Removal of Director - Overview

Each privately held enterprise is mandated to maintain a board comprising a minimum of two directors. Conversely, for publicly traded corporations, the requisite count increases to a minimum of three directors. In the instance of a private company, the prerogative exists to expel a director entangled in any of the stipulated incompetency scenarios as delineated by the Act. Should a director remain absent from board commitments for a span exceeding twelve months, the company retains the authority to initiate their removal.

Furthermore, any private entity embarking on arrangements or pacts in contravention of the limitations articulated in section 184 is subject to restraint through a judicial order. This provision ensures that the company refrains from undertaking such actions. If the company is subsequently proven culpable of a felony and subsequently sentenced to a term exceeding six months of incarceration, it could entail significant ramifications.

Director Removal Process in Company

Shareholders or members holding shares exceeding Rs 5,00,000 in paid-up capital or having more than 1% of total voting power have the authority to initiate the process of removing a director. This can be accomplished by sending a special notice to the company for the purpose of director removal. These shareholders have the power to determine the meeting's date, time, and venue.

However, the notice for director removal must not be dispatched sooner than three months after the board meeting, while the resolution for the board meeting should be proposed at least 14 days prior to the meeting date. The director under consideration is granted the opportunity to be heard before the company's board of directors. If the board of directors and shareholders collectively reach an agreement, they can decide to forgo the director removal process after thorough deliberation.

Reasons for Director Resignation

1. Dispute With The Board: Differences of opinion among directors can hinder the company's functioning, leading to director resignations.

2. Better Career Opportunities: Directors might resign to pursue more promising professional prospects aligned with their aspirations.

3. Breach of Rules: Directors who fail to comply with regulations, commit violations, or engage in misconduct may step down to avoid repercussions.

4. Involvement in Illicit Activities: If a director becomes entangled in unlawful company activities, they may choose to resign to evade personal liability.

5. End of Nomination: Nominee directors appointed by investors or capitalists can resign once their involvement with the company concludes.

Director Eligibility Criteria

• A person must be a natural individual to become a director.
• At least one director of Indian nationality is mandatory.
• There is no specific age requirement, but directors must be legally capable of entering into contracts. For certain roles like managing director, independent director, or full-time director, an individual between 21 and 70 years old is eligible.
• A person cannot be a director of more than 10 public limited companies simultaneously, out of a total of 20 companies.
• Obtaining a Director Identification Number (DIN) is necessary for directorship to prevent fraudulent appointments and track individuals' backgrounds.

Director Ineligibility

• Individuals of unsound mind, minors, and bankrupt persons are ineligible to be directors.
• Individuals with a criminal record involving sentences exceeding seven years cannot serve as directors.
• Failure to file overdue returns disqualifies an individual from directorship.

Director Removal Cases

Three potential scenarios for director removal:

1. Resignation: The director voluntarily steps down from their position.

2. Shareholder Resolution: Shareholders holding the specified qualifications can initiate a resolution for the director's removal.

3. Legal Action: In cases of director misconduct or violation of laws, a court order can result in the director's removal.