Removal of Directors
A director in a company may be removed before the expiry of the terms by:
Shareholders
Central Government
Company Law Board
Removal of director by Shareholders – Section 284
A company may, by ordinary resolution, after a special notice remove a director before the expiry of his period of office.
However following directors cannot be removed:
director appointed by the Central Government in pursuance of section 408
Directors appointed by BIFR, nominee directors of financial directors appointed in pursuant to stipulations under their loan agreement etc.
Directors appointed by proportional representation u/s 265
director holding office for life on the 1st day of April, 1952, whether or not he is subject to retirement under an age limit by virtue of the articles or otherwise (only in case of private company)
Points to be noted
A company has full power under section 284 to remove a permanent director even if AOA of company put restriction on the removal of such directors.
Special notice shall be given at least 14 days before the meeting
Shareholders cannot be restrained from calling a general meeting to remove existing directors and appoint new directors
On receipt of notice of a resolution to remove a director under this section, the company shall send a copy thereof to the director concerned
the concerned director (whether or not he is a member of the company) shall be entitled to be heard on the resolution at the meeting.
Where
notice is given of a resolution to remove a director under this section and
that director makes representations in writing to the company and requests the company to notify that representation to members of the company, and
unless the representations are received by the company too late
the company shall
in any notice of the resolution given to members of the company, state the fact of the representations having been made; and
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);
Where the copies of representations is not sent as aforesaid because
they were received too late or
because of the company's default,
the director may require that the representations shall be read out at the meeting.
When the representation is not required to be sent out?
Copies of the representations need not be sent out and the representations need not be read out at the meeting if,
on the application either of the company or of any other person who claims to be aggrieved,
the Central Government is satisfied that the rights conferred by this sub-section are being abused to secure needless publicity for defamatory matter;
A vacancy created by the removal of a director under this section may,
if he had been appointed by the company in general meeting or
by the Board in pursuance of section 262,
be filled by the appointment of another director in his place in the meeting at which he is removed, if special notice of the intended appointment has been given.
A director so appointed shall hold office until the date up to which his predecessor would have held office if he had not been removed as aforesaid.
If the vacancy is not so filled, it may be filled as a casual vacancy in accordance with the provisions, so far as they may be applicable, of section 262, and all the provisions of that section shall apply accordingly:
But Board of directors shall not reappoint the same director who was removed from office under this section.
Removal of director by Central Government on the recommendation of CLB – Section 388B to 388E
Reference by Central Government to CLB – Section 388B
(1) Where in the opinion of the Central Government there are circumstances suggesting—
that any person concerned in the conduct and management of the affairs of a company
is or has been in connection therewith guilty of fraud, misfeasance, persistent negligence or default in carrying out his obligations and functions under the law, or breach of trust; or
that the business of a company
is not or has not been conducted and managed by such person in accordance with sound business principles or prudent commercial practices; or
that a company is or has been conducted and managed by such person in a manner
which is likely to cause, or has caused, serious injury or damage to the interest of the trade, industry or business to which such company pertains; or
that the business of a company is or has been conducted and managed by such person
with intent to defraud its creditors, members or any other persons or
for a fraudulent or unlawful purpose or
in a manner prejudicial to public interest,
the Central Government may state a case against the person aforesaid and refer the same to the CLB
with a request that the CLB may inquire into the case and
record a decision as to whether or not such person is a fit and proper person to hold the office of director or any other office connected with the conduct and management of any company.
Interim order by CLB – Section 388C
Where during the pendency of a case before the CBL
it appears necessary to the CLB so to do in the interest of the members or creditors of the company or in the public interest,
the CLB may, on the application of the Central Government or on its own motion —
direct that the respondent shall not discharge any of the duties of his office until further orders of the CLB, and
appoint a suitable person in place of the respondent to discharge the duties of the office held by the respondent subject to such terms and conditions as the CLB may specify in the order.
Decision of the CLB — Section 388D
At the conclusion of the hearing of the case, the CLB shall record its decision stating therein specifically as to whether or not the respondent is a fit and proper person to hold the office of director or any other office connected with the conduct and management of any company.
Power of Central Government to remove managerial personnel on the basis of CLB’s decision – Section 388E
The Central Government shall by order,
remove from office any director, or any other person concerned in the conduct and management of the affairs, of a company,
against whom there is a decision of the CLB under this Chapter.
Such person shall not hold the office of a director or any other office connected with the conduct and management of the affairs of any company during a period of five years from the date of the order of removal
Such person shall not be entitled to, or be paid, any compensation for the loss or termination of office.
On the removal of that person, the company may, with the previous approval of the Central Government, appoint another person to that office in accordance with the provisions of this Act.
Vacation of office by directors – Section 283
The office of a director shall become vacant if—
if he fails to obtain the qualification shares, within the time specified in section 270, or at any time as required of him by the articles of the company;
he is found to be of unsound mind by a Court of competent jurisdiction;
he applies to be adjudicated an insolvent;
he is adjudged as insolvent;
he is convicted by a Court of any offence involving moral turpitude and sentenced in respect thereof to imprisonment for not less than six months;
he fails to pay any call in respect of shares of the company held by him within six months from the last date fixed for the payment of the call
he absents himself from three consecutive meetings of the Board of directors, or from all meetings of the Board for a continuous period of three months, whichever is longer, without obtaining leave of absence from the Board;
he (whether by himself or by any person for his benefit or on his account), or any firm in which he is a partner or any private company of which he is a director, accepts a loan, or any guarantee or security for a loan, from the company in contravention of section 295;
he acts in contravention of section 299 (disclosure of interest by directors);
he becomes disqualified by an order of Court under section 203;
he is removed in pursuance of section 284;
having been appointed a director by virtue of his holding any office or other employment in the company, he ceases to hold such office or other employment in the company
Disqualification referred to clauses (d), (e) and (j) shall not take effect—
for thirty days from the date of the adjudication, sentence or order;
where any appeal or petition is preferred within the thirty days aforesaid against the adjudication, sentence or conviction resulting in the sentence, or order
until the expiry of seven days from the date on which such appeal or petition is disposed of; or
where within the seven days aforesaid, any further appeal or petition is preferred in respect of the adjudication, sentence, conviction, or order, and the appeal or petition, if allowed, would result in the removal of the disqualification,
until such further appeal or petition is disposed of.
If a person functions as a director
when he knows that the office of director held by him has become vacant on account of any of the disqualifications specified above,
he shall be punishable with fine which may extend to five thousand rupees for each day on which he so functions as a director.
A private company which is not a subsidiary of a public company may, by its articles, provide any other grounds in addition to those specified in sub-section (1).
MANAGERIAL REMUNERATION
In the absence of any specific agreement the directors are not entitled to remuneration for their services, as they are not servants of the company. The remuneration to the directors is subject to the provisions of:
Section 198
Section 309
Schedule XIII of the Companies Act, 1956
Overall maximum managerial remuneration and managerial remuneration in case of absence or inadequacy of profit [Section 198]
Total managerial remuneration shall not exceed eleven per cent of the net profits of the company
The total managerial remuneration payable by a public company or a private company which is a subsidiary of a public company, to its directors and its manager in respect of any financial year shall not exceed eleven per cent of the net profits of that company for that financial year.
The percentage aforesaid shall be exclusive of any fees payable to directors under sub-section (2) of section 309.
Within the limits specified above, a company may pay a monthly remuneration to its managing or whole-time director in accordance with the provisions of section 309 or to its manager in accordance with the provisions of section 387.
Subject to the provisions of section 269 (Appointment of managing or whole-time director or manager to require Government approval only in certain cases) and read with Schedule XIII, if,
in any financial year,
a company has no profits or its profits are inadequate,
the company shall not pay to its directors, including any managing or whole-time director or manager, by way of remuneration any sum [exclusive of any fees payable to directors under sub-section (2) of section 309],
except with the previous approval of the Central Government.
Remuneration of directors [Section 309]
The remuneration payable to the directors of a company, including any managing or whole-time director, shall be determined,
in accordance with and subject to the provisions of section 198 and this section,
either by the
articles of the company, or
by a resolution or,
if the articles so require, by a special resolution, passed by the company in general meeting
Ways of receiving remuneration
A director may receive remuneration by way of a fee for each meeting of the Board, or a committee thereof, attended by him.
In case of whole-time or managing directors (executive directors)
A director who is either in the whole-time employment of the company or a managing director may be paid remuneration either
by way of a monthly payment or
at a specified percentage of the net profits of the company or
partly by one way and partly by the other:
Such remuneration shall not exceed five per cent of the net profits for one such director, and if there is more than one such director, ten per cent for all of them together (except with the approval of the Central Government).
In case of non-executive directors [sub-section 4]
A director who is neither in the whole-time employment of the company nor a managing director may be paid remuneration either—
by way of a monthly, quarterly or annual payment (with the approval of the Central Government); or
by way of commission if the company by special resolution authorises such payment:
The remuneration paid to such non executive director, or where there is more than one such director, to all of them together, shall not exceed—
one per cent of the net profits of the company, if the company has a managing or whole-time director, or a manager;
three per cent of the net profits of the company, in any other case:
The company in general meeting may, with the approval of the Central Government, authorise the payment of such remuneration at a rate exceeding one per cent or, as the case may be, three per cent of its net profits.
Remuneration received by directors in excess of the limit prescribed by this section or without the prior sanction of the Central Government
If any director draws or receives, directly or indirectly, by way of remuneration any such sums in excess of the limit prescribed by this section or without the prior sanction of the Central Government, where it is required, he shall refund such sums to the company and until such sum is refunded, hold it in trust for the company.
Further, the company shall not waive the recovery of any sum refundable to it unless permitted by the Central Government.
No remuneration from subsidiary companies in certain cases
No director of a company who is in receipt of any commission from the company and who is either in the whole-time employment of the company or a managing director shall be entitled to receive any commission or other remuneration from any subsidiary of such company.
Period of special resolution passed in the general meeting regarding managerial remuneration
The special resolution referred to in sub-section (4) shall not remain in force for a period of more than five years; but may be renewed, from time to time, by special resolution for further periods of not more than five years at a time:
But no renewal shall be effected earlier than one year from the date on which it is to come into force.
The provisions of this section shall not apply to a private company unless it is a subsidiary of a public company.
Provision for increase in remuneration to require Government sanction [Section 310]
In the case of a public company or a private company which is a subsidiary of a public company, any provision relating to the remuneration of any director including a managing or whole-time director, or any amendment thereof, which purports to increase or has the effect of increasing, whether directly or indirectly, the amount thereof, whether that provision be contained in the company's memorandum or articles, or in an agreement entered into by it, or in any resolution passed by the company in general meeting or by its Board of directors, shall not have any effect—
in cases where Schedule XIII is applicable, unless such increase is in accordance with the conditions specified in that Schedule; and
in any other case, unless it is approved by the Central Government,
and the amendment shall become void if, and in so far as, it is disapproved by that Government:
Provided that the approval of the Central Government shall not be required where any such provision or any amendment thereof purports to increase, or has the effect of increasing, the amount of such remuneration only by way of a fee for each meeting of the Board or a committee thereof attended by any such director and the amount of such fee after such increase does not exceed such sum as may be prescribed.
Director, etc., not to hold office or place of profit - [Section 314]
Any office or place shall be deemed to be an office or place of profit under the company within the meaning of this section,—
In case the office or place is held by a director, if the director holding it obtains from the company
anything by way of remuneration, over and above the remuneration to which he is entitled as such director,
whether as salary, fees, commission, perquisites, the right to occupy free of rent any premises as a place of residence, or otherwise;
In case the office or place is held by an individual other than a director or by any firm, private company or other body corporate
if the individual, firm, private company or body corporate holding it obtains from the company anything by way of remuneration
whether as salary, fees, commission, perquisites, the right to occupy free of rent any premises as a place of residence, or otherwise.
Sub-section 1 (where only special resolution is required)
Except with the consent of the company accorded by a special resolution,—
no director of a company
no partner of such director
relative of such director
no firm in which such director, or a relative of such director, is a partner
no private company of which such director is a director or member, and no director or manager of such a private company,
shall hold any office or place of profit carrying a total monthly remuneration of such sum as may be prescribed (Rs. 10,000), except that of managing director or manager, banker or trustee for the holders of debentures of the company,—
under the company; or
under any subsidiary of the company, unless the remuneration received from such subsidiary in respect of such office or place of profit is paid over to the company or its holding company:
Provided that it shall be sufficient if the special resolution according the consent of the company is passed at the general meeting of the company held for the first time after the holding of such office or place of profit:
Provided further that where a relative of a director or a firm in which such relative is a partner, is appointed to an office or place of profit under the company or a subsidiary thereof without the knowledge of the director, the consent of the company may be obtained either
in the general meeting aforesaid or
within three months from the date of the appointment,
whichever is later.
Sub-section 1A
Nothing in sub-section (1) shall apply where a relative of a director or a firm in which such relative is a partner holds any office or place of profit under the company or a subsidiary thereof having been appointed to such office or place before such director becomes a director of the company.
Sub-section 1B (where special resolution and approval from Central Government is required)
Notwithstanding anything contained in sub-section (1),—
no partner or relative of a director or manager,
no firm in which such director or manager, or relative of either, is a partner,
no private company of which such a director or manager, or relative of either, is a director or member,
shall hold any office or place of profit in the company which carries a total monthly remuneration of not less than such sum as may be prescribed (Rs. 20,000), except with the prior consent of the company by a special resolution and the approval of the Central Government.
Sub-section 2
If any office or place of profit is held in contravention of the provisions of sub-section (1), the director, partner, relative, firm, private company, or the manager concerned, shall be deemed to have vacated his or its office as such on and from
the date next following the date of the general meeting of the company referred to in the first proviso or, as the case may be,
the date of the expiry of the period of three months referred to in the second proviso to that sub-section,
and shall also be liable to refund to the company
any remuneration received or
the monetary equivalent of any perquisite or advantage enjoyed by him or it
for the period immediately preceding the date aforesaid in respect of such office or place of profit.
The company shall not waive the recovery of any sum refundable to it under clause (a) unless permitted to do so by the Central Government.
Sub-section 2A
Every individual, firm, private company or other body corporate proposed to be appointed to any office or place of profit to which this section applies shall, before or at the time of such appointment, declare in writing whether he or it is or is not connected with a director of the company in any of the ways referred to in sub-section (1).
Sub-section 2B
If any office or place of profit is held,
without the prior consent of the company by a special resolution and
the approval of the Central Government,
the partner, relative, firm or private company appointed to such office or place of profit shall be liable to refund to the company any remuneration received or the monetary equivalent of any perquisite or advantage enjoyed by him on and from the date on which the office was so held by him.
Sub-section 2C
If any office or place of profit is held in contravention of the provisions of the proviso to sub-section (1B), the director, partner, relative, firm, private company or manager concerned shall be deemed to have vacated his or its office as such on and from
the expiry of six months from the commencement of the Companies (Amendment) Act, 1974 (41 of 1974) or
the date next following the date of the general meeting of the company referred to in the said proviso,
whichever is earlier,
and shall be liable to refund to the company
any remuneration received or
the monetary equivalent of any perquisite or advantage enjoyed by him or it
for the period immediately preceding the date aforesaid in respect of such office or place of profit.
Sub-section 2D
The Company shall not waive the recovery of any sum refundable to it under sub-section (2B) unless permitted to do so by the Central Government.
Nothing in this section shall apply to a person, who being the holder of any office of profit in the company, is appointed by the Central Government, under section 408, as a director of the company.
Option to company to adopt proportional representation for the appointment of directors [section 265]—
This section is an alternative for section 255 & 256 (appointment of rotational directors)
The articles of a company may provide for the appointment of not less than two-thirds of the total number of the directors of a public company or of a private company which is a subsidiary of a public company, according to the principle of proportional representation,
Here directors may be elected whether by the single transferable vote or by a system of cumulative voting or otherwise,
The appointments under this section shall be made once in every three years
Any interim casual vacancies shall be filled in accordance with the provisions of section 262.