Removal of Director

Overview

In a general meeting, the shareholders can remove or vote out a director from a firm. The exemption to this rule is provided under section 242 of the Act when the Tribunal or the federal government chooses the director.

The company can change its board of directors at any time. Depending on the nation in which the company is incorporated and the grounds for dismissal, there are several procedures for removing a director. A decision by the board of directors may be necessary for some situations for dismissal, while in others, a shareholder vote may be necessary.

Who is a director?

According to the 2013 Companies Act, a director is a person designated to carry out the responsibilities and obligations of a company’s director. The officers designated to operate a corporation and ensure it complies with the law are called directors. Sometimes directors are referred to as trustees, agents, or managing partners. Depending on the situation, many perspectives exist on directors.

Reasons for removal of a director 

• If the person left their job voluntarily.
• The director can no longer perform their obligations due to their health or other conditions.
• If they experience any of the exclusions listed in the Companies Act
• Insolvency or a violation of their service agreement
• The director has received a significant criminal offence conviction.
• If they miss more than 12 consecutive board meetings
• The director must uphold their fiduciary responsibilities to the corporation or its shareholders.
• If they have disregarded the conditions and guidelines outlined in the Companies Act of 2013
• If they violate Section 184 of the Companies Act by entering into contracts or agreements.
• The director mismanaged the company or committed grave illegal behaviour.
• If a court or other authority disqualifies them by a decision
• Neither the board of directors nor the shareholders are interested in the director anymore.
• If they are given a prison term of at least six months after being found guilty of any crime by a court

Ways to remove a director 

There are three options for dismissing a director from your business.

1. When a director offers to resign

• Step 1: Holding board meetings with a clear seven-day notice.
• Step 2: At the meeting, the resignation is noted by each board member.
• Step 3: After then, they must offer a resolution in the manner required by that outcome.
• Step 4: The leaving director then needs to complete Form DIIR-11 in his capacity.
• Step 5: Along with the registration form and the board resolution, your company must submit Form DIR-12 to the company registrar (RoC).
• Step 6: The director’s name will be deleted from the company’s Ministry of Corporate Affairs (MCA) website’s master records once all the paperwork and procedures for removing directors have been completed.

2. The director misses 12 months of board meetings

• Step 1: A director is deemed to have resigned per Section 167 if they fail to appear at all board meetings for twelve months without being excused or receiving board member permission to do so.
• Step 2: It is necessary to complete and submit an Application Formula (DIR-12).
• Step 3: Once the requirements are completed, the director’s name is removed from the Ministry of Corporate Affairs (MCA) databases.

3. Whenever shareholders remove the directors

• Step 1: All shareholders are notified via an announcement that an annual board meeting will take place within seven days after the announcement date.
• Step 2: The resolution passed on the day of the meeting that called for the holding of a general assembly and, afterwards, the removal of a director with shareholders’ approval.
• Step 3: The resolution adopted at the first meeting shall be approved at the second meeting of the Shareholders to be called with 21 days’ notice. The director facing removal by shareholders will be permitted to discuss the reasons behind their removal.
• Step 4: Form DIR-12 must be completed by the shareholders, along with an ordinary resolution and attachments to the board resolution.
• Step 5: Once all formalities are completed, the director’s name is removed from the Ministry of Corporate Affairs (MCA) databases and website.

Among the procedures, this is the most basic form. Care must be taken, and the policies outlined by the Companies Act must be followed when removing a director from your firm.

Documents required for removal of a director

• A passport-sized photo of the designated director
• A self-certified photo ID for the director to be named
• Identification proving residency: Aadhar card, voter ID, passport, or driver’s license
• Digital signature certification for both the current director and the upcoming director
• Identification proof includes a passport, election card, driver’s licence, and Aadhar card.
• The director’s cellphone number and personal and business email addresses
• If the director is a non-resident of India, it is required to have all documents apostille.
• Resignation notice submitted to the director
• A dispatch receipt
• A receipt acknowledging receiving the form.

Penalties for not filing dir 12 form

After the day of resignation, the DIR-12 must be submitted within 30 days. The corporation will be penalised if it fails to file:

• Once-off government fees for concrete up to 15 days
• The original government penalty is doubled if more than 15 days have passed.
• The price doubles after 30 days and within 60 days.
• Paying the government fees after 60 days but before 90 days is four times as much.
• The government will charge 10 times the charges if it lasts 90 days.
• If it persists for more than 120 days, the government will be taxed 12 times as much, and you will also be penalised for the compounding violation.

The fine also applies to the business that needs to meet the deadline of 300 days after the resolution was reached to file the form DIR-12. The corporation is required to pay compounding offence fees in addition to the same government fees 12 times over.