Removal of Director

The profile and types of directors in a company depend on the nature of the business. According to the Companies Act 2013, directors are appointed by the company’s board. Ruchir Jain & Co can assist you with all the required filings to remove a director from the company online in India, guiding you through each step of the process. Simplify the director removal procedure with the support of our expert team.

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Removal of Director - Overview

A private company must have a minimum of two directors, while a public company requires at least three directors. A private company has the authority to remove a director if they are found to be incompetent according to the provisions of the Companies Act, or if they have been absent from board meetings for over 12 months. Additionally, if the director engages in activities that violate the restrictions under Section 184, is prohibited by a court order, or is convicted of a crime with a sentence exceeding six months, the company can remove the director.

Details of Participation in the Removal of the Director of the Company

Shareholders or members holding shares worth more than Rs 5,00,000 in paid-up capital for a specified notice period, or those possessing more than 1% of the total voting power, have the right to send a special notice to the company requesting the removal of a director.

These shareholders have the authority to decide on the date, time, and venue for the meeting. However, the notice should be sent no earlier than three months before the board meeting, and the board resolution must be proposed at least 14 days prior to the meeting. The director facing removal must be given the opportunity to present their case before the board. If the board and shareholders agree, the removal of the director can proceed after due consideration.

Understandings behind Resignation of Directors

Dispute with the Board: Differences of opinion among directors can arise and hinder the company’s operations or overall performance. In such cases, the directors may choose to resign.
Better Career Prospects: Everyone seeks better career opportunities to broaden their expertise and pursue new paths that align with their aspirations. Similarly, directors may choose to resign if they receive a more appealing offer or are selected for another director role by the Articles of Association (AOA).
Suspension Due to Breach: Directors can face consequences if they fail to comply with regulations, violate rules, or make other errors in their duties.
Involvement in Improper Business Practices: If a director gets involved in the company’s illegal actions, they may decide to resign to avoid personal liability resulting from such involvement.
Suspension Due to Violations: Any failure to comply with regulations, violations, or defaults on the director's part can lead to serious issues and may prompt resignation.
End of Nomination: Nominee Directors, who are typically appointed by investors or NBFCs, can resign once their nomination is removed or after completing the transaction between the company and the entity.

The Eligibility Criteria to be a Director

There are no specific qualifications mentioned for becoming a director of a company, but an individual must meet the following criteria to be appointed:

Eligibility of the Individual: The law allows only a natural person (not a corporate entity) to be appointed as a director of a company.
Nationality Requirement: There is no specific restriction on nationality; however, at least one director must be an Indian citizen.
Age Limit: While there is no fixed age to become a director, the individual must have the capacity to enter into legal contracts with the company. Additionally, for roles such as 'managing director,' 'independent director,' or 'full-time director,' the person must be between 21 and 70 years of age.
Maximum Number of Directorships: An individual can serve as a director in a maximum of 20 companies at once, with a limit of 10 public limited companies.
Director Identification Number (DIN): To qualify as a director, the individual must obtain a Director Identification Number (DIN). This unique number helps prevent fraudulent directorships and allows authorities to track individuals with a criminal record or other disqualifications.

Ineligibility

Unsound Mind or Bankrupt Individuals: Anyone who suffers from mental instability or is unable to make decisions independently cannot be appointed as a director of the company. This includes minors, individuals with mental disabilities, or those with impaired mental faculties. Additionally, individuals who have been declared bankrupt or are involved in insolvency proceedings are not eligible to serve as directors.
Criminal History: A person with a criminal background, especially if convicted and sentenced to more than seven years in prison, is disqualified from becoming a director of the company.
Unsettled Returns: If the proposed director has failed to file or settle outstanding returns in any of the previous years, they are not eligible to be appointed as a director.

Resignation of the Director under Section 168

A director can resign from their position by submitting a written notice. Once the notice is received, the Board of Directors will acknowledge it, and the company must inform the Registrar in the prescribed format and within the specified time frame. Afterward:

The company must include the resignation notice in the directors' report after the general meeting.
The resigning director must also submit a copy of the resignation, along with the reasons for their decision, to the Registrar within 30 days of resigning.
The resignation will take effect from the date the company formally approves the notice, or from the date specified by the director, whichever is later. However, the resigning director remains liable for any actions or offences committed during their tenure, even after resignation.

If all directors resign simultaneously, the Central Government or promoters will appoint the required number of new directors, and the outgoing directors will continue to manage the company until new directors are appointed during the next general meeting.

To remove a Director suo-moto by the Board

A company can remove a director by passing an Ordinary Resolution, unless the director has been appointed by the Central Government or the Tribunal.
The process begins with a Board Meeting, which must be called within 7 days of sending a notice to all directors. A special notice will be provided to inform the directors about the proposed removal.
During the Board Meeting, a resolution will be passed to approve an Extraordinary General Meeting (EGM) for the purpose of removing the director, subject to the shareholders' approval.
The EGM must be held within 21 days, with a clear notice sent to all members. At the meeting, shareholders will vote on the proposed removal. If the majority votes in favor, the resolution will be approved.
Before the resolution is passed, the director will be given an opportunity to present their case.
Once the resolution is approved, the company will proceed with filing forms DIR-11 and DIR-12, along with the necessary supporting documents such as the Board Resolution and Ordinary Resolution. After the forms are submitted, the director's name will be removed from the MCA (Ministry of Corporate Affairs) official website.

In case the Director of the Company does not attend three continuous Board Meetings

As per Section 167 of the Companies Act, 2013, if a director fails to attend any Board meetings for a period of 12 months, starting from the day of their first absence, despite receiving proper notice for all the meetings, it will be considered that the director has resigned. In such a case, a Form DIR-12 will be filed in their name, and their name will be removed from the MCA (Ministry of Corporate Affairs) records.

Frequently Asked Questions

Yes, a director resigns himself from the Company.
According to section 168 of Companies act 2013, the administration does not have any power to reject the resignation submitted by a director.
If so, the promoter or impresario will take charge. If there is no promoter, then the central government will provide directors on a temporary basis to manage the Company operations, until fresh directors are appointed.
No, there is no designated requirement needed for the appointment of directors.
Yes, it can be done, they must have a DIN and a valid Passport. In case that person does not have a DIN, they must apply through the Company if that person wishes to become a Director of the company.
No, a DIN or 'Director Identification Number' is allotted for a lifetime and can, therefore, be used for a continuance.
For Private Company: Minimum 2 directors For Public Company: Minimum of 3 directors For OPC: minimum 2 directors For Producer company: Minimum 5 directors