REMOVAL OF DIRECTORS

SECTION 169: REMOVAL OF DIRECTORS

A director of a company may be removed before completion of his term as director. Removal of directors is discussed here under the following heads:

I. Removal of Director by the Shareholders: Section 169 of the Act contains provisions for removal of directors by the shareholders. The way shareholders are empowered to appoint a director, in the same way they can also remove a director. The procedure of removal may be in the following manner:

(i)Requirement of Ordinary Resolution: A company may, by ordinary resolution, remove a director before the expiry of the period of his office except the following:

(a) when a director is appointed by the Tribunal under Section 242.

(b) when as per Section 163, two-thirds or more of the total number of directors are appointed according to the principle of proportional representation, then such directors cannot be removed.

For example, if a company has eight directors, of which six were appointed according to the principle of proportional representation. In such a case, only two directors which were not appointed following the system of proportional representation, can only be removed by the shareholders.

(ii) Requirement of Special Resolution in case of removal of re-appointed independent director: An independent director re-appointed for second term under Section 149(10) shall be removed by the company only by passing a special resolution.

Note: Under both the clauses (i) and (ii) above, the director to be removed shall be given a reasonable opportunity of being heard before his removal.

(iii) Special Notice: A special notice as per Section 115 shall be required for proposing any resolution to remove a director.

Special notice under Section 115 is required to be signed by:
(i) members holding not less than 1% of total voting power; or

(ii) members holding shares on which at least Rs. 5,00,000 has been paid in the aggregate.

Such notice shall be sent by the members not earlier than 3 months but at least 14 days before the meeting at which the resolution is desired to be moved.

(iv) Action by the company: On receipt of the special notice of a resolution to remove a director, the company shall forthwith send a copy thereof to the director concerned, and the director, whether or not he is a member of the company, shall be entitled to be heard on the resolution at the meeting.

(v) Representation by the director: In case the director concerned makes a written representation to the company and requests that it should be notified to members, the company shall, if the time permits it to do so,-

(a) state the fact of the representation having been made by the director in any notice of the resolution given to members of the company; and

(b) send the representation to every member of the company to whom notice of the
meeting is sent (whether before or after receipt of the representation by the company).

In case, the representation is not sent as aforesaid due to insufficient time or for the
company’s default, the director may without prejudice to his right to be heard orally require that the representation shall be read out at the meeting.

Representation of director need not be sent: It is provided that representation need not be sent out and read out at the meeting if, on the application either of the company or of any other aggrieved person, the Tribunal is satisfied that the rights of representation are being abused to secure needless publicity for defamatory matter.

Further, the Tribunal may order the director concerned (notwithstanding that he is not a party to it to make payment in whole or in part of the costs incurred by the company on the application so made to the Tribunal.

(vi) Filling of vacancy: The vacancy resulting from the aforesaid removal if he had been appointed by the company in general meeting or by the Board, may be filled in by the appointment of another director at the same meeting at which the director is removed, provided special notice of the proposed appointment has been given.

Non-Filling of vacancy If the vacancy is not filled in the same meeting as above, then it may be filled as a casual vacancy provided that the director who was so removed from office shall not be reappointed as a director.

(vii) Period of holding of office by new director: A director so appointed shall hold office for the remaining period for which the director who has been removed would have held office if he had not been removed.

(viii) Payment of compensation: A person so removed as director shall not be deprived of his tights to compensation or damages payable to him in respect of the premature termination of the directorship, or terms of his appointment as director or of any appointment terminating with that as a director. The restrictions imposed by Section 202 are also to be kept under consideration while making payment of compensation for loss of office of directorship.

(ix) No restriction imposed by Section 169: Nothing in Section 169 shall be taken as derogating from any power to remove a director under any other provisions of the Companies Act, 2013.

In other words, Section 169 does not impose any restriction on any other power available under some other provisions of the Companies Act, 2013 which allows removal of a director.
 

II. Removal of Director by the Tribunal: According to Section 242, a director may be removed by the Tribunal where an application has been made to it under Section 241 for prevention of oppression and mismanagement in the company. The Tribunal is also empowered to terminate, set aside or modify any agreement between the company and any of its directors on such terms and conditions which in the opinion of Tribunal are just and equitable.

According to Section 243, a director so removed as per the order of Tribunal shall not be entitled to claim any compensation for loss of his office. Further, he shall not be offered appointment as director for a period of five years from the date of the order without first seeking the leave of the Tribunal.