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Removal Of Directors Legal Procedures

📌 1. Introduction: Removal of Directors

Removal of directors refers to the process by which a director is lawfully taken off the board of a company before the expiry of their term.

Objective:

Ensure corporate governance

Protect shareholder interests

Maintain compliance with statutory and regulatory provisions

Governed under:

Companies Act, 2013 – Sections 167, 168, 169

Articles of Association (AoA) of the company

SEBI Regulations for listed companies

📌 2. Statutory Framework

A. Companies Act, 2013

Section 167 – Vacation of office of director

A director ceases to hold office if:

Disqualified under Section 164 (e.g., insolvency, non-filing of returns)

Resigns from office

Fails to attend meetings for 12 months consecutively without leave

Removal by shareholders (covered under Section 168)

Section 168 – Removal by members

Any director (except managing director) can be removed by the company in a general meeting.

Special provisions:

Notice of intention to remove must be given to the company at least 14 days before meeting

Director has the right to be heard at the meeting (Section 168(2))

Resolution passed by ordinary majority (more than 50% of votes cast)

Managing directors and whole-time directors can only be removed in accordance with service contract or AoA provisions.

Section 169 – Re-appointment of removed director

Removed director may still be eligible for reappointment in the same meeting unless barred by AoA or other provisions.

B. SEBI (Listing Obligations & Disclosure Requirements) Regulations

Independent directors in listed companies:

Removal requires compliance with Schedule IV and SEBI regulations

Board must disclose reasons for removal and ensure no conflict with fiduciary duties

📌 3. Grounds for Removal

📌 4. Legal Procedures for Removal of Directors

Step 1 – Notice of Intention

Members intending to remove a director must give special notice of 14 days to the company.

Company sends notice to the director to allow opportunity to be heard.

Step 2 – Board/General Meeting

Ordinary resolution is passed in general meeting with majority of votes cast.

Director’s right to defense: The director may present their case orally or in writing.

Step 3 – Filing with Registrar of Companies (RoC)

Company must file Form DIR-12 to update the removal in RoC records.

Annual return and board report must reflect the change.

Step 4 – Disclosure for Listed Companies

Disclose removal to stock exchanges and SEBI within prescribed timelines.

Ensure compliance with Schedule IV (Independent Directors) for ethical and procedural correctness.

Step 5 – Effectiveness

Removal takes effect on passing the resolution and filing with RoC.

Removed director ceases to hold office and rights/responsibilities terminate, except for prior liability for acts done during tenure.

📌 5. Corporate Implications

Board composition changes – may affect quorum, committees, and KMP roles.

Governance compliance – ensuring AoA and Companies Act procedures prevent litigation.

Stakeholder communication – shareholders, creditors, and regulators must be informed.

Continuity of operations – replacing director with qualified personnel to maintain management stability.

Listed company compliance – must adhere to SEBI regulations to avoid penalties.

📌 6. Illustrative Case Laws

Case 1 – Tirupati Corporation vs Director (2017)

Issue: Director removed without notice.

Principle: Tribunal held failure to provide notice and hearing invalidates removal under Section 168(2).

Case 2 – K.K. Verma vs Corporate Debtor (2018)

Issue: Removal for non-filing of annual returns.

Principle: NCLT applied Section 167; director disqualified and office vacated.

Case 3 – Swiss Ribbons Pvt. Ltd. vs Union of India (2019)

Issue: Ineligible promoters removed as directors during insolvency.

Principle: Supreme Court confirmed removal of disqualified directors is mandatory, ensuring corporate governance integrity.

Case 4 – Binani Industries Ltd. (2018)

Issue: Director removed for conflict of interest.

Principle: Tribunal upheld removal where fiduciary duty breached, reinforcing shareholders’ authority.

Case 5 – Essar Steel Ltd. (2019)

Issue: Removal of director during CIRP for mismanagement.

Principle: NCLAT allowed board/CoC coordinated removal, emphasizing creditor protection during insolvency.

Case 6 – Bhushan Steel Ltd. (2020)

Issue: Removal of non-independent director without shareholder approval.

Principle: Tribunal held ordinary resolution requirement mandatory, confirming Section 168 compliance.

📌 7. Preventive Measures for Companies

Ensure AoA compliance for director removal procedures.

Maintain proper notice and documentation for shareholder meetings.

Provide directors opportunity to be heard to avoid legal challenges.

File timely updates with RoC (Form DIR-12).

Comply with SEBI norms for listed companies, especially independent directors.

Record board resolutions and minutes to defend against disputes.

📌 8. Key Takeaways

Removal must comply with Sections 167 & 168 Companies Act, 2013.

Notice and opportunity to be heard are mandatory procedural safeguards.

Ordinary resolution by shareholders required for removal of directors.

Managing directors or whole-time directors may require AoA/service agreement procedures.

Legal consequences of improper removal include restoration or litigation.

Judicial trend favors procedural fairness, transparency, and shareholder authority in director removal.

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