Remove a Director

Overview

A private entity is mandated to appoint at least two directors, while a public enterprise must have a minimum of three. A director of a private firm may be dismissed for reasons outlined in the Act, such as failing to attend board meetings for over a year, engaging in activities that conflict with section 184, or disqualification by a court or tribunal. Additionally, a director who is convicted of an offense and sentenced to at least six months in prison can also be removed.

Why Remove a Director?

Removing a director can help a company to maintain its integrity and ensure that it continues to function efficiently. A director may have to be removed if they are found to be guilty of any misconduct or fraud. They may also need to be removed if they are no longer able to perform their duties due to health or other reasons.

Guidelines for Director Removal by Shareholders

Shareholders owning shares worth at least Rs 5,00,000 in paid-up capital or at least 1% of total voting power may issue a special notice for a director’s removal. 

They have the authority to schedule the meeting date, provided the notice is not dispatched more than three months prior, and the resolution is announced at least 14 days in advance. 

The director in question is entitled to present their case at the meeting. If the shareholders and board validate the grounds, they may proceed with the director’s removal process.

Rationale for Director Resignation

Conflicts within the Board can arise when directors work together, potentially disrupting the company’s performance. In such cases, directors may be removed after careful evaluation.

If a director becomes entangled in the company’s unlawful activities, resignation may be a protective measure, leading to their removal. Violations or non-compliance by a director can also result in removal. 

Nominee directors, appointed by NBFC investors, may resign post-completion of the relevant transaction or upon nomination withdrawal.

Director Eligibility Requirements

No specific qualifications are mandated, but one must adhere to certain criteria to be a director. Legally, only a natural person can hold this position. 

Age Requirements: There’s no set age limit to be a director, but one must be legally capable of entering contracts. For ‘managing’, ‘full-time’, or ‘independent’ directors in listed companies, the age range is 21 to 70 years. 

Nationality: No nationality constraints exist, but at least one director must be Indian. 

Director Identification Number (DIN): Essential for identification and to prevent fraud, a DIN is required for all directors. 

Directorship Limit: A person can serve as a director for up to 20 companies, with a maximum of 10 being public companies. 

Disqualifications

• Individuals of unsound mind, insolvent, or those with a history of bankruptcy cannot be directors. 
• Similarly, those with a criminal record involving imprisonment for over seven years, or with pending financial returns, are ineligible.

Classification and Appointment of Directors

Directors vary by role, such as the managing director overseeing company objectives, executive directors handling daily operations, and independent directors ensuring governance. 

Companies may have multiple directors, but their appointment is contingent on business type. Public companies require at least three directors, private companies need two, and a ‘One Person Company’ just one, as per Section 149(1) of the Companies Act, 2013.

A public company can have up to 15 directors, or more with a general meeting resolution, without Central Government approval.

A director’s maximum directorships are 20, with a limit of 10 in public companies for any private or public holding or subsidiary company. 

Certified companies must appoint a woman director within a year of Section 149(1)’s enforcement. 

Public companies with a turnover of Rs. 300 Crore or paid-up capital of Rs. 100 Crores must also appoint a woman director within a year. Directors exceeding the limit before the Act’s commencement must choose which positions to retain or resign within a year and notify the companies and Registrar.

Documents Required for Director Removal

• Passport-sized photograph of the incoming director.
• PAN Card: Self-attested copy of the incoming director’s PAN.
• Residence Proof: Aadhar, Voter ID, Passport, or Driving License.
• Digital Signature Certificate (DSC) for both the existing and the outgoing director.
• Identity Proof: Passport, Election card, Driving License, or Aadhar card.
• Contact Details: Mobile number and both personal and official email addresses of the director.
• For non-resident directors, all documents must be legally certified (apostilled).
• Resignation notice submitted to the company.
• Dispatch proof and acknowledgment of the resignation form, if available.

Process for Director Removal in Companies

Directors may be removed for non-compliance with the ‘Companies Act, 2013’, voluntary resignation, or failure to attend three board meetings in a year. 

Shareholders’ Authority: As per Section 169, shareholders can remove a director via an ordinary resolution at a general meeting, except if the Central Government or Tribunal appointed the director.

Notice and Meeting: A seven-day notice for a board meeting is issued to all directors, informing them of the removal proposal. A resolution is then passed to hold a general meeting, which requires the shareholders’ approval on the scheduled date. 

General Meeting: A general meeting follows, with a 21-day advance notice to directors, where the resolution is voted upon.

Director’s Right to be Heard: The director in question is allowed to present their case. 

Filing of Forms: Post-resolution, the director must submit Form DIR-11 and Form DIR-12 along with the Board Resolution.

Removal from MCA Database: Finally, the director’s name is removed from the MCA database and the website.

Director’s Voluntary Resignation Process

When a director decides to resign, they must first pass a resolution with the company. Following the Companies Act 2013, the company then has specific responsibilities to address. The initial step involves the company passing a resolution to accept the resignation letter and to file ‘Form DIR11’, detailing the reasons for the resignation as mandated by section 168(1) of the Companies Act, 2013. According to rule ‘16 of Companies (Appointment and Qualification of Directors) Rules, 2014’, the resignation details must be communicated to the Registrar of Companies (ROC) via ‘Form DIR11’ within ‘30 days’ from the director’s departure date. Additionally, the company must submit a resignation letter. Documents required include:

• Notice of resignation filed with the company.
• Proof of dispatch.
• Acknowledgment of the form, if received

Corporate Raasta Consulting for Director Removal

We provide expert guidance and support to companies looking to remove a director from their board. Our team of experienced professionals can help you navigate the legal requirements and ensure that the process is carried out smoothly.

If you have any questions or require assistance in removing a director from your company, please feel free to contact us.