What is Director Removal?

Director removal refers to the process of terminating the appointment of a director from the board of a company. This can be due to various reasons such as poor performance, breach of duty, violation of the company's policies, or a fundamental disagreement with the management. The removal process must be done in line with the legal provisions under the Companies Act, 2013, to ensure compliance and avoid potential legal challenges.

Reasons for Removing a Director

There are several reasons why a company may decide to remove a director from the board:

1. Non-performance – Directors may be removed due to a lack of contribution or failure to perform their duties effectively.
2. Breach of Company Policies – A director may violate the company’s internal policies or ethical standards, leading to removal.
3. Conflict of Interest – A director’s interests may conflict with the interests of the company, necessitating their removal.
4. Legal Violations – Directors who are involved in illegal activities, fraud, or other unethical conduct may be removed.
5. Non-compliance with Regulatory Requirements – Failure to comply with the Companies Act or MCA regulations, such as non-filing of DIR-3 KYC or eKYC updates, can result in removal.
6. Unilateral Decisions or Disagreements – Disagreements or conflicts with other board members may lead to the removal of a director.

Process for Removing a Director

1. Board Resolution

The first step in the removal process is to pass a Board Resolution in the board meeting to propose the removal of the director. A special notice must be given to the director proposing removal, informing them of the reasons for the action.

2. Special Notice to the Director

Under Section 169(2) of the Companies Act, 2013, the director to be removed must be given special notice at least 14 days before the meeting where the resolution for their removal will be discussed. This notice should clearly mention the intention to remove them and the grounds for such action. The director can submit a written representation to the company to state their case.

3. Shareholder Approval

The removal of a director requires approval from the shareholders through a special resolution. This means that the shareholders need to vote in favor of the resolution to remove the director. The resolution can be passed in an Annual General Meeting (AGM) or Extraordinary General Meeting (EGM).

• A simple majority of the shareholders present and voting at the meeting must approve the resolution.

4. Filing with Registrar of Companies (ROC)

After the special resolution is passed, the company is required to notify the Registrar of Companies (ROC) by filing Form DIR-12 within 30 days of the removal. The Form DIR-12 should include details of the director being removed, along with the effective date of removal.

The director’s DIN (Director Identification Number) will also be updated, and they will no longer be authorized to act in the capacity of a director in the company.

5. Informing the Director

Once the director is removed, they must be formally informed in writing, and the company's records must be updated to reflect the change.

Documents Required for Director Removal

1. Special Notice – Notice given to the director regarding the proposal to remove them from the board.
2. Board Resolution – Resolution passed by the board to approve the proposal for removal.
3. Special Resolution – Resolution passed by the shareholders in the AGM or EGM to remove the director.
4. Form DIR-12 – Filed with the ROC to officially notify the removal of the director.
5. Director’s Response – The director’s written representation (if they choose to submit one) to the shareholders.
6. Proof of Notice – Evidence that the director received the notice of the meeting and the removal proposal.