Removal of director who is promoter and shareholder

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RACHANA DAGA (Querist)
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16 July 2013 what are the various ways by which a director who is promoter and shareholder in company can be removed when he is not acting in interest of company??

Ajay Mishra

Ajay Mishra (Expert)
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16 July 2013 Hi

The provisions of section 284 relating to the removal of directors are applicable to private and public limited companies.

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.

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.

Ajay Mishra

Ajay Mishra (Expert)
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16 July 2013
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.

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