Removal of director in private company

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

26 September 2011 If there are 2 directors in company Having share holding of 95% and 5% respectively. If the director having share of 5% hurts the company or committed fraud in company and if the case is pending in the court for such matter than what is the procedure to remove that director from the company?

RG - A Helping Hand

RG - A Helping Hand (Expert)
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26 September 2011 read section 284 of companies act, 1956.
by passing an ordinary resolution of shareholders in the general meeting you can remove a director.

RG

Querist : Anonymous

Querist : Anonymous (Querist)

22 October 2011 But after removal of that director no of the directors remains in co will be 1 only

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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21 July 2025 You're absolutely right to raise that concern. Let’s walk through the situation based on the Companies Act, 1956 (since your dates are from 2011), and also explain what should happen in such a case:

📌 Scenario Recap (Under Companies Act, 1956):

Two directors in the company.
One holds 95% shares (majority).
One holds 5% shares (minority), and is allegedly involved in fraud (case pending).
You want to remove the 5% shareholder-director using Section 284 of the Companies Act, 1956.
If removed, only one director remains.
✅ Can you remove the 5% director?

Yes, the director can be removed via Section 284 of the Companies Act, 1956, by passing an ordinary resolution in a general meeting. The pending court case does not stop shareholders from removing him as a director, as long as the proper procedure is followed.

⚠️ Problem: Only 1 Director Left After Removal

You're correct — after removal, only one director will remain, and as per the Companies Act, 1956 and also current law (Companies Act, 2013):

Every private limited company must have at least two directors at all times.
So, if you remove one director, you must appoint another director simultaneously or before removal to maintain legal compliance.

✅ Proper Procedure for Removal and Appointment

Hold a Board Meeting (if possible):
To call a General Meeting and propose two resolutions:
One to remove the current director under Section 284.
One to appoint a new director to replace him.
Send 21 days' notice to all shareholders (for general meeting).
Include:
Reason for removal.
Option for the concerned director to be heard.
Agenda to appoint a new director.
Hold the General Meeting:
Pass ordinary resolution to remove the 5% director.
Pass ordinary resolution to appoint a new director.
File necessary forms with ROC:
Form 32 under Companies Act, 1956 (now DIR-12 under Companies Act, 2013).
For director removal.
For new director appointment.
✅ Important Notes:

Even if the removed director is a shareholder (5%), you are removing him as a director, not as a shareholder. His shareholding remains unless separately dealt with.
The pending fraud case strengthens your justification for removal but is not a requirement.
If the removed director challenges the removal, your defense will be strong if you followed full procedure under Section 284.
📝 Example:

In the same general meeting:
Resolution 1: "Resolved that Mr. X be removed as director of the company under Section 284 of the Companies Act, 1956."
Resolution 2: "Resolved that Mr. Y be appointed as director of the company with effect from [date], to maintain the statutory minimum number of directors."

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