Removal of directors


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Removal of directors

  1. 1. By :-Uttma Shukla &Mohini Agrawal
  2. 2. A director of a company can beremoved by 1. Shareholders 2. Central Government 3. CLB/Tribunal
  3. 3. Removal by shareholder :Section 284 empowers the company to remove a director byordinary resolution before the expiry of his period of office exceptin the following cases:• A director appointed by the central government under section408.• A director in case of a private company, holding office for life onthe 1st day of April 1952. (A director for life subsequent to thatday may be removed).• Director appointed in accordance with the principal ofproportional representation, under section 265. This is to ensurethat the directors appointed by the minority are not removed by abare majority.
  4. 4. Procedures to be followed for removing director by shareholders:1. Special notice – For removing a director a special notice should be obtained from a member proposing an Ordinary Resolution for removal.2. Intimate the director – Send the copy of special notice to the director to be removed.3. Notices for General Meeting – Notices to be issued for conducting a General Meeting at least 21 days before the meeting stating about the special notice and proposing the Ordinary Resolution for removal.4. Representations made – If any representation has been made by the director concerned, it should also be stated in the notice and the copy of representation to be enclosed. If representation has not been given to all the members, director can request to read out such representation in the meeting.
  5. 5. 5. Opportunity of being heard – The director also has the right to be heard at the meeting.6. Pass resolution – Pass the resolution and remove the director of the company.7. Inform the ROC – The Company shall within 30 days from the removal of a director file Form No.32 and a copy of the resolution with the Registrar.8. Penalty – If default is made on complying with the aforesaid requirements, the company and every officer in default shall be punishable with a fine of up to Rs. 500 for everyday during which the default continues.
  6. 6. Removal by the Central GovernmentThe companies act enables the central government to removemanagerial personnel (including a director) from office on therecommendation of the high court. The central government may referto the high court cases against managerial person on any of theground mentioned in section 388-B. Every such reference will be madein the form of an application which must contain a statement ofmaterial facts. The person against whom such reference is made mustbe joined as a respondent to the application.
  7. 7. At the conclusion of hearing of the case, the high court shallrecord its decision stating specifically whether or not therespondent is a fit and proper person to hold the office ofdirector. If the finding of the high court is against therespondent the central government shall by order removesuch a person from office.The person who is so removed cannot hold office of a directorfor a term of five years unless the period is remitted. Theperson removed cannot claim any compensation for loss ortermination of office.
  8. 8. Removal of director by CLB/TribunalRegarding oppression and mismanagement under section 397/398the CLB/Tribunal has the power to reconstitute the Board of acompany by removal of director.On an application to the court for prevention of oppression andmismanagement the court may terminate or set aside or modifyany agreement between the company and the managing director,or any other director or manager. On such termination, thedirector cannot serve the company in a managerial capacity for aperiod of five years from the date of the order of termination,without the permission of the court. The director on removalcannot sue the company for damages or compensation for loss ofoffice.