Removal of Director in India

Removal of Director in India

In India, when baby company is formed, the mummy daddy (Promoters) never thought of getting rid of the nanny aunty (Resident Director) as that time they need her but when the baby company grows and when there comes disputes with nanny Aunty, they try finding out the best possible way to detach her from baby. Removal of Director is one such resolution in India.

There are cases where the foreign promoters forms the company with Non familiar Resident Director and later the Resident Director don’t give resignation on mutual terms. At the time of the appointment of Resident Director, there is a lacuna that no written Contract/ Arrangement is done, due to which such dispute arises. At the time of disagreement between Resident Director and FOREIGN PARTY, foreign promoters comes up with the resolution to remove him from the company. Disagreement may come due to internal management issues, or when the Nanny Aunty starts becoming Mom Dad to the baby Company. Removing him is the only solution at that time. To removing him from directorship, it requires proper law and regulations to be followed.

Sec 169 deals with removal of Directors under Companies Act, 2013.

It says that a company can remove Resident Director if he is not appointed Director by Tribunal. The Companies Act 2013 focuses on “after giving him a reasonable opportunity of being heard”. This means that the company is required to give him realistic chance to be heard i.e. the concerned Director be given the notices, Agenda through email, and post, so that his point of view on his removal be heard.

It is important to understand that before removing the concerned Director, the company should look out to appoint another Resident Director in place of the removing Director, so that there is no noncompliance on Appointment of Resident Director.

A special notice is required to be given by shareholders to the company, to remove the concerned director and to appoint somebody in place of a director so removed. When company receives the special notice from one Shareholder or more Shareholders as joint request, it sends it to the concerned Director as well as other Directors of the company. Make sure that the notice of intention to move a resolution requiring special notice shall be given to the company by such number of members holding not less than one percent {01%} of total voting power or holding shares on which such aggregate sum not exceeding Rs. Five {05} lakhs, as may be prescribed by the Central government has been paid up.

“Meaning: Opportunity of Being Heard”

Case Law: Bhankerpur Simbhaoli Beverages P Ltd v. P R Pandya [1996] 86 Com Cases 842 {P&H}

This case law emphasises the relevance of Opportunity of Being Heard.

·        It is company’s obligation not to delay sending copy of special notices to concerned director and other directors as and when received from the members. Accordingly when the concerned director receives it, he shall be entitled to be heard on the resolution at the meeting. 

·        The word “forthwith” signifies the quick action on part of sending notices and no intentiona is being done in compliance of Sec 169. 

·        Even if the concerned director is member/ shareholder in the company, he has the right to attend the general meeting and opportunity to him should be given to be heard his case. This statutory right of the concerned director to attend and be heard at the general meeting is important as without which the removal resolution will have no effect, has also been recognised in the case of  in terms of the erstwhile law.

There may be cases where the shareholders and Directors are different persons or same persons. Still the special notice is required to be dispatched and delivered to all the Directors so that reasonable opportunity of being heard is given.

When the concerned Director receives the special notice, he is requested to give written representation stating the facts of his removal why and why not. Practically, the concerned Director either doesn’t give written representation or don’t appear for the meetings despite been given realistic chance to be heard. If in case any written representation is received, it is advisable for the company to take further decision based on that.

Pls note that nothing in Section 169 of Companies Act 2013 shall be taken—

(a) as depriving a person removed under this section of any compensation or damages payable to him in respect of the termination of his appointment as director as per the terms of contract or terms of his appointment as director, or of any other appointment terminating with that as director; or

(b) as derogating from any power to remove a director under other provisions of this Act.

Generally, Registrar of Companies raises query on the following issues;

-        They may ask the Foreign Corporate Shareholder to provide notarised and apostilled copy of Special Notice

-        They may ask the company to prove whether opportunity of being heard given appropriately

Many a times, while going through this whole process, the company and the concerned Director comes up with a mutual decision.