Removal of director

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Querist : Anonymous

Querist : Anonymous (Querist)

02 May 2012 Dear Sir,
We are a Pvt Ltd Company, In form 32 we shown one director as "independent, Non-executive director" as he doesn't hold any shares in the company, however we pays monthly remuneration to Him. Noe Co. wants to remove it, what procedure we have to follow for its removal.

Thanks

Rahul

Ajay Mishra

Ajay Mishra (Expert)
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03 May 2012 Hi

My dear friend, the provisions of Independent director will not apply to private limited company. For removal you follow the procedure of section 284 of the Companies Act, 1956.

Regards

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Ajay Mishra

Ajay Mishra (Expert)
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03 May 2012
REMOVAL OF DIRECTORS

The provisions of section 284 relating to the removal of directors are applicable to private and public limited companies.
41. All directors are subject to removal
If no fixed period has been provided for retirement in articles of association of a private company, a director appointed is entitled to continue till he is removed in accordance with provisions of section 284.
Directors can be removed under section 284 by members in general meeting, whether they are subject to retirement or not in a public company.
42. Certain director cannot be removed by a company
The following categories of directors can not be removed by a company under section 284 of the Act:—
(a) a director appointed by the Central Government under section 408;
(b) a nominee director of a public financial institution which is by its charter empowered to nominate a person as a director or to remove him notwithstanding any power contained in any other Act;
(c) a director in a private company holding office for life on 1st April 1952;
(d) a director coming within the purview of directors appointed according to the principle of proportional representation under section 265 of the Act.
A person appointed as a life director or permanent director by the Articles or by an agreement is nevertheless removable by the company in general meeting and has no security of tenure in office. While the shareholders have no power, apart from that given in the statute or the Articles, to intervene in the management of the company's affairs, this section is designed to enable them to control the directors by their removal.
A company has power under section 284 to remove a permanent director even if articles of association put restrictions on removal of the permanent director.
43. Special notice of resolution for removal may be given by a member
It is a significant right vested with every member that a member who is entitled to attend a general meeting and move a resolution may give special notice of a resolution to remove a director at a general meeting or to appoint somebody instead of the director so removed.
A notice of intention to move a resolution for the removal of a director shall be given in writing.
44. Members' right to propose for removal of a director is a statutory right
The right given by section 284 is a statutory right, which cannot be taken away by the Memorandum, Articles or by any contract or any other document, and if it is sought to be taken away, such a provision will be void. [Section 9]
By virtue of section 284(4), the CLB (now Central Government) has the power to direct a company not to circulate the notice for removal of a director if it was convinced that the provisions of this section were being abused. [Dabur India Ltd. v Anil Kr. Poddar (2002) 108 Comp Cas 293 (CLB)].
The Articles of Association generally contain provision regarding removal of directors in the following manners "Subject to the provisions of Articles ........., the company may by ordinary resolution passed at a general meeting remove any director (not being a director appointed by the Central Government in pursuance of section 408 of the Act) in accordance with the provisions of section 284 of the Act. A director so removed shall not be re-appointed a director by the Board of Directors".
45. A single member can give the special notice irrespective of his shareholding or voting powers
The special notice can be given by even a single member irrespective of the number of shares he holds. The Karnataka High Court has observed in Karnataka Bank Ltd. v A.B. Datar (1994) 79 Comp Cas 12 (Kar) that section 284 is an independent provision and the procedure prescribed for removing a director cannot be subordinated to the provisions of section 188.
46. It is not necessary to give reasons or explanatory statement for removal of a director
It is not necessary to give reasons in the special notice given to the company or in the company's notice to the members, or in the resolution proposed by the company's Board itself, for removal of a director.
The provisions of section 173(2) as to the explanatory statement are not applicable in respect of the resolution for the removal, because the company is merely acting in pursuance of a special notice received by it to move the resolution; it is not a resolution proposed by the company. [LIC of India v Escorts Ltd. (1986) 59 Comp Cas 548 (SC)].
However, in the case of Queens Kuries & Loans P Ltd. v Sheena Jose (1993) Comp Cas 820 (Ker) the High Court has observed that special notice to be given under section 284 must disclose the ground on which the director is proposed to be removed, as the disclosure of the ground for removal is a matter of substance and not of form because the director concerned is entitled to make a representation against the removal.
47. Minimum 14 days clear notice shall be given to the company
The special notice of resolution for removal of a director shall be served on the company at least 14 days before the meeting exclusive of the day on which it is served and the day of the meeting. [Section 190]
48. Company shall serve a copy of special notice for removal to the concerning director
When a special notice of resolution is properly served on a company, a copy thereof shall forthwith be sent to the director concerned as required u/s 284(3).

Any omission to serve a special notice on the directors sought to be removed constitutes denial of their statutory right of reply and in the absence of such notice to the directors, any resolution for their removal would be vitiated by such omission. [S. Varadarajan v Udhayem Leasings & Investments P. Ltd. (2005) 62 SCL 315 (CLB - Chennai)].

Regards

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Ajay Mishra

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03 May 2012 48. Company shall serve a copy of special notice for removal to the concerning director
When a special notice of resolution is properly served on a company, a copy thereof shall forthwith be sent to the director concerned as required u/s 284(3). (Specimen of intimation letter has been given in Appendix 9).
Any omission to serve a special notice on the directors sought to be removed constitutes denial of their statutory right of reply and in the absence of such notice to the directors, any resolution for their removal would be vitiated by such omission. [S. Varadarajan v Udhayem Leasings & Investments P. Ltd. (2005) 62 SCL 315 (CLB - Chennai)].
49. Concerned director shall be entitled to be heard on the resolution
The director concerned shall be entitled to be heard on the resolution at the meeting. Where the director makes a representation in writing of reasonable length and requests circulation of the same to the members, the company shall unless the representations are received by it too late for it is required to do the following:—
(a) in any notice of the resolution given to members of the company, state the fact of the representations having been made; and
(b) send a copy of the representations to every member of the company to whom notice of the meeting is sent whether before or after receipt of the representations by the company, and if a copy of the representations is not sent as aforesaid because they were received too late or because of the company's default, the director may without prejudice to his right to be heard orally, require that the representations shall be read out at the meeting. However, the Central Government is empowered to order, on an application from the company or any aggrieved person, that the representation need not be sent to members nor read at the meeting, if the Central Government is satisfied that the rights conferred by this section are being abused to secure needless publicity for defamatory matter; and the Central Government may order at the company's costs on the application to be paid in whole or in part by the director notwithstanding that he is not a party to it. (Appendix 10)
50. Company shall serve a notice of removal to all the members
The company is required to serve the notice of removal received from the members as mentioned in section 190. If it is not possible to send notice of the resolution for the removal of a director or appointment of some other person as director, to all the members individually, it is enough if the notice is given by advertisement in a newspaper of appropriate circulation not less than seven days before the meeting.
Notice of the general meeting to consider a resolution to remove a director may be given in the following as the specimen given in Appendix 11.
51. Passing of resolution for removal and appointment of another director in his place
Where the resolution for the removal of a director is passed at the general meeting, the meeting may appoint another person in place of the director removed if special notice for appointment of some other person has also been served on the company. A director so appointed shall hold office if he had not been removed as aforesaid.
52. Where the vacancy on removal is not filled, the Board shall have powers to fill it?
If another person is not appointed at the said meeting, the Board may fill the vacancy as a casual vacancy as per section 262 at a meeting of the Board. However, the director so removed shall not be re-appointed by the Board.
53. Removal of a non-rotational director of a Government company
Directors appointed by the State Government as a nominee director can be removed by such Government. The Government is entitled to revoke the nomination as a matter of right, which flows from the Articles of Association. Revoking of the appointment by the Government under the Articles is not the same thing as removal of a director by the company under section 284 of the Act. Hence, if the Government revokes the nomination, there is no circumvention of section 284.
54. Removal of director by the Central Government
Under section 388B to 388E, the CLB/Tribunal is empowered to record, on an enquiry, its decision stating therein specifically as to whether or not any director or other officer of the company is a fit and proper person to hold the office of director or any other office connected with the conduct of the management of the company. Upon such a decision, by the CLB/Tribunal, the Central Government shall, by order, remove from the office any director or other officer of the company. The CLB/Tribunal is also authorised to remove a director or any other officer from his office during the pendency of an application made by the Central Government under section 388E for the removal of a director or other officer from his office.
55. Removal of director by CLB/Tribunal
On an application made to it under section 397/398 seeking prevention of oppression or mismanagement, the CLB/Tribunal has the power to reconstitute the Board of the company concerned. In such an event, the directors of the company would cease to be directors. [Bennett Coleman & Co Ltd. v Union of India (1977) 47 Comp Cas 92 (Bom)].
56. Civil Court cannot interfere in the matters of removal of a director
The right to remove a director of the company is provided in the Companies Act and it itself provides a procedure for enforcement of such right. Civil Courts cannot interfere with such matters of internal management of the companies. [Khetan Industries Pvt. Ltd. v Manju Ravindra Prasad Khetan (1995) 16 CLA 169 (Bom)].
The Court should not be a party to removal of permanent directors (or of any director) of a company by exercising its discretion under section 186 and dispensing with the special notice as required in section 284, in the absence of concrete, precise and specific charges against these directors.
57. Section 284 not applicable on removal of Managing Director
Section 284 does not affect the power of the Board to revoke the appointment of a managing director or any director. Sub-section (1) provides that nothing in the section shall affect any power of the Board to remove a director, which may exist apart from this section.

Regards

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