Addition and Removal of Directors under Companies Act, 2013

The directors of a company bear the responsibility for managing its day-to-day operations, while the shareholders, who are the rightful owners, delegate this role to the directors as their representatives. The Companies Act 2013 in India distinctly delineates directors’ and shareholders’ rights and duties. As a general principle, the entity that appoints a director retains the authority to remove them. IndiaFilings can assist you in filing for the removal of director, which can be initiated for various reasons.

Three distinct procedures are depending on the specific cause for removal. Regardless of the circumstances, IndiaFilings is available to facilitate the director removal process for your Company, ensuring a streamlined and hassle-free experience.

Directors are the organization’s top decision-makers. In addition to serving as a trustee, agent, employee, and officer of the corporation, a director also performs several other duties. Their job is to oversee and manage the company’s services.
This article briefly describes the Appointment and Removal of Directors, the Elimination of the Directors, & Removal Process.

The administration of the company is in the hands of the directors. They take decisions on policy matters. They serve in three different ways

As a trustee
As an agent
As a partner

Appointment of a Director

Wherever the Articles of Association permit, the existing Board of Directors can appoint other ‘Additional directors can hold office till their confirmation at the next meeting of shareholders. However, in all other cases, shareholders have the sole authority to appoint Directors in general meeting. Further, there are some categories of directors like nominee directors/ regulatory directors who are not appointed by shareholders. The director, proposed to be appointed, should declare that he or she is free of all disqualifications which are mentioned under Section 164. Further, he should give his consent in forms DIR -2 and DIR -8 and disclosure of interest in MBP-1. A director should obtain a Director Identification Number (DIN) before appointment.

The process of appointing the director is as follows:

Form DIR 2 – Director’s Consent
The first thing to be done to appoint a director in a firm is to get the proposed director’s permission. The proposed director’s approval to serve as a director in the firm must be submitted in Form DIR 2 along with the other required documents.
Get the Director’s DSC and DIN
The following step is to obtain the proposed director of the company’s Digital Signature Certificate (DSC) and DIN. If they do not already possess a DSC, they are obligated to apply for one from the relevant authorities in India.
When it comes to the Director Identification Number (DIN), if the director does not already have one, he must notify the company as soon as possible. The business must next adopt a decision and submit DIR Form 3 to apply for the proposed director’s DIN.
Call the Board and EGM
A general meeting of the firm is where decisions on the appointment of directors are to be taken. Accordingly, the firm will notify all its shareholders that it will be conducting an Extraordinary General Meeting, EGM.
After the notice to call for EGM is sent to all shareholders, the next step is to hold the meeting at the specified time and date and pass all the required resolutions for the director’s appointment in the company.
Letter of Appointment
Once the resolution has been approved, a letter of appointment will be sent to the new firm director. The appointment letter will outline the director’s salary and other benefits.
DIR-12 to ROC
Within 30 days after the Director’s appointment, the firm must submit Form DIR 12 and other supporting documentation to the Registrar of Companies, ROC.

Resignation of a Director

Section 169 of the Act governs a situation of resignation of a Director. On receipt of the notice/letter of resignation, Company has to file DIR-12 within 30 days. Also, the resigning director may, at his option, submit DIR -11 also.

Elimination of the Directors

According to The Companies Act, 2013, a private limited company must have at least two Directors before officially beginning operations.

Except in circumstances of government appointment, shareholders can vote to remove a company director at the General Meeting. When one of the following conditions is met, a director of the firm may be removed:

If a director does any action that could result in disqualification under the Act
If a director has missed more than one year of Board meetings
If a director has announced a voluntary resignation
If a director is indefinitely suspended from participation by the court or the Tribunal
If a director commits violations of Article 184 by signing contracts
If a director is found guilty on charges and given a prison term of at least six months.

Reason for Director Removal

As mentioned above, A director may be subject to removal for any of the following reasons:

Incurring any disqualifications as specified under the Companies Act.
Prolonged absence from board meetings spanning over 12 months.
Entering into contracts or agreements contrary to the provisions outlined in Section 184 of the Companies Act.
Receiving a disqualification order from a court or tribunal.
Being convicted by a court for an offense and sentenced to a minimum of six months in prison.
Failure to adhere to the terms and regulations stipulated in the Companies Act of 2013.
Voluntarily resigning from their position.

Methods for Director Removal

The removal of a director from a company can be carried out through three distinct methods:

Resignation by Directors: When the directors voluntarily tender their resignation.
Director Absence from Board Meetings: When a director remains absent from board meetings for 12 months.
Shareholder-initiated Removal: When shareholders decide to remove a director.

Relevant Provisions of the Companies Act, 2013:

Section 169 of the Companies Act, 2013: This section pertains to the removal of directors and outlines the legal procedures and requirements for director removal.
Section 115 of the Companies Act, 2013: This section likely relates to the appointment of additional directors, but providing specific details without additional context is challenging.
Section 163, Companies Act, 2013: This section allows for proportional representation in appointing directors. Depending on the Company’s governance structure, it can influence the director removal process.
Rule 23 of the Companies (Management and Administration) Rules, 2014: This rule is associated with the management and administration of companies and likely provides specific guidelines or regulations related to director removal and related procedures.

Compulsory Criteria for Director Removal

For the removal of a director, the following mandatory requirements must be adhered to:

A Special Notice following Section 115 of the Companies Act 2013 must be issued.
The Special Notice should be dispatched to the respective Director at least 14 days before the resolution is passed.
It is obligatory to provide the concerned Director with an opportunity to present their case, and their representation should be submitted in written form.
A director who has been removed from office cannot be reappointed.

Form DIR-12-Form DIR-12 is a specific form required under the Companies Act 2013 and is used to remove a director from a company. This form is essential to the legal process when a company wishes to remove a director from their position

Procedure for Director Removal

Removal of Director – Resignation by Directors

When a director voluntarily tenders their resignation, the following steps are taken to remove their name from the register of directors:

Board Meeting Notice: The Company convenes a Board Meeting, providing clear notice, which typically means a notice period of 21 days, excluding the day on which the notice was sent and received.
Resignation Discussion: During the Board Meeting, board members discuss and deliberate on whether to accept the Director’s resignation.
Board Resolution for Resignation: Upon agreement, the Board passes a formal resolution to accept the Director’s resignation.
Filing Form DIR-11 (Director’s Responsibility): The outgoing Director takes responsibility for filing Form DIR-11. This form must include the Board Resolution, proof of delivery of the resignation letter, and a copy.
Filing Form DIR-12 (Company’s Responsibility): The Company is responsible for filing Form DIR-12 with the Registrar of Companies (RoC). This filing should include the resignation letter and the Board Resolution.
Removal of Director Name from MCA: After completing all necessary form submissions and formalities, the Director’s name will be officially removed from the Company’s master data on the Ministry of Corporate Affairs website.

Director Absence from Board Meetings for 12 Months

Step 1: If a director is absent from all board meetings over twelve months, regardless of seeking leave of absence, they are deemed to have vacated their office under Section 167.
Step 2: File Form DIR-12.
Step 3: Upon completing the formalities, the concerned Director’s name will be removed from the Ministry of Corporate Affairs (MCA) database.

Director Removal by Shareholders

Board Meeting Notice: Initiate the process by calling a Board Meeting and giving seven days’ notice to all directors. In this notice, inform the directors about the intended removal of the Director.
Extraordinary General Meeting Resolution: During the Board Meeting, pass a resolution to convene an Extraordinary General Meeting (EGM). Additionally, pass a resolution for removing the Director, contingent upon shareholder approval.
EGM Notice to Members: Issue a notice for the EGM, ensuring a clear notice period of 21 days. Clear notice means a notice period of 21 days, excluding the day on which the notice is sent and the day of the meeting.
Voting at EGM: Members are asked to vote on the resolution for the Director’s removal at the EGM. If the majority of members are in favor of the decision, the resolution is passed.
Opportunity for Director to Be Heard: Allow the Director to be heard before passing the resolution. Allow them to present their case or provide an explanation.
Form DIR-11 and Form DIR-12 Submission: Following the passing of the resolution, submit Form DIR-11 and Form DIR-12 to the Registrar of Companies. These forms should include the attachments of the Board Resolution and Ordinary Resolution.
Removal of Director Name from MCA: Upon successful form submissions and completion of all required formalities, the Director’s name will be officially removed from the Ministry of Corporate Affairs website.

FAQs

Q: Is It Possible For A Firm To Remove A Director?

es, a company has all the right to remove any of its Director from the board, but there is a specific process for doing so. When the management of the Company

Q: What Is The Maximum Term For A Director In A Company?

The term of the managing and full-time directors is 5 years, the term of the additional Director is up to the following general meeting

Q: What Is the Difference Between the Resignation and Removal of a Director?

No, resignation & removal of a Director is not the same things. Resignation occurs when a director willingly decides to step down from the position of Director. When a firm pushes a director to resign, this is referred to as removal.

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