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Appointment and Removal of Director
Ms. Anupama Goswami
K.K.PAREKH INSTITUTE OF MANAGEMENT STUDIES- AMRELI
The administration of the company is in the hands of the
directors. They take decision on policy matters. They are not
paid servants. They serve in three different ways:
As a Trustee
As an Agent
As a Partner
Person named in the articles of association as directors become
the first director of the company or in the absence of the
provision in the articles regarding persons to be appointed first
directors, the subscribers to the memorandum of association will
become the first directors.
Appointment by Election
The members at the general meeting of the company will elect
the directors. This is the most common and usual mode of
appointing directors. Section 255 provides for the procedure for
Appointment by nomination by Board of Directors
The Board of Directors will fill up the casual vacancy arising
among the directors by nomination. Directors so appointed will
remain in the office only for the unexpired period for which the
director whose post is empty, would have remained in the office.
Appointment by nomination by Central
Under Section 408 of the Act, the central Government can
nominate some directors to the Board in case of mismanagement
Appointment by nomination in statutory corporation
Certain statutory corporations possess similar powers, e.g. the
industrial Finance Corporations Act of 1947 empowers the
Corporation to nominate a director to the Board of a company to
which it has advance money.
Appointment on the basis of qualification
Where person holds minimum number of shares as
provided in the articles then he is said to have obtained
Appointment on the basis of consent filed
A person intending to be appointed as a director must sign and
file with the company his consent to act as such, if
appointed, unless he himself notifies his candidature to the
Appointment of alternate directors
The Board of Directors of a company, may, if so authorized by its
articles or by resolution passed by a company in general
meeting, appoint alternate director during absence of existing
director for a period not less than three months from the State in
which meeting of the Board are ordinarily.
Disqualification of Directors
According to Section 253 of the companies Act, 1956, only
individual can be appointed as the director. However a person
shall not be capable of being appointed as director of the
Application is pending
Convicted by a Court
Not paid any share
Removal of Directors
The shareholders, the Central Government or the court may
remove the directors. The rules regarding the removal of the
directors are as follows:
A company may by ordinary resolution remove a director
before the expiry of period of office except in the following
Directors who cannot be removed
An additional director appointed by the central Government
under Section 408 in case of mismanagement and oppression
cannot be removed. In a private company a director appointed for
life and holding office as such on 1st April 1952 cannot be
removed by member’s resolution. Where the articles of a
company provide for the election of directors by proportional
representation, a director elected by that method cannot be
removed by the resolution.
Special Notice for removal of directors
Special notice must be give of the resolution to remove a
director, copy of which must be give to the director concerned.
The meeting which removes a director can elect another in his
place if the director was originally appointed by the election.
Removal by the central Government
The central Government shall by order remove from the office
any directors against whom there is a decision of the High
Court, holding that he is not a fit or proper person to hold the
office of director.
Remuneration to the director for this removal
If a director, by an agreement or otherwise entitle to receive
compensation for the premature termination of his service he
can enforce his claim notwithstanding the removal by the
Removal by Court
Section 402 read with Section 397 and 398 gives wide power to
the court including the removal of the directors.
Power of Directors
Section 291 of the Companied Act, 1956,- lays down that subject
to the provisions of the articles, the board of Directors of a
company shall be entitles to exercise all such powers and to do all
such acts and things as the company is authorized to exercise and
Powers to be exercised by the Board of Directors
Section 292 of the Companies Act provides that the Board of
Directors shall exercise the following powers on behalf of the
Make calls on shareholders
Borrows the money other than on debentures
Invest the funds of the company
A director validly appointed and if he is not otherwise
disqualified to take part in discussion in the Board’s
meetings, he is entitled to attend the meetings of the Board and
participate in the discussion of the company’s affairs.
A director is entitled to receive remuneration fixed by the
articles or otherwise, but subject to the provisions of the Act.
Managing Director and the whole-time director may be given
compensation by the company if the company terminates the
services of such a director prematurely.
Duties of the Directors
Work according Business lines
Act in good faith and with interest
Degree of skill
To attend meetings
The director's duty of disclosure
Liabilities of Directors
Any false statement made in the prospectus.
Where the director exceed the authority for entering into the
For any ultra virus act of the company.
Where a director is negligent and the company suffers the loss
due to the negligence of directors.
If the director makes any secret profit in connection with the
affairs of the company.
If the directors commit any breach of trust relating to the
properties and funds of the company.
The companies act imposes criminal liabilities upon the
directors for the breach of certain conditions.
Various provisions of the act provide for the imposition of
fine for criminal performance Of the prescribed duties.
Imprisonment is also provided for in certain cases viz. False
statement in prospectus, failure to keep certain
registers, falsification of book and report, etc.
Negligence, breach of duty, the court can excuse him from
any liability if it is of opinion that such director or officer has
acted honestly and reasonably and that having regard to all
the circumstances of the case, he ought fairly to be excused.
Unlimited liabilities of directors
It may be provided in the memorandum of association that the
liability of the directors or any director or manager may be
Material of LAB
(MBA Sem. III)