Vacation of office of Director as per Companies Act 2013

Vacation of office of Director

Which sections to read: Section 167, 164, 152, 154, 184 of Companies Act 2013

Meaning: Vacation of office of Director means expiry date of Director from the office of the company.

When he/she vacates the office: Section 167 of Companies Act 2013 says that the Director becomes vacant in the following cases;

a.       When he/ she incurs any of the disqualifications specified in Sec 164

                                i.            He is of unsound mind and stands as an insolvent and his application is pending;

                              ii.            He is an undischarged insolvent

                            iii.            He has applied to be adjudicated as an insolvent and his application is pending;

                            iv.            He has been convicted by a court of any offence, whether involving moral turpitude or otherwise and sentenced in respect thereof to imprisonment for not less than six months and a period of five years has not elapsed from the date of expiry of the sentence;

Provided that if a person has been convicted of any offence and sentenced in respect thereof to imprisonment for a period of seven years or more, he shall not be eligible to be appointed as a director in any company;

                              v.            An order disqualifying him for appointment as a Director has been passed by a court or Tribunal and the order is in force;

                            vi.            He has not paid any calls in respect of any shares of the company held by him, whether alone or jointly with others, and six months have elapsed from the last day fixed for the payment of the call;

                          vii.            He has been convicted of the offence dealing with related party transactions under Section 188 at any time during the last preceding five years; or

                        viii.            He has not complied with Sub section (3) of Sec 152 which says that’

-No person shall be appointed as a Director of a company unless he has been allotted the Director Identification Number (DIN)

                            ix.            No person who is or has been a director of a company which, has not filed Financial statements or annual returns for any continuous period of three financial years; or

                              x.            No person who is or has been a director of a company which, has failed to repay the deposits accepted by it or pay interest thereon or to redeem any debentures on the due date or pay interest due thereon or pay any dividend declared and such failure to pay or redeem continues for one year or more;

Shall be eligible to be re-appointed as a director of that company or appointed in other company for a period of five years from the date on which the said company fails to do so.

b.      He absents himself from all the meetings of the Board of Directors held during a period of twelve months with or without seeking leave of absence of the Board;

This means the director has to be there in atleast one Board meeting in a period of 12 months. For this calculation, it should be calculated from the date of last meeting attended by the Director. However, professionals have different point of view on this, some say;

The period of 12 months should be reckoned from the first board meeting held after the commencement of the Act and which the Director missed. That will be month one.Then count upto 12 months. If there is a board meeting in the 12th month and the director misses it then he will vacate office at the end of the meeting.

c.       He acts in contravention of the provisions of Sec 184 relating to entering into Contracts and arrangement in which he is directly or indirectly interested;

d.      He fails to disclose his interest in any contract or arrangement in which he is directly or indirectly interested, in contravention of the provisions of Sec 184

e.       He becomes disqualified by an order of a court or the Tribunal

f.       He is convicted by court of any offence, whether involving moral turpitude or otherwise and sentenced in respect thereof to imprisonment for not less than six months;

Provided that the office shall be vacated by the Director even if he has filed an appeal against the order of such court;

Please note that Proviso to Sec 167(1)(f) is proposed to be substituted by the below mentioned clause as introduced by Lok Sabha on 16^th March 2016;

Provided that the office shall not be vacated by the director in case of orders referred to in clauses (e) and (f)-

(i)                 For thirty days from the date of conviction or order of disqualification;

(ii)               Where an appeal or petition is preferred within thirty days as aforesaid against the conviction resulting in sentence or order, until expiry of seven days from the date on which such appeal or petition is disposed of; or

(iii)             Where any further appeal or petition is preferred against order or sentence within seven days, until such further appeal or petition is disposed of.

g.      He is removed in pursuance of the provisions of this act;

h.      He having been appointed a director by virtue of his holding any office or other employment in the holding, subsidiary or associate company, ceases to hold such office or employment in that company.

For more details, contact CS Neha Seth At csnehaseth.cp@gmail.com