Director Removal

Removal of Director from a Company

Directors oversee a company's management and operations, while shareholders own the company. Shareholders may decide to remove a director because of inadequate performance or other concerns, and a director may also resign voluntarily.

Director removal is a significant corporate action that must be handled fairly, transparently, and in the company's best interest under the Companies Act, 2013. It may arise through a resolution, resignation, automatic vacation, or judicial order.

LegallensIndia assists companies and directors throughout the removal or resignation process while ensuring compliance with the applicable legal requirements.

Reasons for Director Removal

A Private Limited Company must have at least two directors to commence operations. Shareholders may remove a director at a General Meeting, except where the director was appointed by the Government.

Removal may result from statutory disqualification, prolonged absence, prohibited transactions, a court or Tribunal order, criminal conviction, non-compliance, inadequate performance, or voluntary resignation.

Grounds for Removing a Director

• Disqualification under the Companies Act, 2013.
• Failure to attend Board Meetings for more than 12 months.
• Participation in prohibited transactions contrary to Section 184.
• Prohibition from participating because of a court or Tribunal order.
• Conviction for a criminal offence carrying a sentence of at least six months.
• Failure to comply with Companies Act requirements.
• Voluntary resignation from the Board.

Methods of Director Removal

Voluntary Resignation

A director may resign voluntarily by submitting a written notice to the company.

Absence from Board Meetings

A director who does not attend any Board Meeting for 12 months is considered to have vacated the office under Section 167.

Removal by Shareholders

Shareholders may vote to remove a director through a resolution at a General Meeting after completing the required notice and hearing procedure.

Law Governing Director Removal

Essential Requirements for Director Removal

• Special notice: A special notice under Section 115 must initiate the removal process.
• Notice to the director: The director must receive the notice at least 14 days before voting on the removal resolution.
• Right to be heard: The director must be allowed to respond and may make a written representation for circulation to members or reading at the meeting.
• Restriction on reappointment: A removed director is not eligible for reappointment to the Board.
• Form DIR-12: The company must file this form to record the director's removal officially.

Voluntary Resignation Procedure

A resignation takes effect when the company receives the notice or on a later date specified in the notice, whichever is later. A resigned director remains liable for offences committed during their tenure.

Step 1: Receive the Resignation

The director submits a written resignation. The Board must formally acknowledge it, notify the Registrar, and include the resignation in the Directors' Report presented at the next General Meeting under Section 168.

Step 2: Convene a Board Meeting

Arrange a Board Meeting under Section 173 and Secretarial Standard-1. Send notice to all directors at their registered addresses at least seven days before the meeting, unless urgent circumstances justify shorter notice.

Step 3: Prepare and Conduct the Meeting

Send the agenda, explanatory notes, and draft resolution with the meeting notice. At the meeting, the Board acknowledges the director's resignation.

Step 4: Authorise ROC Filings

Authorise the Company Secretary, CFO, or another director to submit the required forms and documents to the Registrar of Companies.

Step 5: Complete Listed-Company Disclosure

A listed company must promptly disclose the resignation to the stock exchange according to Regulations 30 and 46(3) of the SEBI Listing Regulations, 2015.

Step 6: Circulate Draft Minutes

Within 15 days of the Board Meeting, send draft minutes to all directors by hand, speed post, registered post, courier, or email for review.

Step 7: File Form DIR-12

Within 30 days after receiving the resignation, the company files Form DIR-12 with a certified copy of the Board Resolution, the resignation notice, and proof of cessation.

Step 8: Optional Form DIR-11

The resigning director may file Form DIR-11 within 30 days of resignation with the resignation notice, evidence of dispatch, and the company's acknowledgement of receipt.

Step 9: Update the Statutory Register

Update the Register of Directors and Key Managerial Personnel to record the resignation and related changes.

Vacation Due to 12 Months of Absence

Under Section 167, a director who fails to attend every Board Meeting for 12 months vacates the office even when no leave of absence was requested.

• Acknowledge that the office has automatically become vacant.
• File Form DIR-12 with the Registrar of Companies to report the cessation.
• After completing the formalities, the director's name is removed from the MCA database.

Removal by Shareholders

Step 1: Board Meeting Notice

Schedule a Board Meeting with at least seven days' notice to all directors and include the proposed director removal in the agenda.

Step 2: Call an Extraordinary General Meeting

At the Board Meeting, pass a resolution to convene an EGM and propose a director-removal resolution subject to shareholder approval.

Step 3: Issue the EGM Notice

Send the EGM notice to all shareholders with a clear 21-day notice period, excluding the date of dispatch and the meeting date.

Step 4: Hear the Director and Vote

Allow the director to present their explanation before voting. The shareholders then vote on the Ordinary Resolution, unless the Articles or applicable law require otherwise, and the resolution passes if supported by a majority.

Step 5: File DIR-11 and DIR-12

After the resolution passes, the outgoing director may file DIR-11 where applicable, and the company must file DIR-12 with the Registrar and attach the relevant resolutions and documents.

Step 6: Update MCA Records

After successful filing and completion of the formalities, the removed director's details are taken off the MCA database.

Penalties for Delayed Form DIR-12

Effects and Considerations

• End of responsibilities: The individual no longer participates in company management or decisions.
• Loss of authority: The former director can no longer act for or represent the company.
• Legal risk: Failure to follow the prescribed procedure may result in challenges or claims against the company.
• Reputation: Public knowledge of the removal may affect the company's image, making discreet and careful management important.

Records That May Require Amendment

After a director resigns or is removed, the company may need to amend registrations and records maintained under the following laws and regulatory systems:

• Goods and Services Tax Act.
• Shops and Establishment Act.
• Factories Act.
• Foreign Exchange Management Act.
• Inter-State Migrant Workmen Act.
• Private Security Agencies Act.
• Employees' Provident Fund and Employees' State Insurance records.
• Other labour laws and industry-specific regulations.

Why Choose LegallensIndia?

• Expertise: Professionals experienced in corporate law and Companies Act removal procedures.
• Compliance assurance: Guidance designed to reduce legal and procedural risk.
• End-to-end support: Assistance from the initial consultation through Form DIR-12 filing.
• Tailored solutions: Advice based on the company's circumstances and objectives.

LegallensIndia helps companies complete director removal smoothly and professionally while respecting the interests of everyone involved..