Law Relating to Appointment, Resignation & Removal of Company Directors
The Company being a separate legal entity is an artificial person which needs a “Brain” to give it Command and run and that brain is “Director”. It is the Directors under whose supervision, the management team, run the business affairs of the Company. A Director may act as Executive or non-executive Director of the Company.
Minimum No of Directors Required
As per the Companies Act, 2013 (herein referred as the Act), a Company shall have minimum number of:
- Three in case of Public Company.
- Two in case of Private Company.
- One in case of One Person Company.
There shall be a maximum of fifteen Directors and that number can be increased beyond fifteen, by passing the special resolution in the General Meeting of the Company.
Every Company shall have at least one Director who has stays in India for a total period of not less than one hundred and eighty-two days in the Financial Year. While in case of a newly incorporated Company said requirement shall apply proportionately at the end of the financial year in which it is incorporated.
In respect of some specified class of Companies Independent Director and Women Director are required to be appointed on the Board. In case of the appointment of Independent Director in General Meeting, an explanatory statement for such appointment should also be annexed with Notice for calling of the respective General Meeting shall include a statement that in the opinion of the Board for the fulfillment of the conditions specified in the Act.
1. APPOINTMENT OF DIRECTORS
(Applicable Provisions: Section 152,153,154,155,156,157 and 158 of the Companies Act read with Rule 8, 9, 10, 11 and 12 of Companies (Appointment and Qualification of Directors) Rules, 2014)
A person shall have obtained or applied for Director Identification Number (DIN) and on being appointed as a Director shall not act as a Director unless he gives his consent in writing to hold the office as Director to the Company in the Form No. DIR. 2 and such consent has been filed with the Registrar within thirty days of his appointment in Form No. DIR.12 along with the fee as provided in Companies (Registration of Offices and Fees) Rules, 2014. It should be noted that every Director shall be appointed by the Company in General Meeting except in the cases where power has been given to the Board expressly in the Companies Act 2013 i.e. Appointment of Additional Director, Alternate Director, Nominee Director and Casual Director.
At the time of incorporation of a Company if no provision is made in the Articles of Association of a Company for the appointment of the first Director, the subscribers to the memorandum who are individuals shall be deemed to be the first Directors of the Company until the Directors are duly appointed and in case of a One Person Company an individual being member shall be deemed to be its first Director until the Director/s are duly appointed by the member in accordance with the provisions of this section.
Appointment of Director on the Basis of threshold Limits
PROVISO TO SECTION 149(6): APPOINTMENT OF INDEPENDENT DIRECTOR
- Listed Companies,
- Public Companies having paid up share capital of 10 crore rupees or more; or
- Public Companies having turnover of 100 crore rupees or more;
- Public Companies which have, in aggregate, outstanding loans or borrowings or debentures or deposits, exceeding 50 crore rupees.
It is further to be noted that If provisions of Section 135 i.e. CSR is applicable on the Company; it is required to have at least one Independent Director to be part of the CSR committee. In case the Company is not required to appoint an Independent Director CSR Committee shall be formed with two or more directors of the Company.
In the case of appointment of an Independent Director in the General Meeting, an explanatory statement for such appointment, annexed to the notice for the General Meeting, shall include a statement that in the opinion of the Board he fulfills the conditions specified in this Act for such an appointment.
Independent Director will be appointed for the term for the five years and shall be reappointed after passing the special resolution in the General Meeting of the Company. The retirement and rotation of the Directors does not apply to the Independent Director.
PROVISO TO SECTION 149(1) : APPOINTMENT OF WOMEN DIRECTOR
- Every listed company
- Every other public company
- Having paid up capital of 100 crore or more
- Turnover of 300 crore or more
Retire by rotation of Directors
The two third of the total numbers of the Directors of the Public Company shall be liable to be retire by rotation. One third of such Director will retire by rotation at every Annual General Meeting. The Directors to retire by rotation at every Annual General Meeting shall be those who have been longest in office since their last appointment, but as between persons who became Directors on the same day, those who are to retire shall, in default of and subject to any agreement among themselves, be determined by lot.
The Company may fill up the vacancy by appointing the retiring Director or some other person at the Annual General Meeting at which a Director retires. For calculation of the number of the Directors liable to be retire by rotation, the ‘Total number of the Directors’ shall not include the Independent Director.
2. Appointment of Additional Director, Alternate Director, Nominee Director and Casual Vacancy Director.
(Applicable Provisions: Section 161 of the Act)
- Additional Director
The articles of a Company may confer on its Board the power to appoint any person, other than a person who fails to get appointed as a Director in the General Meeting, as an Additional Director at any time who shall hold office up to the date of the next annual general meeting or the last date on which the Annual General Meeting should have been held, whichever is earlier. Board of Directors of the Company may appoint any person as an additional Director, who shall hold office upto the date of next annual general meeting.
- Alternate Director
The Board of Directors of a Company may, if so authorized by its articles or by a resolution passed by the Company in General Meeting, appoint a person, not being a person holding any alternate Directorship for any other Director in the same Company or holding Directorship in the same Company to act as an Alternate Director for a Director during his absence for a period of not less than three months from India. It is also important to note that no person shall be appointed as an Alternate Director for an independent Director unless he is qualified to be appointed as an independent Director under the provisions of this Act.
- Nominee Director
Board may appoint any person as a Director nominated by any institution in pursuance of the provisions of any law for the time being in force. The articles of Company should allow the appointment of nominee Director. Subject to the articles of a Company, the Board may appoint any person as a Director nominated by any institution in pursuance of the provisions of any law for the time being in force or of any agreement or by the Central Government or the State Government by virtue of its shareholding in a Government Company.
- Casual Vacancy Director
In the case of a Public Company, if the office of any Director appointed by the Company in general meeting is vacated before his term of office expires in the normal course, the resulting casual vacancy may, in default of and subject to any regulations in the articles of the Company, be filled by the Board at their meeting which shall be subsequently approved by members in the immediate next general meeting: Provided that any person so appointed shall hold office only up to the date up to which the Director in whose place he is appointed would have held office if it had not been vacated.
3. Disclosure of Director’s Interest
(Applicable Provisions: Section 184(1) of the act read with Rule 9(1) of Companies (Meeting of Board & its Powers) Rules, 2014)
Every Dircetor in the first Board Meeting in which he participates as a Director and thereafter at the first Board Meeting in every financial year about any change in the disclosures already made in “Form MBP – 1” of his concern or interest in any Company/ies or bodies corporate, firms, or other association of individuals which shall include the shareholding, whether directly or indirectly, concerned or interested in a contract or arrangement or proposed contract or arrangement entered into or to be entered. All notices shall be kept at the registered office and such notices shall be preserved for a period of eight years from the end of the financial year to which it relates and shall be kept in the custody of the Company Secretary of the Company or any other person authorized by the Board for the purpose.
4. Intimation by Director
(Applicable Provisions: Section 164(2) of the act read with Rule 14 (1) of Companies (Appointment and Qualification of Directors) Rules, 2014)
Every Director before his appointment and re-appointment shall inform to the Company concerned about his disqualification under sub-section (2) of section 164, if any, in Form DIR-8.
5. Resignation of Director
(Applicable Provisions: Section 167 and 168 of the act read with Rule 15 and 16 of Companies (Appointment and Qualification of directors) Rules, 2014)
A Director may resign from its office by giving a notice with the reasons of resignation in writing to the Company and the Board shall on receipt of such notice take note of the same. The Company shall intimate the same to Registrar of Companies in Form No. DIR.12 within thirty days from the date of receipt of notice of resignation from the Director and post the information on its website, if any. The resigning Director is also required to file Form DIR-11 to the Registrar of Companies within thirty days from the date of his resignation.
Where all the Directors of a Company resign from their offices, or vacate their offices under section 167 of the Act, the promoter or, in his absence, the Central Government shall appoint the required number of Directors who shall hold office till the Directors are appointed by the Company in general meeting. The Company shall also place the fact of such resignation in the report of Board of Directors to be laid down at the immediately following general meeting of the Company.
In case a Company has already filed Form DIR-12 with the Registrar, a foreign Director of such Company resigning from his office may authorize in writing a practicing chartered accountant or cost accountant in practice or Company secretary in practice or any other resident Director of the Company to sign Form DIR-11 and file the same on his behalf intimating the reasons for the resignation.
6. Vacation of office of Director
(Applicable Provisions: Section 164 and 167 of the Act.)
The Company on its own or at the information/ communication received from any of its Director about occurrence of any of the case/es mentioned in the legal background should take the necessary step to comply with the provisions of this Act.
The office of a Director shall become vacant in case:-
(a) He incurs any of the disqualifications specified in section 164, which are as below:
- he is of unsound mind and stands so declared by a competent court;
- he is an undischarged insolvent;
- he has applied to be adjudicated as an insolvent and his application is pending;
- 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: And if a person has been convicted of any offence and sentenced in respect thereof to imprisonment for a period extending upto seven years or more, he shall not be eligible to be appointed as a Director in any Company;
- an order disqualifying him for appointment as a Director has been passed by a court or Tribunal and the order is in force;
- 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;
- 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
- he has not complied with sub-section (3) of section 152 relating to holding of Directors Identification number.
- A private Company may by its articles provide for any disqualifications for appointment as a Director in addition to those specified above.
(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;
(c) He acts in contravention of the provisions of section 184 relating to entering into contracts or arrangements 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 section 184;
(e) He becomes disqualified by an order of a court or the Tribunal;
(f) He is 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 it should be noted that the office shall be vacated by the Director even if he has filed an appeal against the order of such court;
(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 other employment in that Company.
A private Company may, by its articles, provide any other ground for the vacation of the office of a Director in addition to these.
The Company has to take the note of the same and hold the Board meeting and consider the occurrence of the case/es mentioned in sub-section (1) of the Section 167 and file the form for change in Board of Director in the Form No. DIR.12 with the Registrar of the Companies along with the fee as provided in Companies (Registration of Offices and Fees) Rules, 2014
Where all the Directors of a Company vacate their offices under any of the disqualifications specified above, the promoter or, in his absence, the Central Government shall appoint the required number of Directors who shall hold office till the Directors are appointed by the Company in the general meeting.
7. Removal of Director
(Applicable Provisions: Section 169 of the Act.)
- By Company
The Company may remove a Director before the expiry of the period of his office after giving him a reasonable opportunity of being heard, but the provisions of this section shall not apply to the Directors appointed according to the principle of proportional representation or by the Tribunal and Nominee Director appointed by bank or any Financial Institutions.
A special notice is required to remove the Director or to appoint somebody in his place. On receipt of notice of a resolution to remove a Director, the Company shall forthwith send a copy thereof to the Director concerned, and the Director, whether or not he is a member of the Company, shall be entitled to be heard on the resolution at the meeting. The Company shall issue notice for holding General Meeting and the representation; if any received from the Director, to be removed, may also be sent with notice if time allowed to do so and if a copy of the representation is not sent as aforesaid due to insufficient time or for the Company’s default, the Director may without prejudice to his right to be heard orally require that the representation shall be read out at the meeting. Company in general meeting can remove the Director by passing an ordinary resolution. The Company shall within 30 days of passing of resolution, intimate the Registrar in Form No. DIR.12 along with such fee as may be provided in Companies (Registration of Offices and Fees) Rules, 2014 and post the information on its website, if any.
A vacancy created by the removal of a Director, if he had been appointed by the Company in general meeting or by the Board, be filled by the appointment of another Director in his place at the meeting at which he is removed shall hold office till the date up to which his predecessor would have held office if he had not been removed, provided special notice of the intended appointment has been given.
- By NCLT
Through this mode of removal of a director, the company appeals to the National Company Law Tribunal for preventing any mismanagement in the company and upon the receipt of such appeal NCLT can terminate or set aside such agreement of company with its director. The removed director doesn’t get compensation from the loss of office.
- Removal of Director by Central Government:
Central Government upon the recommendation of NCLT has the power to remove managerial personnel in the following cases:
Directors are indulged in transactions for defrauding its stakeholders or lenders or found guilty of fraud, misfeasance, or default or carrying out such activity which is against business principal or policies or any such transaction that causes injury to the trade policies of industry.
Here in this article, provisions relating to Appointment, Resignation and Removal of Company Directors has been discussed and summed up. Hope the article will be helpful to the readers and will help them in compliance of the related provisions.
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Amended upto 1st May, 2020