Removal of Director

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Introduction

The members of a company have the right to remove a director of the company. Section 169 of the Companies Act, 2013 deals with the removal of a director. The provisions of section 169 relating to the removal of directors are applicable to private and public limited companies.

The right given by section 169 is a statutory right, which cannot be taken away by the Memorandum, Articles or by any contract or any other document, and if it is sought to be taken away, such a provision will be void. [Section 6]
Shareholders are the true owners of the company therefore, it’s their right to determine who shall manage the affairs of the company.

Directors subject to removal

If no fixed period has been provided for retirement in articles of association of a private company, a director appointed is entitled to continue till he is removed in accordance with provisions of section 169.


Directors can be removed under section 169 by members in general meeting by passing an Ordinary Resolution, subject to certain exceptions.

Section 169 is applicable if a director is wished to be removed before the expiry of the term of his office due to any reason whatsoever. In other words, if the shareholders want to remove a director before the expiry of term of his office, then they will have to comply with the provisions of Section 169.

Certain directors cannot be removed by a company. The following categories of directors cannot be removed by a company under section 169 of the Act:—
– a director appointed by the Tribunal under section 242;
– a nominee director of a public financial institution which is by its charter empowered to nominate a person as a director or to remove him notwithstanding any power contained in any other Act;
– a director coming within the purview of directors appointed according to the principle of proportional representation under section 163 of the Act.

While the shareholders have no power, apart from that given in the statute or the Articles, to intervene in the management of the company’s affairs, this section is designed to enable them to control the composition of board of directors by their removal.

Notes:

  1. Section 242 of the Act deals with the powers of the Tribunal to make such orders as it thinks fit, in cases where applications seeking relief against oppression and mismanagement has been made.
    A Tribunal is a body established to settle some types of disputes.
  2. Section 163 of the Act states that the articles of a company may provide for the appointment of not less than two-thirds of the total number of the directors of a company in accordance with the principle of proportional representation.
    Principal of Proportional Representation is a system of election wherein the shareholders of the company get a chance to vote for their choice of director in proportion to their holding.

Procedure

A company may remove a director before the expiry of his office after passing the Ordinary Resolution.

An independent director re-appointed for the second term under sub-section (10) of section 149 shall be removed by the company only by passing a Special Resolution and after giving him a reasonable opportunity of being heard.

As per Section 169(2) and 169(3), a special notice shall be required of any resolution to remove a director. On receipt of the notice of a resolution to remove a director, the company shall forthwith send a copy thereof to the director concerned.

The director, whether or not he is a member of the company, shall be entitled to be heard on the resolution at the meeting.

Step wise procedure is given below:

Step 1: A special notice shall be sent by the members to the Company (atleast 14 days before the date of the general meeting at which resolution is to be moved) proposing the removal of a director.

Format of the special notice is given below:

Special Notice

Date:

To

The Board of Directors,

M/ s…………………………Limited

Address:

Subject: Issue of Special Notice and Requisition under the applicable provisions of the Companies Act, 2013 and the Rules framed thereunder for convening an Extraordinary General Meeting of the shareholders of …………….. Limited

Dear Sir,

1. We/I, the undersigned shareholder(s) of M/s ……… Limited, holding in aggregate as on the date hereof ……… Equity Shares having face value of Rs. …../- (Rupees …… only) each representing ………% shareholding of the Company’s total voting power and have/has paid in aggregate the sum of Rs…………., (Rupees …… only) against the shares of the company.

2. Pursuant to Section 100, 115 and 169 and other applicable provisions of the Companies Act, 2013 and ruled framed thereunder, we/I submit this requisition to you for convening an Extraordinary General Meeting of the shareholders of ……………… Limited, in the manner prescribed under applicable law, to pass the following resolution(s):

Item No. 1: REMOVAL OF MR. ……… AS DIRECTOR OF THE COMPANY

To pass the following resolution as an Ordinary Resolution:

“RESOLVED THAT pursuant to the provisions of Section 169 and other applicable provisions of the Companies Act, 2013 and the Rules framed thereunder, Mr./Ms. …………………… (DIN: ……………..) be and is hereby removed from the office of Director of the Company with effect from the date of this meeting.”

In this connection following issues are called for attention of the members of company:

*Explanation and Grounds for Removal*

3. Please treat this notice as Special Notice under Section 169(2), read with Section 115 and other applicable provisions of the Companies Act, 2013 and the Rules framed thereunder for the aforesaid purpose.

Yours Faithfully

…………………….

(Member)

Folio No.

Step 2: In case of a listed company, disclosure to the Stock Exchange shall be made within 24 hours from the receipt of notice and the same shall be posted on the website of the Company within 2 working days.

Step 3: The company shall send an intimation letter regarding the receipt of special notice to the concerned director.

Format of the intimation letter is as follows:

“Intimation letter

Date:

To

Name of the Director

Director

(Name of the Company)

Address:

Subject: Intimation with respect to receipt of Special Notice for your removal from directorship

Dear Sir,

A special notice under section 115 of the companies act, 2013 (copy enclosed) has been received by the Company from its member(s), required a resolution to be proposed at a duly convened Extra-Ordinary General Meeting of the Company for your removal pursuant to the provisions of section 169 of the Companies Act, 2013.

In case you intend to make representations against the resolution for your removal, I request you to send the representations so as to reach us by (date) so that it may be circulated to the members of the Company. In the event, the representation is not received by the aforesaid date, an opportunity of being heard will be provided and the representation may be read out at the Extra-Ordinary General Meeting.

Kindly acknowledge the receipt of letter for our reference and record.

Yours faithfully, 

For & on behalf of Board of Directors,

(Name of the Company)

Name of the Director

Director

DIN: 

Note: If the concerned director wants to make representation, he shall give it in writing to the company and request to notify it to the members. Company shall state in the notice that representation is made and sent the representation along with the notice to the members. If the copy is not sent due to insufficient time or the company’s default, representation shall be read out at the meeting.

Where the directors sought to be removed were not given an opportunity of being heard, which is a mandatory requirement under section 284 (now section 169 of the Companies Act, 2013), it was held that the resolution passed for removal would have no effect. [Bhankerpur Simbhaoli Beverages Pvt. Ltd. v Pandya (P.R.) (1995) 17 Corp LA 170 (P&H)]

Step 4: The company shall convene a Board Meeting to discuss the following matters:

  • To take note of special notice
  • Give opportunity of being heard to the concerned director on the resolution at the meeting
  • Passing resolution for removal for director subject to the approval of the members
  • Fix day, date, time and venue for holding general meeting of the Company.
  • To approve the draft notice of general meeting and to authorize CS or CFO or any other director of the Company to issue the notice of general meeting.

Format of the resolution is as follows:

CERTIFIED TRUE COPY OF THE RESOLUTION PASSED AT THE MEETING OF THE BOARD OF DIRECTORS OF THE (NAME OF THE COMPANY) HELD ON (DAY AND DATE) AT (TIME) AT THE REGISTERED OFFICE OF THE COMPANY SITUATED AT (ADDRESS OF REGISTERED OFFICE).

REMOVAL OF MR./MS…………………. AS DIRECTOR OF THE COMPANY

“RESOLVED THAT in accordance with the provisions of section 100, 115 and 169 and other applicable provisions of the Companies Act, 2013, the special notice received from (Name of the Member), a member of the company, who holds … % of total voting power of the company, proposing the removal of Ms./Mr. ……………, Director under section 169 of the Companies Act, 2013, be included as an item of special business in the agenda for the Extra-ordinary General Meeting which be held on (Day), (Date) at (Time), at (Venue) on the requisition of shareholders.

RESOLVED FURTHER THAT the consent of the Board be and is hereby given, subject to the approval of the members of the company, for the removal of Ms./Mr. …………… as a Director of the company with effect from the ensuing Extra-ordinary General Meeting.

RESOLVED FURTHER THAT Mr./Ms. ……………….., (Designation) be and is hereby authorised to issue the notice of the said general meeting to the members of the company as per the draft placed before the Board and to do all such acts, deeds and things as may be necessary to give effect to the foregoing resolution.”

For & on behalf of Board of Directors

(Name of the Company) 

Name of the Director

Director

DIN: 

Address:

Date:

Place:

Format of Notice for calling an EGM:

Dear Members,

Notice is hereby given that an Extraordinary General Meeting (EGM) of …………………. Limited, on the requisition of member(s) of the company, which holds ………….% of the voting power of the Company, will be held on day, date, at time at venue of the meeting to transact the following business:

SPECIAL BUSINESS:

Item No. 1

REMOVAL OF MR./MS…………………. AS A DIRECTOR

To consider and if thought fit, to pass the following resolution as an Ordinary Resolution:

“RESOLVED THAT pursuant to the provisions of Section 169 and other applicable provisions of the Companies Act, 2013 and the Rules framed thereunder, Mr./Ms……….. (DIN: …………………) be and is hereby removed from the office of Director of the Company with effect from the date of this meeting.”

For & on behalf of Board of Directors

(Name of the Company)

Name of the Director

Director

DIN: 

Address:

Date:

Place:

NOTES:

1. The Board of Directors at its meeting held on ………………., have approved the convening of the EGM and the issue of the Notice of the said meeting. The relative Explanatory Statement pursuant to Section 102 of the Companies Act, 2013 (“the Act”), in respect of the business as set out in the Notice is annexed hereto.

2. A MEMBER ENTITLED TO ATTEND AND VOTE AT THE MEETING IS ENTITLED TO APPOINT A PROXY TO ATTEND AND VOTE ON HIS/HER BEHALF. SUCH PROXY NEED NOT BE A MEMBER OF THE COMPANY. A person can act as a proxy on behalf of members (not exceeding 50) and holding in the aggregate not more than 10% of the total share capital of the Company carrying voting rights. A Member holding more than 10% of the total share capital of the Company carrying voting rights may appoint a single person as a proxy and such person shall not act as a proxy for any other person or Member.

3. The instrument of Proxy, in order to be effective should be duly completed and deposited at the Registered Office of the Company not less than 48 hours before the time for holding the Meeting.

4. Corporate Members intending to send their authorised representatives to attend the Meeting are requested to send to the Company, a certified copy of the Board Resolution authorising their representative to attend and vote on their behalf at the Meeting

5. Members are requested to bring their attendance slip along with their copy of the Notice to the Meeting.

6. The Special Notice dated …………. received from members of the company and the representation from Mr. …………. as mentioned in the Explanatory Statement, are available for inspection by the Members at the Registered Office of the Company between 10:00 a.m. and 6:00 p.m. on any working day of the Company up to the date of the Meeting. The aforesaid documents shall also be available for inspection at the venue of the Meeting.

7. A route map showing directions to reach the venue of the Meeting forms part of this Notice.

For & on behalf of Board of Directors

(Name of the Company)

Name of the Director

Director

DIN:

Address:

Date:

Place:

EXPLANATORY STATEMENT

(Pursuant to Section 102 of the Companies Act, 2013)

……………………, the Requisitionist(s), has provided the following information in relation to the Special Business proposed to be conducted at the Extraordinary General Meeting of the Company:

*Name & shareholding of the Requisitionist(s), alongwith grounds of removal*

Consequently, the Board of Directors of the Company by its resolution dated …………….. has resolved to propose the removal of Mr./Ms ……………. as Director of (Name of Company).

None of the Directors or Key Managerial Personnel of the Company or their respective relatives is concerned or interested in the resolution set out in the Notice

For & on behalf of Board of Directors

(Name of the Company)

Name of the Director

Director

DIN:

Address:

Date:

Place:

Step 5: The company shall convene the general Meeting and pass an Ordinary Resolution for removal of director after giving an opportunity of being heard.

Step 6: Prepare the minutes of the general meeting

Step 7: File Form MGT-14 with ROC (within 30 days of passing resolution) in case of a public limited company. Private limited companies are not required to file MGT-14.

Step 8: File Form DIR 12 with ROC along with all the attachments. ROC generally asks for a compliance certificate from a practicing company secretary that the procedure under section 169 is properly followed. Thus, it should also be attached to the form.

Step 9: Make necessary entries in Register of Directors.

Important Points:

Minimum 14 days’ clear notice shall be given to the company

The special notice of resolution for removal of a director shall be served on the company at least 14 days before the general meeting exclusive of the day on which it is served and the day of the meeting. [Section 115]


Section 115 becomes applicable in case where a Special Notice is served. In other words, for the removal of director, Section 169 and Section 115 are to be read together.


Section 115 states that where, by any provision contained in this Act or in the articles of a company, special notice is required of any resolution, notice of the intention to move such resolution shall be given to the company by such number of member holding not less than 1 % (one percent) of the total voting power or holding shares on which such aggregate sum not exceeding 5,00,000 (five lakh rupees), as may be prescribed, has been paid-up and the company shall give its members notice of the resolution in such manner as may be prescribed.


Any omission to serve a special notice on the directors sought to be removed constitutes denial of their statutory right of reply and in the absence of such notice to the directors, any resolution for their removal would be vitiated by such omission. [Varadarajan (S.) v Udhayem Leasings & Investments P. Ltd. (2005)125 Comp Cas 853 (CLB): (2005) 62 SCL 315 (CLB-Chennai)]

It is not necessary to give reasons or explanatory statement along with notice of EGM for removal of a director

It is not necessary to give reasons in the special notice given to the company or in the company’s notice to the members, or in the resolution proposed by the company’s Board itself, for removal of a director.


The provisions of section 173(2) [now section 102 of the Companies Act, 2013] as to the explanatory statement are not applicable in respect of the resolution for the removal, because the company is merely acting in pursuance of a special notice received by it to move the resolution; it is not a resolution proposed by the company. [LIC of India v Escorts Ltd. (1986) 59 Comp Cas 548 (SC)]

However, in the case of Queens Kuries & Loans P Ltd. v Sheena Jose (1993) Comp Cas 820 (Ker) and Escorts Ltd v Union of India (1985) 57 Comp Cas 241 (Bom) the High Court has observed that special notice to be given under section 284 [now section 169 of the Companies Act, 2013] must disclose the ground on which the director is proposed to be removed, as the disclosure of the ground for removal is a matter of substance and not of form because the director concerned is entitled to make a representation against the removal.

Section 169(4) states that where notice has been given of a resolution and the director concerned makes with respect thereto representation in writing to the company and requests its notification to members of the company, the company shall, if the time permits it to do so,:
1. In any notice of the resolution given to the 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 (whether before or after receipt of the representation by the company), and
3. If a copy of 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.


Provided that copy of representation need not be sent out and the representation need not be read out at the meeting if, on the application either of the company or of any other person who claims to be aggrieved, the tribunal is satisfied that the rights conferred by this sub-section are being abused to secure needless publicity for defamatory matter; [Dabur India Ltd. v Anil Kr. Poddar (2002) 108 Comp Cas 293 (CLB)]

The Tribunal may order the company’s costs on the application to be paid in whole or in part by the director notwithstanding that he is not a party to it.

In the case of Aurobindo Pharma Ltd. v Anil Kumar Poddar (2009) 152 Comp Cas 257 (CLB), it was decided that by virtue of section 284(4) of the Companies Act, 1956, (now Section 169(4) of the Companies Act, 2013) the CLB (now Tribunal) had the power to direct a company not to circulate the notice for removal of a director if it is convinced that the provisions of this section are being abused. In the present case, on the very same day the respondent became a member of the company, he requested in writing demanding copies of various documents followed by several reminders which were responded by the company. But the respondent called for further documents of the subsidiary companies and particulars of the employees which the company provided. All the requirements of the respondent were duly satisfied. The company had also offered inspection of statutory records and documents as permitted by law, free of cost.
But the statement of the respondent in the explanatory statement to the special notice (i) that the company was being run in a non-transparent manner by the director, (ii) that many things were going on against the interest of the shareholders, and (iii) that malpractices, malfunctioning, mismanagement and manipulation in the running of the company, would lead to the irresistible conclusion that the respondent had abused the powers conferred under section 284 of the Act, and did not merit any consideration.


Therefore, the company was to be exempted from circulating, publishing, or reading out at its forthcoming general meeting the notice and the connected explanatory statement under section 284(4) of the Companies Act, 1956.

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