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Ways to Remove a Director of a Company

A director may be removed from a company through different mechanisms, such as voluntary resignation, disqualification under the Companies Act, 2013, or by a resolution passed by the shareholders. The two primary modes of removal are explained below.

Voluntary Resignation

A director may voluntarily resign from the company by submitting a formal written resignation letter. The resignation must be acknowledged by the Board of Directors and formally accepted through a Board Resolution. Following this, the company is required to file Form DIR-12 with the Registrar of Companies (ROC) within 30 days to officially record the change. The resignation takes effect either from the date specified in the resignation letter or from the date on which the Board accepts it, whichever is later. In some cases, depending on internal policies, the company may also notify shareholders and other stakeholders about the change in directorship.

Apart from voluntary resignation, the Companies Act, 2013 also provides for the removal of directors by shareholders. Under Section 169, directors may be removed through an ordinary resolution passed at a General Meeting, provided that more than 50% of voting shareholders are in favour of the resolution. This right of removal cannot be restricted by the company’s Articles of Association or any contractual arrangement. Additionally, directors may also be removed through orders of the Court, the Central Government, or the National Company Law Tribunal (NCLT) in cases involving fraud, misconduct, breach of duty, or other statutory violations.

Compulsory Removal

Under Section 169 of the Companies Act, 2013, shareholders have the authority to remove a director before the expiry of their term. This process requires the issue of a special notice, followed by the passing of an ordinary resolution in a duly convened General Meeting. The concerned director must be given an opportunity to make a written or oral representation before the resolution is put to vote.

In cases of misconduct, non-compliance, or disqualification under the Act, a director may also be removed compulsorily. After such removal, the company is required to file Form DIR-12 with the Registrar of Companies (ROC) to update the official records. Furthermore, directors can be removed through orders of the Court, the Central Government, or the National Company Law Tribunal (NCLT), particularly in situations involving fraud, breach of fiduciary duties, or other serious violations.

Law Governing the Director Removal

A company, though an artificial legal entity, relies on its directors to manage and oversee its affairs. Corporate governance in India is regulated by the Companies Act, 2013, which replaced the earlier Companies Act, 1956. The Act provides both shareholders and regulatory authorities with the power to remove directors in specific circumstances to ensure accountability and protect stakeholder interests.

Under Section 169 of the Companies Act, 2013, shareholders may remove a director before the expiry of their term by passing an ordinary resolution at a General Meeting. To initiate this process, a special notice must be served at least 14 clear days prior to the meeting where the resolution will be considered. This right of removal applies regardless of the manner of the director’s appointment and prevails over any contrary provisions contained in the Articles of Association, service agreements, or other contractual arrangements.

Additionally, when the management of a company is conducted in a manner that is oppressive to its members or prejudicial to public interest, Section 241 empowers shareholders to approach the National Company Law Tribunal (NCLT) for relief. In exercising its powers under Section 242, the Tribunal may order the removal of directors, managing directors, or other officers if it deems such action necessary to safeguard fairness and restore proper governance in the company’s operations.

Thus, the removal of directors under the Companies Act, 2013 may occur either through shareholder action or by intervention of the NCLT in cases of misconduct, breach of duty, negligence, or oppressive practices. Given the procedural complexities involved, companies and directors are advised to seek proper legal guidance to ensure compliance with statutory requirements and to minimize the risk of disputes.

Checklist for Removal of Director

When a company decides to remove a director, it must follow a statutory procedure laid out in the Companies Act 2013 and Companies Act 2006. Here’s a comprehensive checklist to guide you through the process, ensuring compliance with the provisions of the Act and protecting the company from claims of unfair dismissal.

1. Issuance of Special Notice:

• As per Section 115 of the Companies Act 2013, a special notice must be issued to initiate the removal of a director.
• The written notice should be clear and follow statutory procedures, notifying shareholders of the company and members of the company about the proposed removal.
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2. Notice Period to Director:

• The special notice must be sent to the director at least 14 days before the general meeting. This notice period allows the director sufficient time to respond to the proposed resolution.

3. Right to be Heard:

• The director must be given the opportunity to make representations. This includes the right to submit a written representation, which must be provided to the shareholders of the company or read aloud at the meeting.
• A copy of the representation should be included with the notice to ensure transparency.
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4. General Meeting and Voting:

• The resolution for the director’s removal is put to vote at the general meeting. Shareholders and members of the company with voting rights will determine the outcome.
• The provisions of section 169 of the Act ensure that the voting procedure is conducted fairly and in the best interests of the company.
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5. Filing of Form DIR-12 with ROC:

• Following the removal, Form DIR-12 must be filed with the Registrar of Companies (ROC) to record the cessation of the office of director.
• Attachments may include the certified true copy of the special notice, the board resolution, and any relevant documents like the director’s resignation letter and Director Identification Number (DIN).
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6. Restriction on Reappointment:

• Directors of the company who have been removed cannot be reappointed to the same position.
• Provisions under the Companies Act 2006 also prevent their reappointment.
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7. Filing of Form MGT-14:

• In cases where the director’s removal involves changes to the company’s articles or share capital, Form MGT-14 should be filed with the ROC.
• The explanatory statement included with the form helps clarify the reasons for the director’s removal.
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8. Appointment of a New Director (if applicable):

• Depending on the company’s model articles and shareholders’ agreement, the board may need to appoint additional directors or a new director to fill the vacant position.

9. Consideration of Minority Shareholders:

• When removing a director, ensure that the minority shareholders are not unfairly impacted by the decision. Following the Principle of Proportional Representation may help safeguard their interests.

10. Filing Requirements with Companies House:

• If applicable, certain statutory filings may be needed with Companies House, particularly for a Private Limited Company. This includes the submission of draft minutes and copies of special notices.

Procedure for Removal of Director

Compliance with the Companies Act 2013 is essential, particularly with the procedures outlined in Section 169 for removal and Form DIR-11 for resignation. The removal of a director follows a structured process involving several critical steps to ensure adherence to legal standards and prevent disputes. Below is a general guide to the procedure for removing a director:

Step 1: Review Bylaws and Legal Frameworks

Before initiating the removal process, carefully examine the company’s Articles of Association (AOA), shareholders’ agreements, and other governing documents to identify the prescribed procedures. The process must also comply with the provisions of the Companies Act, 2013 and any other applicable legal requirements. Where needed, professional legal advice should be sought to ensure compliance and avoid potential disputes.

Step 2: Establish Valid Grounds for Removal

Clearly define and record the grounds for removing the director. Common reasons may include misconduct, conflict of interest, breach of fiduciary duties, violation of contract, or non-performance of responsibilities. Having documented grounds strengthens the transparency and legal defensibility of the process, minimizing risks of wrongful removal claims.

Step 3: Convene a Board Meeting

Once the grounds are established, a Board Meeting should be called to place the matter formally on record. Proper notice of the meeting must be given to the concerned director, allowing sufficient time to prepare. The director should also be given the opportunity to present their explanation or representation, in line with the principles of natural justice and the company’s bylaws.

Step 4: Pass the Resolution at a General Meeting

After the Board Meeting, the matter is placed before the shareholders in a General Meeting (Annual General Meeting or Extraordinary General Meeting). Under Section 169 of the Companies Act, 2013, a special notice must be issued prior to the meeting. At the meeting, shareholders vote on an ordinary resolution to remove the director. The decision is valid only if quorum requirements are met and the resolution is passed by the requisite majority. Proper documentation of the proceedings is critical to ensure legal validity.

Step 5: File and Notify the Removal

Once the resolution is passed, the company must:

• Record the decision in the minutes of the meeting.

• Issue a formal written notice to the concerned director.

• File Form DIR-12 with the Registrar of Companies (ROC) within 30 days to update the official register.

• Update internal company records, restrict access to confidential resources, and if applicable, deactivate the Digital Signature Certificate (DSC) associated with the director.

Steps for Voluntary Resignation of a Director

When a director voluntarily resigns, the company must follow a formal procedure to remove the director’s name from its official records. Below are the detailed steps for managing a director’s voluntary resignation:

Step 1: Submission of Resignation

The director initiates the process by submitting a formal resignation letter to the Board of Directors. This letter should clearly state the intention to resign and the effective date, if applicable.

Step 2: Schedule a Board Meeting

The company must schedule a Board Meeting with at least seven clear days’ notice. Such notice excludes the day on which the notice is sent and the day on which it is received. This period ensures that board members have enough time to prepare for the discussion.

Step 3: Board Discussion and Resolution

During the Board Meeting, the resignation letter is reviewed and discussed. If accepted, the Board passes a resolution that includes:

• • Acceptance of the resignation with immediate effect.
  • An expression of appreciation for the director’s contributions.
  • Authorization for other directors or officers to handle the legal and administrative formalities related to the resignation. The Board may also review if there was any insufficient time to address pending matters with the resigning director.

Step 4: Filing by the Director

The resigning director is required to file Form DIR-11 with the Registrar of Companies (ROC). This filing must include the Board Resolution, proof of delivery of the resignation letter, and the resignation letter itself. The director must ensure all details, including their email address, are accurate in the form to avoid any issues.\

Step 5: Filing by the Company

Simultaneously, the company must file Form DIR-12 with the ROC, formally recording the resignation. The company attaches the resignation letter and the Board Resolution. If the resignation comes from a One Person Company (OPC), additional requirements specific to OPCs may apply.

Step 6: Update of Records

Once the filings are complete, the Ministry of Corporate Affairs (MCA) updates the company’s master data, removing the director’s name from the register of directors. This step finalises the resignation process, and the director will no longer hold any official position in the company.

Why Choose Taxocity for Director Termination?

Taxocity provides seamless and legally compliant assistance for the removal of directors. Our expert legal team helps you navigate the complexities of the process while reducing potential risks. We offer comprehensive documentation support, ensuring that all necessary forms and resolutions are correctly drafted and filed on time. With our efficient compliance management, every regulatory requirement is addressed promptly and accurately. From initial consultation to the final filing with authorities, our end-to-end service ensures a smooth, hassle-free experience tailored to your company’s needs.