Companies Act, 2013 provides the process for removal of directors from company. Director of a company is a core part of management and plays an important role in functioning and the decision making process. Although, in some cases it becomes necessary to remove a director cause of different reasons.
Directors of a company have are responsible for the everyday business of a company. Whereas the shareholders who are the rightful owners, pass this authority to the director as representatives. Companies Act, 2013 differentiates between the directors and the share holder’s right and responsibilities. The authority which appoints the director also has the authority for removing him.
Who is Director in Company:-
Any person who is nominated to Board of a company is known as Director under Companies Act,2013. Boards of Directors are group of people which are chosen by shareholders of company for running the operations of company. As, a company is a legal entity which can only act with the help of these individuals. The Group of Individuals who are tasked with looking over the action of company’s directors are known as Board of Directors.
Any individual who is managing, controlling or directing anything is known as a Director. Directors also oversee, manage and supervise. They are by law permitted for managing and supervising a business of the company. They are chosen by the shareholders of the company for setting the policy of the company.
Responsibility of Director in Company
Everyday management of Company is responsibility of Director. They make major tactical and strategic decisions which help the company in fulfilling its objectives. If the compay has shareholders, the directors could be held liable for that. Director shall balance the interests of the shareholder and of company and its staff. Director of company can have strong ethical ability of making decisions which adhere to the legal requirement. Some of important duties are:-
- Creating Key Performance Indicators (KPIs) for helping staff members to concentrate on their efforts.
- Planning community social responsibilities with assistance from other employees.
- Encouraging adherence to company’s Code of Ethics as well as to the laws and regulations.
- Managing Day to Day operation of Company
- Making sure that the records of the Company are secured and up to date.
- To make sure that anything which the business does complies with laws.
- Plan for controlling and increasing the corporate affairs and operations.
Removal of a Director from Company:-
Companies Act gives procedure for removing a director from their position. It aims for ensuring that the process is transparent, fair and complying with legal requirements. Removing a director could be started by company, shareholder or the government. Removal of director could happen cause of many reasons this can include misconduct, non performance and breach of duty. Process for removal of director is important for maintaining the transparency and which ensures that the company is running efficiently.
Grounds for Removal of Director
Prior to starting Removal process of Director, the company shall ensure that grounds for the removal are valid. As per Companies Act, 2013 director could be removed from the office by a special resolution. Grounds for removal are:-
- Directors have been convicted for any offence by court of law.
- The Director is of unsound mind and declared by a competent court.
- The Director has not been in any board meeting for a period of 12 months without any leave of absence from the Board.
- He has been found guilty of Fraud or Breach of Trust.
- Director has violated the provisions of the Companies Act or any other law.
Procedure for Removal of a Director
Procedure for removal of director can be started by Board of Directors or by shareholder of the company. Steps which are involved in the process are:-
1. Board Meeting:
First step in the removal process is to have a board meeting. Notice should be sent to all the directors of company, which state the reason for meeting. Board meeting shall be within the 7 days of notice. During this meeting the board should pass resolution which proposes removal of the Director.
2. Special Notice:
Once after the board meeting special notice shall be sent to shareholder of the company. This shall state the proposed resolution for removal of director. Notice for same shall be sent 14 days before such general meeting.
3. General Meeting:
General Meeting shall be done for discussing the resolution proposed for removing a director. Director shall be given an opportunity to be heard at the meeting. Resolution for the same shall be passed by majority not less than three fourth of shareholder present and voting.
4. Filing Form DIR-12:
Once this resolution is passed, the company shall file Form DIR-12 with the Registrar of Companies in 30 days of passing such resolution. It contains the information regarding the director who is being removed.
5. Intimation to the Director:
Company shall inform the director who is being removed cause of the resolution which has been passed in General Meeting. Director shall be given a copy of resolution along with reasons for removal.
Points to consider Regarding Removal of Director:-
Removing director from company is an important decision which requires careful consideration and adherence to the legal procedures. Companies Act,2013 lays a framework for removal of directors and provides particular rules and regulations which are required to be followed. Its essential for understanding the rules and regulations for avoiding legal repercussions which can arise from removal of a director.
1. Grounds for Removal:
Companies Act, 2013 has particular ground for removing directors. It includes Non Performance of duties, breach of trust, Fraud, Misappropriation of Funds and any other factor which is against the interest of company. Its important for establishing the grounds before starting the removal process.
2. Initiating the Removal Process:
Removal of director could be started by shareholder, the board of director or the central government. It involves passing a resolution at a general meeting or board meeting. This resolution shall be passed by majority of not less than two third of the members present and voting.
3. Notice of Meeting:
Notice of meeting shall be given to all the members, directors and auditors of the company. It must state the intention for removing director and shall provide reasons for the proposed removal. This type of notice should be given atleast 14 days prior from meeting.
4. Opportunity to be Heard:
Before passing resolution for removal of director it should be given a chances for being heard. Director shall be informed of allegations and opportunities for presenting his case. Its a fundamental principal of natural justice which shall be followed.
5. Intimation to the Registrar:
Once this resolution of removal is passed, the company should inform the Registrar of Companies(ROC) in thirty days of the resolution. The ROC will update the records and remove the director’s name from list of directors.
6. Remuneration and Compensation:
If any director is removed before expiration of the term, he is entitled for receiving compensation. This Compensation should not exceed the remuneration which is payable to the director for period of three years. Although, if director is removed for any reason of misconduct, he wouldn’t be receiving any compensation.
Conclusion
The Companies Act 2013 lays down a complete framework for removal of directors and its essential for understanding and adhering to the rules for avoiding any legal problems. Companies shall ensure that it follows the proper procedure for removal of directors and seek an opportunity for being heard to concerned director before passing this resolution.
Removal of such director from a company is substantial decision which requires careful consideration and proper adherence to the legal procedures which given in Companies Act, 2013 or the proper local regulations. Be it involving an ordinary resolution, board resolution or court order this process shall be known by fairness, transparency and alignment with company’s best interests.
