The Removal of Director from a Company is a significant process governed by the Companies Act, 2013, which ensures compliance with legal procedures and safeguards the interests of stakeholders. A company's management and decision-making process depend heavily on its directors. However, there may be situations where their removal is necessary for a number of reasons. Understanding the legal framework and procedural requirements is essential to ensuring a smooth and lawful transition.
Reasons for Director Removal
A director may be removed from office due to several reasons, including but not limited to:
Voluntary Resignation: A director may choose to leave for personal or professional reasons.
Disqualification under the Companies Act: A director loses their eligibility if they don't meet the criteria of the law, such as not completing annual returns or financial statements for three years in a row.
Non-performance or Misconduct: A director who fails to fulfill their duties or is involved in fraudulent activities may be removed.
Absence from Board Meetings: If a director is absent from board meetings for twelve consecutive months without seeking leave of absence, they may be removed.
Conflict of Interest: Any director who is discovered to be involved in actions that go against the interests of the company may be fired.
Techniques for Removing Directors from a Company
The following methods can be used to remove a director from a company:
Removal by Shareholders: A resolution passed at a general meeting gives the shareholders the power to dismiss a director.
Resignation by the Director: The director submits a formal resignation, and the company accepts it.
Removal by the Tribunal: Under specific circumstances, the National Company Law Tribunal (NCLT) can order the removal of a director.
Automatic Disqualification: The Companies Act of 2013 allows for the automatic removal of a director who no longer qualifies.
The Law Controlling the Removal of Directors
The following regulations largely control the removal of a director from a company:
Section 169 of the Companies Act, 2013: The process for dismissing a director is outlined in this section.
Articles of Association (AOA): The AOA may include provisions about the dismissal of a director.
SEBI Regulations: For listed companies, additional compliance with SEBI guidelines may be required.
National Company Law Tribunal (NCLT) Orders: In cases involving disputes, NCLT may intervene and order removal.
Essential Requirements for Director Removal
Before initiating the Removal of Director from a Company, the company must ensure compliance with the following requirements:
Proper documentation, including notices, resolutions, and meeting minutes.
Compliance with statutory provisions and approvals.
Completing the required paperwork with the Ministry of Corporate Affairs (MCA), especially Form DIR-12.
Following the natural justice principles, which guarantee the director has an equal chance to make their case.
Filing of Form DIR-12
Form DIR-12 is a mandatory requirement when there is a Removal of Director from a Company. This document must be submitted to the Registrar of Companies (ROC) within 30 days after the director's resignation or termination.
The following details are required for filing:
Company details (CIN, name, and address)
Information about the ousted director, including name, DIN, and cause for removal
A resolution from the board or shareholders authorizing the dismissal
A certified signatory's Digital Signature Certificate (DSC)
Note: A director who fails to attend board meetings for 12 consecutive months without obtaining leave of absence is automatically removed. The company must notify the ROC and file Form DIR-12 accordingly.
Removal of Director from a Company
The Removal of Director from a Company is an important corporate activity that needs rigorous adherence to the regulations of the Companies Act, 2013. The removal can occur due to various reasons, such as violation of fiduciary duties, failure to attend board meetings, disqualification under statutory provisions, or any other reasons deemed necessary by the shareholders or board. Our firm assists businesses in ensuring that the removal process follows the correct legal framework, avoiding any future legal complications.
Legal Grounds for Removal of a Director
A director can be removed from a company under different circumstances, including:
By Shareholders: If a director is not appointed by the Tribunal and does not hold a position under specific conditions, shareholders can pass an ordinary resolution for their removal.
By the Board of Directors: Under the company's Articles of Association (AoA), the Board may, under specific circumstances, fire a director.
Disqualification by Law: A director may be removed if they incur disqualifications under the Companies Act, such as conviction of an offense, insolvency, or failure to obtain the Director Identification Number (DIN).
Non-Attendance in Board Meetings: If a director fails to attend board meetings for twelve consecutive months, they may be removed under the provisions of the Act.
Misconduct or Breach of Fiduciary Duty: Any unethical conduct, fraud, or breach of responsibilities can lead to the removal of a director.
Procedure for Director Removal
The Removal of Director from a Company follows a systematic legal process, ensuring compliance with corporate regulations. The process generally includes the following steps:
Notice to the Director: The company issues a special notice to the director outlining the reasons for their proposed removal.
Board Meeting & Resolution: A Board Meeting is convened to discuss the matter and pass a resolution for holding a general meeting of shareholders.
General Meeting & Shareholders’ Resolution: The company conducts an Extraordinary General Meeting (EGM), allowing shareholders to vote on the removal resolution.
Filing with the Registrar of Companies (ROC): Following the resolution, the business submits Form DIR-12 and other required paperwork to the ROC within the allotted period.
Updating Corporate Records: Following the removal, the company's records, statutory registers, and official filings are updated to reflect the change in directorship.
Challenges in Director Removal
While the Removal of Director from a Company is legally structured, several challenges can arise, such as:
Legal Disputes: The removed director may challenge the decision in court, leading to prolonged legal proceedings.
Shareholder Conflicts: Differences in opinion among shareholders can complicate the decision-making process.
Regulatory Compliance: Penalties and non-compliance problems may arise from improper legal procedures.
Effect on Company Operations: Decision-making procedures and company continuity may be impacted by the abrupt dismissal of a director.
At Vijendra & Co., we assist businesses in overcoming these challenges by providing strategic solutions that align with corporate laws and minimize legal risks.
Removal of Directors by Shareholders
By approving a regular resolution at a general meeting, shareholders can dismiss a director. The procedure consists of:
Making a special announcement
Offering the director a chance to be heard
Holding a general meeting for voting
Filing necessary forms with the ROC
Penalties for Form DIR-12 Late Submission
Penalties apply if Form DIR-12 is not filed within the allotted time:
?300 per day of delay (subject to the Companies Act's maximum limits)
More sanctions for failing to comply with legal obligations
Effects & Things to Think About When Removing a Director
The Removal of Director from a Company has several implications:
Operational Impact: A change in leadership may affect company operations.
Legal Consequences: Improper removal can lead to legal disputes.
Stakeholder Confidence: Investors and stakeholders may seek clarifications on leadership changes.
Submitting Amendments to Different Acts
Businesses might have to submit revisions to:
Registrar of Companies (ROC): Filing Form DIR-12
GST and Income Tax Departments: Updating director details
SEBI (for listed companies): Ensuring compliance with securities laws
Other Regulatory Bodies: Depending on industry requirements
Why Choose Vijendra & Co. for Director Removal Services?
Professional Advice: Our staff of experts is well-versed in business governance and company law.
Legal Compliance: We ensure that the entire process of Removal of Director from a Company complies with statutory requirements.
Strategic Advisory: We offer tailored solutions to minimize disputes and facilitate a smooth transition.
Comprehensive Support: From documentation to ROC filings, we handle the entire process seamlessly.
Conclusion
The Removal of Director from a Company is a crucial aspect of corporate governance that must be handled with due diligence and legal precision. At Vijendra & Co., we specialize in providing expert legal and regulatory support, ensuring that companies navigate this process efficiently. With our experience and professional approach, businesses can confidently manage directorial changes while maintaining compliance with corporate laws.
