Removal of Directors Be Done in India?

Yes, in India, the removal of directors is possible through the shareholders of the company, before completion of their tenure, as per Section 169 of the Companies Act, 2013.

However, removal of directors is not automatic or arbitrary. Strict compliance with the mandatory legal procedure regulated by law is required for issuance of special notice to ensure that a fair opportunity is available to the affected director

Legal Provisions Regarding Removal of a Directors

The removal of directors in India is regulated by the following provisions:

• Section 169 of Companies Act 2013

• Rule 23 of the Companies (Management and Administration) Rules, 2014

• Applicable provisions under Articles of Association (AoA)

Legal Step-by-Step Process to Remove Directors

Step 1: Issue of Special Notice for Removal of Directors

There is a special notice which must appear for members holding: not less than one percent of total voting power, or holding shares on which an aggregate sum of not less than five lakh rupees has been paid-up in such manner as may be prescribed at least 14 days before the date of the meeting at which the resolution is to be moved, exclusive of the day on which the notice is given and the day of the meeting.

Step 2: Intimation to the Director Proposed for Removal

The company should send a copy of the special notice to the concerned director.
This is to ensure compliance with principles of natural justice.

Step 3: Right of Representation in Removal of Directors

The director shall have a right of appeal to make a written representation against proposed removal.
The company must:
Circulate the representation to members, or
if circulation is not possible, read it out during General Meeting.

Step 4: Conducting General Meeting for Removal of Directors

The removal of directors is only possible if it is approved in the General Meeting (AGM or EGM).
The meeting notice together with its agenda and explanatory statement is issued by the Board.

Step 5: Passing of Ordinary Resolution for Removal of Directors

An ordinary resolution (simple majority) is needed.
Once passed, the director is removed from office with effect from the date of the meeting.

Step 6: Appointment of New Director After Removal of Directors

Shareholders may appoint a new director during the very same General Meeting.
In case any vacancy could not be filled in the meeting, then a director could be appointed by the Board after the meeting, in accordance with the Act and AoA.

This thing could demonstrate its function to be more perfect but it still has potential for further improvement.

Step 7: ROC Filing After Removal of Directors

Form DIR-12 has to be filed to ROC within 30 days.
Attachments Include the following:
Certified copy of the ordinary resolution
Notice of the General Meeting
Minutes of the meeting
List of the members as on date of members meeting with shareholding pattern.
Reason for the removal of the directors along with supporting documents.
Proof of dispatch of notice served to the members of the company along with explanatory statement.
Minutes and resolution of the meeting of members.
Proof of service of notice served to the removing directors in terms of sub-section (3) of section 169 of the CA, 2013.
Proof of dispatch of notice served to the removing director for the board meetings held in the last FY. Also provide the minutes and the resolutions.
Affidavits of all directors of the company that any litigation is filed by the company or directors or pending against the company or directors in any of the Court of Law.
Affidavits from existing directors that any dispute arises between the company and its directors due to the removal of the director, the existing directors will held responsible for the same.
Copy of Scrutinizer report and chairperson report prepared for the voting held in EGM for the removal of director.

Important Information required to provide to ROC for removal of directors

Whether any of the person is appointed as director in place of the removing directors in terms of sub-section (2) of section 169 of the CA, 2013.
Notice served to the removing director via which mode.
Whether the removing director is a member of the company.
Whether any representation received from the removing directors, if any, provide the copy of the representation.
Whether any leave absence was sought by the removing director in the meeting (s) held in the last FY.
Percentage of direct/indirect shareholding of director concerned in the company.

Directors that Cannot Be Removed Under Section 169

Certain categories of Directors are exempt from removal under Section 169 of the Companies Act, 2013:

1- Appointed by the Tribunal

The directors appointed by the National Company Law Tribunal (NCLT) cannot be removed through an ordinary resolution by the shareholders. The resolution needs approval from the Tribunal.

2- Appointed by the Central Government

Central Government-appointed Directors on account of interest of the public or minority members cannot be removed under Section 169.

3- Directors Appointed Under Proportional Representation

The appointments made by a director under the principle of proportional representation (as mentioned in the AoA) cannot be removed unless its removal is expressly provided in the Articles.

Other Legal Ways Apart from Removal of director

Other than removal by shareholders, a director can resign his position in the following circumstances:

Resignation (Section 168): Voluntary resignation by written notice
Disqualification (Section 164): Automatic disqualification on account of statutory defaults.
Vacation of office (Section 167): This is a vacation due to disqualification, conviction, or unreasonably
Tribunal or Court Order: For oppression, mismanagement, fraud, or violation of obligations.
Death or Insolvency: Automatic vacation of office.

Consequences of Non-Compliance in Removal of Directors

Consequences of not complying with the mandated legal procedure:

Invalid or void removal of the director
Fine payments to the firm and officers in default
Increased cases of litigation and shareholder disputes
Reputational damage and governance issues
Delay in statutory and operational decisions

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Conclusion

The departure of a director is considered a major corporate move, and if not adhered to properly in accordance with procedures as laid down in The Companies Act of 2013, it may lead to legal concerns in the future.

A smooth and compliant process for removing a director in a risk-free manner requires expert advice.

Frequently Asked Questions on removal of directors

Can one director be removed from the board by another director?

No. The removal of the director could only be done by the shareholders under Section 169 of the Companies Act, 2013. However, the Board by itself cannot remove a director, except on vacation of office in terms of specific statutory provisions.

Does the removal of a director require a special resolution?

No. A director can be removed by ordinary resolution in a General Meeting, provided special notice is given as prescribed by the Act.

Can there be any removal of a Managing Director or Whole-Time Director?

Yes. A Managing Director or Whole-Time Director can be removed, but the removal shall be subject to the terms of the employment contract, Articles of Association, and any applicable compensation or notice clauses.

Does the removal need the director’s consent?

No, the consent of the director is not needed, but the law requires that he shall be given a reasonable opportunity of being heard before the passing of the resolution for removal.

Can the additional director be removed before the next AGM?

Yes, the shareholders can remove an additional director at any time using the same procedure as under Section 169, even before the next Annual General Meeting.

Can a director be removed without a General Meeting?

No. It is only valid if it is approved by the shareholders at an adjourned General Meeting.

What if form DIR-12 is not submitted after removal?

Failure to present Form DIR-12 within the stipulated time can lead to fines, retention of the director’s name in MCA records, and future problems for compliance.

Is compensation payable to a removed director?

A mere removal does not give a person the right to compensation for being a director. Only when a separate agreement for compensation is reached can a person claim compensation for being a director.

Whether and how removing a director impacts their shareholding position in a company?

No. The effect of “Removal” is only with reference to the appointment as a Director. The person will also continue to be a shareholder, if any, unless transferred or otherwise disposed of.

Can a private limited company remove a director?

Yes. This is because section 169 applies to private as well as public companies, unless restrictions or conditions are imposed by the Articles of Association.

Can a nominee director be removed by the shareholders?

A nominee director can be removed only in accordance with the terms of the nomination agreement, Articles of Association, and applicable statutory provisions.

How long does the typical process of director removal take?

The whole process takes generally 2–4 weeks, depending on notice periods, scheduling of meetings, and timely filing with the ROC.

Is it possible to remove a director for non-attendance of Board meetings?

Yes. The non-attendance which affects governance could be a valid reason for removal of a director. The shareholders must nonetheless comply with the due process outlined in Section 169 of the Act.

Can a director be removed in an inactive or non-operational business?

Yes. This is because even dormant companies are able to remove directors as long as all procedural requirements are satisfied.

Can a director be removed for conflict of interest?

Yes. If the director acts contrary to the interests of the company or neglects to declare the conflict of interest, the shareholders may commence the procedure for removal of the director as prescribed by the legal procedure.