Overview
A public corporation is required to have a minimum of three directors, whereas private companies should have at least two. If a director exhibits any of the Act’s defined forms of incompetence or misses more than 12 months of board meetings, the private firm has the authority to remove them. It makes arrangements or agreements in violation of section 184’s rules. Nonetheless, it is excluded by a court order or tribunal, or it is found guilty of a crime and given a minimum six-month prison sentence by a court.
Regarding Involvement in the Removal of a Company’s Director
Sending a special announcement to the firm for the “removal of the director” is an option available to shareholders who own at least 1% of the total voting power or who have shares valued at at least Rs 5,00,000 as paid-up capital shares during the notice period.
The right of the shareholders to choose the meeting date is relinquished. The resolution must be moved at least 14 clear days before the scheduled meeting date, although the specific notice cannot be issued more than three months before the meeting.
The option to be heard at the board of directors meeting has been extended to the considered director. The process of removing a director after consideration may be eliminated if the goals are approved by the board of directors and the shareholders.
Reasons for the Directors' Resignation
1. Conflict With The Board
When multiple directors collaborate, disagreements are bound to arise. It impedes the corporation’s overall functioning; in such a situation, the directors may be removed after giving it careful thought.
2. Misuse In The Company Affairs
Upon learning of the company’s illicit activities, a director might find himself drawn into them, which would be consistent with his reason for quitting. He might be dismissed after giving it some thought to defend the situations that resulted from such actions.
3. Suspension Because of Violation
If the director violates any rules or defaults, he may find himself in trouble.
4. The Recession Of Nomination
Only the Nominee directors, who are mostly chosen for the BOD by the NBFC’s investors, should do so. The nominee director may step down following the revocation of the nomination, or he may step down once the transaction between the company and the entity is finalized.
What are the requirements to be considered for a directorship?
Although there are no set requirements, a person must abide by the following guidelines to serve as a director: On the other hand, a particular natural person is limited by law to serving as a director of one business.
Although there isn’t another minimum age requirement to become a director, it is imperative that the individual be able to sign contracts. Furthermore, if an individual is 21 years old and has not officially turned 70, they are qualified to serve as a “managing director,” “full-time” director, or “independent” director of an established corporation.
There are no limitations. But the corporation needs to have at least one Indian director.
A Director Identification Number is required in order for an individual to be able to serve as a director of a corporation. The primary goal of a DIN is to ensure that fraudulent directors do not engage in fraudulent activities. Should any such criminal action occur, the perpetrators can be identified using this unique number.
A celebrity can serve as a director of no more than 20 different firms at once. Only ten of these twenty companies are eligible to go public.
Ineligibility
Irresponsible Thinking or Debtor
A person who is incapable of making decisions for themselves or who lacks mental capacity cannot be appointed as a director. Children, people with mental disabilities, and people with fragile mental capabilities are all involved in this. In addition, those who are insolvent or who have filed for bankruptcy in a court of law are not eligible to serve as acting directors.
Criminal History
A personality cannot serve as a director if they have a criminal record or if they have served a term of more than seven years in prison.
Awaiting Past-Due Returns
The person will not be allowed to continue in his role as director if he has not made the required returns in any of the years prior.
Recognition: Director Types
- According to ‘Section 149(1)’ of the Companies Act, 2013, a public corporation must have a minimum of three directors, but a private company can have as few as two directors or a single director in the case of a ‘One Person Company.’
- In a publicly traded business, the maximum number of directors is 15. Additionally, a business may appoint more than 15 directors with permission granted by a certain resolution passed at the general meeting. The Central Government’s support is not anticipated in the process of appointing additional directors.
- A director may designate up to 20 directorships, including any additional positions that an individual may hold.
- Any holding or subsidiary company in the case of a private company or “public company” is limited to 10 directorships in the “public company.”
- Following the implementation of the second proviso to Section 149(1) of the Companies Act, all Certified companies are required to designate at least one female director to the Board of Directors each year.
- Similar to this, within a year of the second Proviso to Section 149(1) of the Companies Act’s convocation, every public company with a turnover of Rs. 300 crore or a paid-up portion capital of Rs. 100 crores, as reported in the most recent audited financial statements, must appoint at least one woman director.
Why Make Additions and Switches?
| Bring in new talent for the council | No Ownership Obligation | The current directors' incapacity | To reach the authorized threshold |
Documents required for the Director's Removal
- Picture: A passport-sized picture of the designated director
- PAN Card: The appointed Director’s self-attested PAN card
- Aadhar Card, Voter ID, Passport, or Driver’s License as Proof of Residency
- Certificate of Digital Signature: DSC for the current Director and the Director who is going to be removed
- Identity verification previously indicated as a driver’s license, passport, election card, or Aadhar card
- The Director’s official email address and mobile number
- If the director does not reside in India, then all apostilled documents must be apostilled.
- Resignation notice submitted to the employer
- Evidence of dispatch
- Confirmation of receipt of the form, if any.
Provisional Aspects: Companies Act of 2013 removal of director
- There must be a broad resolution.
- Director designated or appointed by the Tribunal pursuant to section 242 is irrevocable.
- Removal of a Reappointed Independent Director requires a “Special Resolution.”
- If directors are appointed in accordance with the principle of proportional representation (S. 163), then Section 169(1) will not be applicable.
A decision to dismiss a director or appoint someone to take his place must be given special notice.
The Company ought to make an effort to serve the Director with a special notice of the decision to remove him, coupled with an opportunity for him to be heard during the meeting.
- The director shall request notification to the members and submit it in writing to the company for representation.
- If the Tribunal finds in favor of the Company, the Company will not assign the representation or read it aloud during the meeting.
If “special notice” is given in accordance with “section 169(2),” the vacancy created by the removal of the director may be filled at the same meeting.
The removed director cannot be appointed again to the casual position.
- If a director is fired, they will be entitled to payment under the terms of their employment contract, if any.
- Under any further provisions of this act, the director may be removed.
Any party claiming to be wronged, including the Company, may file an appeal with the Tribunal using Form ‘NCLT-1’.
- Submit Form DIR-12 and the accompanying attachments no later than ’30 days’ from the date of the general meeting.
- The proposal to remove the Director is made in a Special Notice of Shareholders.
- Notice of General Meeting with Statement of Purpose.
- The regular resolution passed at the EGM in copy.
Method of Directors Removal Affecting Companies
To remove a director from the company, that director must have violated the terms and regulations outlined in the “Companies Act, 2013” or have tendered their resignation or cease to attend board meetings for three consecutive years.
Incident 1 – Suo-Moto Via The Board
Per Section 169 of the ‘Companies Act 2013’, a director may be removed by the shareholders. In addition, in this instance, the Director was not selected by the Tribunal or the Central Government, thus the procedure can be completed by passing a regular decision in a general meeting.
- A notice for a board meeting with a seven-day notice should be sent to every director. Additionally, notice of the director’s removal will be sent to every director of the company.
- A resolution to hold the general meeting will be passed as a result of the notice. On the day of the board meeting, the question of adopting the decision is for the approval of the shareholders.
- A general meeting will be called following the directors’ presentation of the specific declaration after 21 days. The majority of the votes will be used to determine the outcome.
- The considered director will have a choice and an opportunity to be heard in the first section.
- Following the resolution’s declaration, the director must file Forms DIR-11 and DIR-12 together with the “Board Resolution” attachments.
- As soon as possible, the consent director’s name will be removed from both the website and the “Ministry of Corporate Affairs (MCA)” database.
Incident 2 – Self-Submission By A Director
If a director of the company chooses to step down from their position as a director, they must first pass a resolution to the company.
According to the Companies Act of 2013, if a managing director or director resigns, the company will have additional responsibilities to meet.
- As per the requirement mentioned in section 168(1) of the Companies Act, 2013, the first and primary alternative is for the Company to pass a joint resolution authorizing the notice or letter of resignation and commission to file form DIR11 explaining the grounds for the departure.
- The resignation report, notification, and ideas for the resignation must be shared with the Registrar of Companies (ROC) using ‘Form DIR11′, within ’30 days’ of the date of the removal of the director, by rule ’16 of Companies Rule, 2014 (Appointment and Qualification of Directors)’.
- The notification or resignation letter is a mandatory requirement from the Company in addition to filing eForm ‘DIR11’. According to the Companies Act of 2013, this is the plan for the company following the resignation of the managing director.
- The following documents must be turned in:
- A resignation notice filed with the company
- Proof of dispatch
- Acknowledgment of form, if received.
Incident 3: The director missed three consecutive annual board meetings without showing up.
A director’s defection must be treated seriously if they missed 12 months of board meetings. The time frame begins on the day that the person was unavailable for the first meeting and any assembly, despite having been given ample notice for every session. Section 167 of the Companies Act, 2013 will be followed, and it will be indicated that he or she has left the office. In light of this, a Form DIR-12 on the name of the absent Director needs to be applied. Additionally, the name of the relevant Director will be deleted from the Ministry of Corporate Affairs following the formalities.
Consequences of failing to submit the DIR-12 form
If the company does not file the “form DIR-12” within 30 days of the resignation date, the penalty listed below will be charged.
- Concrete government fees once, valid for 15 days;
- It is double the first government penalty if it lasts longer than 15 days;
- If the deadline is not met within 30 to 60 days, there will be a penalty equal to four times the actual government charges;
- If it is more than 180 days, then 10 times the actual administrative costs apply;
- The fine also applies to the corporation if it doesn’t submit the form DIR-12 within 300 days of the resolution date. In addition to the compounded crime, the corporation must pay 12 times the precise amount of government costs.
Taxcult Complete Procedure
- Select ‘Order’ above.
- Create the application form by starting with the necessary information.
- Finish thinking about the payment.
- To appoint or remove a director, we will electronically submit the required document to Companies House.
- Within two to three business working days, you will receive a communication from Companies House stating that the Removal of Director has been granted, along with a “VAT invoice” and a copy of your digital papers by email or postal mail.
Summing–Up
If the company does not file the “form DIR-12” within 30 days of the resignation date, the penalty listed below will be levied.
- After being removed from office, a director may file a claim for losses or other compensation related to his loss of position. Even while this would prevent him from being returned to the board of directors, the knowledge that he had this right would be taken into account by the board when deciding whether to fire him, especially in cases where the depreciation claim would be substantial.
- Such a director would have challenges, including the requirement that he not have violated the company’s Memorandum of Incorporation or his service contract, and that he have the right to seek damages (or other compensation) for his loss of office under those agreements.
- Boards must operate honestly, openly, and in the firm’s best interests when using their newfound ability to remove one of their own from the committee of directors of a company. It is anticipated that directors will not misuse this authority, exploit it for nefarious purposes, or conceal any misconduct. These guidelines must be followed sanely, intelligently, prudently, and for the benefit of the business.
- In summary, in order to remove a director from the firm, you must, as previously mentioned, give a clear notice period of a few specified days. Furthermore, only if the board members support the decision will it be made in its entirety. A chance for justification, if any, will be granted to the director prior to the Board Resolution being passed. Should they proceed with their decision to quit the company, the board resolution will be approved. The director must file the particular form and submit it to the RoC in the manner mentioned above. Finally, the director’s name will no longer appear on the MCA website or in the company’s master data.
Frequently Asked Questions (FAQs)
Should company directors be held personally accountable for noncompliance following the company’s strike-off?
– The Director is required by Section 166 to fulfill the responsibilities outlined in that section. Should the Company be struck out, these statutory liabilities would be directly borne by them.
What Happens If the Form DIR-12 Is Not Filed?
– If the company does not file the “form DIR-12” within 30 days of the resignation date, a specified concrete government fee will be assessed as a penalty.
What is the first consequence of the Company not responding to the ROC Notice?
– As per the ‘ROC u/s 248(1)’ notice, serving as this notice is the initial step towards the company being struck off. Should ‘Company’ neglect to respond to this notice within 30 days of the note’s publication, ROC will remove the company’s name from its records.
Give members of the group notice at least seven days in advance of the meeting, along with a copy of the representation copy.
A ‘Special Notice’ of a resolution to remove a director must be sent by the member proposing the dismissal at least 28 days before to the meeting where the director may be excluded.
The Board and the majority of shareholders under the Company’s bylaws may be the only options available to the Company when it comes to seeking the dismissal of a director.
Since shareholders may choose directors in private companies under the Companies Act of 2013, it is desirable for them to be the only ones with the power to dismiss directors. However, if the company’s constitution allows it, a majority of directors may begin the process of dismissing a director in a proprietary company.
The Company must acquire approval from its Board and members before making any changes to the Board of Directors. This can be done by passing a resolution and meeting the statutory limit following a director’s retirement or removal from office.
No, a person can only own shares in the company if they are not subscribed as a need for appointment, as stated by the AoA, even after their term as a director has ended.
Following the modification, the Company’s shares will be transferred by filling out a Share Transfer Deed and applying stamps at the rates specified in the relevant State’s Stamp Act.