Companies’ Boards of Directors are like agents who oversee the general management of the company. In accordance with the Companies Act, 2013, certain powers have been granted to them to manage the company effectively for the benefit of the shareholders as well as the company as a whole. The removal of a director from office is one of these important powers.
What Are the Grounds for Removing a Director?
Directors can be removed from their positions for the following reasons:
- A director who has become insolvent
- Imprisonment of not less than 6 months has been imposed on the director by a legal court.
- An unsound mind declaration has been made by any court.
- The tribunal or court has disqualified the director from holding such a position
- It appears that the director has not obtained a Director Identification Number
- Failure to comply with the Companies Act, 2013 guidelines
What Are the Mandatory Requirements for Removal?
- Removing a director requires a special notice
- Individual or collective signatures are required on the special notice
- A majority of the voting power must be held by members who hold at least one percent of the votes, or
- In the period prior to the notice, at least *5 lakhs has been paid on shares held by members.
- A director who is removed from office will not be reappointed by the Board.
- In the same general meeting at which the outgoing director is removed, a new director will be appointed to fill the vacancy.
- As soon as the term of the newly appointed director removal expires, he will take over the position of his predecessor
If a Director Is Removed From a Company, How Can It Be Done?
Any of the following three incidents can result in the director’s removal:
A director resigns by themselves in incident 1
- A general meeting can be convened by the board if it gives 7 days’ notice.
- When the board meets on the day of the resignation, they discuss and decide whether to accept or reject it.
- A resignation must be accepted by the board by passing a resolution.
- DIR-11 and DIR-12 should be submitted to the Registrar of Companies along with the resignation letter and board resolution.
If a director is removed suo moto by the board
- All company members are notified about the board meeting and the director’s removal.
- This process of removal has been notified to the concerned director.
- In any company, directors are given a chance to be heard and provide written statements that can even be read out during the meeting.
- An ordinary resolution is passed to remove the concerned director at a general meeting.
- The RoC requires the filing of procedure for removal of director
Not Filing Form DIR-12 on Time Can Have Serious Consequences?
Within 30 days of the board resolution passing for the removal of a director, every company must submit the form DIR-12 to the Registrar of Companies. The company may be penalized in the following ways if the form is not submitted within the stipulated timeframe:
Delays in submitting Form DIR-12
- 2 times the standard fee shall be paid by the company up to 30 days
- The company must pay four times the standard fee if the delay exceeds 30 days
- For delays over 60 days and up to 90 days, the company must pay six times the standard fee
- In the event of a delay of 90 days or more, the company is required to pay ten times the standard fee
- In the event that the company exceeds 180 days, a fee of 12 times the standard fee shall be charged.