Introduction
Section 169 of the Companies Act, 2013 provides for removal of directors. A company may by ordinary resolution remove a director provided he is not appointed by the tribunal under Section 242 of the Act, before the expiry of the period of his office and after giving him a reasonable opportunity of being heard. A special notice shall be required of any resolution to remove a director under this section or to appoint somebody in place of a director so removed. Such notice shall be signed, either individually or collectively by such number of members holding- 1) not less than 1% of total voting power on the date of the notice; or 2) shares on which an aggregate sum of not less than Rs. 5 lakh has been paid up on the date of the notice.
However, an independent director re-appointed for second term by way of special resolution can only be removed by the company after obtaining the approval of shareholders by way of a special resolution and after giving him a reasonable opportunity of being heard.
Vacancy created by removal of a director who was appointed at the general meeting, under Section 169, can be filled by appointing another director in his place at the meeting where he is removed by giving special notice of the intended appointment. Such a director would hold office till the date up to which his predecessor would have held the office had he not been removed.
If the vacancy is not filled up then it may be filled as a casual vacancy under Section 161(4), but the director removed cannot be reappointed as a director by the board as per Section 169(7).
Step-by-Step Procedure
Step 1: Special Notice
- As per Sections 115 and 169(2) read with Rule 23 of the Companies (Management and Administration) Rules, 2014, a special notice shall be sent by members of the company for removal of director not earlier than 3 months but at least 14 days before the date of meeting.
Step 2: Time Bound Disclosures
- As per regulations 30 and 46(3) of the SEBI (LODR) Regulations, 2015, a listed company has to submit disclosure of the receipt of special notice to remove a director to stock exchanges where shares of the company are listed within 24 hours of receipt of notice.
- Also post the same on the website of the company within 2 working days.
Step 3: Special Notice, Written Consent, Declaration, etc.
- As per section 152 read with Rules 8 and 14(1) of the Companies (Appointment and Qualification of Directors) Rules, 2014, when a special notice is also for appointment of a person in place of the director proposed to be removed then such a notice should be accompanied by a deposit of Rs. 1 lakh per candidate. However, no need to make any deposit is case of a appointing an independent director.
- Also, obtain written consent in Form DIR-2 from the person proposed to be appointed as director of the company along with declaration in Form DIR-8 that he is not disqualified to become director under the Act.
- Upon receiving the notice of resolution to remove a director the company has to forward the copy to the concerned director as per Section 169(3) of CA, 2013.
- The concerned director may make representation in writing to the company and request its notification to members of the company. The company shall if time permits- 1) in any notice of the resolution given to members of the company state the fact of the representation having been made, and 2) send a copy of the representation to every member of the company to whom notice of the meeting is sent. However, if due to paucity of time, director may ask for his representation to be read out at the meeting.
Step 4: Dispatch and Advertisement in Newspaper
- The company shall give notice to its member of the resolution at least 7 days before the meeting, exclusive of the day of dispatch of notice and day of the meeting in the same manner as it gives notice of general meeting.
- When it is not practicable to give notice as aforesaid, then the notice shall be published in English language in English newspaper and one in vernacular language in the vernacular newspaper both having wide circulation in the state at least 7 days before the meeting. Such notice should also be posted on the company website.
Step 5: General Meeting
- As per Sections 169, 96 and 100 and Secretarial Standards-2 hold a general meeting to pass an ordinary resolution for removal of director/appointment of directors.
- To remove an independent director, who is serving his second term then approval is needed via special resolution.
- Before the resolution is passed, a reasonable opportunity of hearing the director should be given.
Step 6: Time Bound Disclosures
- As per Regulations 300 and 46(3) of the SEBI (LODR) Regulations, 2015, a listed company has to disclose the proceedings to the stock exchange where the shares of company are listed within 24 hours from the conclusion of the general meeting. The same shall be posted on the website of the company in 2 days.
- Further, Regulation 44 of the SEBI (LODR) Regulations, 2015, in case of a listed company, within 48 hours of conclusion of its general meeting, the voting results in the format shared by SEBI must be disclosed. Also, post the same on the website of the company.
- Furthermore, as per regulation 30 and 46(3) of the SEBI (LODR) Regulations, 2015 , in case of a listed company the stock exchange where shares are listed, within 24 hours from declaration of result with respect to appointment of director and post it on the company website in 2 days.
- Also, per regulation 7(1) of SEBI(PIT) Regulations, 2015, in case of a listed company, have to obtain a disclosure in Form B within 7 days of appointment, if any, from the director.
Step 7: Register of Directors and KMP
- Pursuant to removal or appointment of a director, necessary entries have to be made in the register of directors and key managerial personnel (KMP) and register of contracts or arrangements in which directors are interested in Form MBP-4.
Step 8: Form and Documents Filing
- As per section 117 read with Rule 24 of the Companies Management and Administration Rules, 2014, upon passing a special resolution (SR), a copy of the SR along with explanatory statement with ROC has to be filed within 30 days of passing in Form MGT-14 along with necessary documents and fees.
- Further, Section 170(2) read with Rule 18 of the Companies (Appointment and Qualification of Directors) Rules, 2014, a return containing detail of cessation of office of the director or appointment of director, with ROC within 30 days of the removal is filed in Form DIR-12 along with necessary documents and fees.
Documents Required
- For filing special resolution with ROC in form MGT-14, a certified true copy of special resolution along with copy of explanatory statement under Section 102 is needed.
- For return containing particulars of removing director/appointing director- Form DIR-12
- Evidence of cessation- certified true copy of ordinary resolution/special resolution and certified true copy of special notice
- For appointment of director- written consent in Form DIR-2, certified true copy of ordinary resolution and details of interest in other entities, if any.
This is the mode for removing a director from the Board of Director of a Company.
