removal of director by shareholders

Procedure for Removal of Director Companies

A director can be removed under section 169 of the Companies Act, 2013. If a director is not appointed by the tribunal under Section 242 of the Act, before the expiration of his term of office and after giving him a reasonable opportunity of being heard, the company can remove him by ordinary resolution. In order to remove a director under this section or to appoint someone to replace that director, a special notice is required. A notice of change must be signed by at least 1% of the total voting power on the date of the change, or shares with an aggregate value not less than Rs. 5 lakh on the date of the change.

An independent director can only be removed by way of a special resolution after being reappointed by way of a special resolution for a second term.

When a director who was appointed at a general meeting is removed, under Section 169, a vacancy can be filled by appointing another director to fill his vacancy at the meeting where he is removed, by giving special notice of the appointment. In such a case, the director will hold office until the date until which his predecessor would have held office if he had not been removed.

As per Section 169(7), the board cannot reappoint the director removed to become a director if the vacancy is not filled as a casual vacancy under Section 161(4).

Procedural Steps

Step 1: A special announcement

  • 115 and 169(2) of the Companies (Management and Administration) Rules, 2014 require a special notice to be sent by members before the meeting if a director is to be removed.

Step 2: Disclosures bound by time

  • A company listed on a stock exchange must disclose receipt of notice of removal of a director within 24 hours of receiving notice under regulations 30 and 46(3) of the SEBI (LODR) Regulations, 2015.
  • Within two working days, publish the same on the company’s website.

Step 3: Notice, consent, declaration, etc.

  • As per section 152 read with rules 8 and 14(1) of the Companies (Appointment and Qualification of Directors) Rules, 2014, if a special notice is also to be given to appointing a person to replace the director who is to be removed, a deposit of Rs. Nevertheless, if an independent director is appointed, no deposit is required.
  • Form DIR-8 must include a declaration that the proposed director is not disqualified to be a director under the Act, along with written consent in Form DIR-2.
  • A copy of the notice to remove a director must be forwarded to the concerned director when it receives the notice according to Section 169(3) of CA, 2013.
  • In order to notify members of the company of the representation, the concerned director may write to the company. 1) The company shall mention the representation in any notice of the resolution given to members of the company, and 2) send a copy to each member to whom notice of the meeting is sent, if time permits. In the event of a lack of time, a director may request that his representation be read.

Step 4: Advertisement in a newspaper and dispatch

  • A company must notify its members of the resolution seven days before the meeting, excluding the day of dispatch and the meeting day, in the same manner as a general meeting.
  • The notice shall be published at least seven days before the meeting in the English language in the English newspaper and in vernacular language in the vernacular newspaper, both of which are widely circulated in the state if the aforesaid notification is not practicable. You should also post such notice on your company’s website.

Step 5: Hold a general meeting

  • Conduct a general meeting in accordance with Sections 169, 96, and 100, and Secretarial Standards-2, to remove/appoint directors.
  • If an independent director is serving his second term, then a special resolution is required to remove him.
  • The director should have a reasonable opportunity to be heard before the resolution is passed.

Step 6: Disclosures that are time-bound

  • Under Regulations 300 and 46(3) of the SEBI (LODR) Regulations, 2015, a listed company must report the results of its general meeting to the stock exchange where its shares are listed within 24 hours of the meeting’s conclusion. Within two days of the announcement, the company will post it on its website.
  • The SEBI (LODR) Regulations, 2015 require listed companies to disclose the voting results within 48 hours of the conclusion of their general meeting in the format shared by SEBI, as well as to post them on their website.
  • According to Regulations 30 and 46(3) of the SEBI (LODR) Regulations, 2015, a listed company must notify the stock exchange where its shares are listed within 24 hours of the declaration of result regarding the appointment of director and post the information on the company’s website within 2 days of that announcement.
  • Regulation 7(1) of the SEBI(PIT) Regulations, 2015 also requires listed companies to obtain disclosures in Form B within seven days after director appointments.

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