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Removal of Director

HomeCompanyRemoval of Director
  • Removal of Director
Removal of Director
  • Author
    Rajat Khaneja
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  • What is meant by Removal of Director?

Removal of Director means terminating the tenure of a Director before the expiry of his term in the office. A Director can be removed from his position by a company. The process of removing an individual acting as the Director of the company is known as Removal of Director.

  • Are all Directors can be removed from the company?

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. There are certain types of Directors who cannot be removed. The following categories of directors cannot be removed by a company under section 169 of the Companies Act, 2013:—

  • a director appointed by the Tribunal under section 242;
  • a director coming within the purview of directors appointed according to the principle of proportional representation under section 163 of the Act
  • 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;

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 169 of the Act is designed to enable them to control the Directors by their removal.

  • Can a Permanent Director be removed?

Yes, a Permanent Director can be removed by a company. A company has power under section 169 to remove a permanent director even if Articles of association put restrictions on removal of the permanent director. A permanent director appointed under the Articles of Association of a Company to hold office for life can also be removed from office. [Tarlok Chand Khanna v Rajkumar Kapoor (1983) 54 Comp Cas 12 (Del)]

  • How can a member remove a Director from a company?

It is a very important right given to every member. A member who is entitled to attend a general meeting and move a resolution may give Special Notice of a resolution to remove a director at a general meeting or to appoint somebody instead of the director so removed.

Section 169(1) provides that a company may, by ordinary resolution, remove a director, not being a director appointed by the Tribunal u/s 242, before the expiry of the period of his office after giving him a reasonable opportunity of being heard:

Provided that nothing contained in this sub-section shall apply where the company has availed itself of the option given to it u/s 163 to appoint not less than two-thirds of the total number of directors according to the principle of proportional representation.

  • What is the Procedure for removal of Director?

1.Receipt of Special Notice of a resolution from the member of a company for removal of a Director.

2. Sending a copy of the Special Notice so received to the director concerned, whether or not he is a member of the company. Any failure or omission to deliver the Special Notice to 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)]

3. Send a notice to directors to convene a board meeting

4. Convene a board meeting to take note of the Special Notice so received and approving notice for calling general meeting.

5, Sending notice of general meeting to all the members of the company.

6. Giving an opportunity to the concerned director of being heard in the general 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)]

7. If not satisfied by the representation of the concerned director, the director shall be removed by passing an ordinary resolution (votes in favor of the resolution are more than vote against it).

8. Appointment of another Director in place of the Director so removed by the members provided Special Notice given by the member incorporates this.

9. If the appointment is not done in the meeting, the vacancy shall be treated as casual vacancy and be filled by the Board as per section 161 at a meeting of the Board.

10. The director who was removed shall not be reappointed as a Director by the Board of Directors.

11. The director appointed in the place of the removed director shall hold the office till the date up to which the removed director would have held the office if he had not been removed.

  • How CEO, CFO, Managing Director (KMP) can be removed?

Section 179 (3) of the Act read with the Companies (Meetings of Board and its Powers) Rules, 2014 provides that removal of KMP can be done by the Board at its meeting.

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