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Procedure for Removal of Director by Shareholders

The main role of a director /manager of any company is to manage a firm in such a way as to maximize the benefits to its shareholders, whilst ensuring that the company reckons with all applicable laws, rules & regulations. A director in the firm plays a vital role. He/she is liable for executing and determining the company’s policy. Apart from this, there are several critical operations that directors are supposed to look after. Hence, it’s mandatory for directors of the company to participate in company’s quintessential work.

Thus, it is a matter of concern for a firm if a director is not performing well or if he or she is at odds with the strategies which the majority of the company’s management has adopted. In this kind of situation, there may be no alternative option for the company other than to seek the removal of such director.

In many firms, the power for removing a director from their post is granted to the board of directors or to a majority of the shareholders under the company’s AoA (articles of association). For these companies, removing a director will need the board or a majority of the shareholders to give written notice on the director in question.

For companies that do not have such powers induct in their AoA (articles of association), the Companies Act 2006 endows a statutory process to allow the shareholders agreement to remove a director by passing an ordinary resolution which is anything over 50% at a general meeting of the company.

In both cases, such removal is subject to any rights & protections the director may have under any contract of employment or service agreement, so it must never be assumed that it will be without cost to the company, specifically if during the removal, any such contract is violated.

If the director of the company is not participating actively in the company’s operation and working, then the director is surely not beneficial for the firm. As a result, you need to remove him or her and appoint another one. Now, Let us discuss how we can remove a director and in what circumstances we can go for this process.

What are the Conditions for the Removal of Director from the Company?

According to the provisions of the Companies Act 2013, Shareholders can remove a Director from the company even before his/her tenure expires, except in case of appointment by the Central Government.

Mainly, there could be 3 possible conditions for the removal of directors from the company.

 They are given below:

  1. In the case, the director didn’t attend three consecutive board meetings;
  2. Removal of director suo-moto by the board;
  3. When the director himself/herself submits the resignation.

A director can be removed by the shareholders or by the Court or by the Central Government. According to the Companies Act 1956 the process for removal of Director are briefly discussed below.

Removal of Director by Shareholders :-

As per the Section 284 of the Companies Act 1956, the company in a general meeting by passing an ordinary resolution may remove a director at any time.

The process of removal of a director or appoint a new director in the place of a removed director requires a resolution requiring special notice. Thus, the proposer has to send a notice to the company not less than 14 days before the meeting and the company has to send the proposed resolution to the concerned director and the members. The director can make representations and speak at that general meeting.

He/she may also request that these representations be notified to the members of the company. Under these kinds of circumstances, the company will:-

  • State the matter of fact of the representations having been made in any notice of the resolution given to the members of the company; and
  • Send a copy of the representations to each member of the firm to whom meeting notice is sent (whether before or after receipt of the representations by the company).

In case if a copy of the representations is not sent as ibid since they are received too late or because of the company’s default, the director may (without prejudice to his/her right to be orally heard) require that the representations shall be read out at the meeting.

The removed director can get compensation or damages for the termination of his/her appointment. If the vacant place of director is not filled at the same meeting, the Board may fill it as if it is a casual vacancy. But the removed director cannot be reappointed.

The Removal of the director in any firm completely lays upon the company itself and the director. The concerned director who is removed need to follow a process prescribed by the Board of Directors or the shareholders as mention in the provisions of the Companies Act 2013.