All about Director's Resignation, Removal and Retirement

Resignation of Director

• A director may resign from his office by giving a notice in writing to the company and the Board shall on receipt of such notice take note of the same and the company shall intimate the Registrar in such manner, within such time and in such form as may be prescribed and shall also place the fact of such resignation in the report of directors laid in the immediately following general meeting by the company:

1. Provided that a director shall also forward a copy of his resignation along with detailed reasons for the resignation to the Registrar within thirty days of resignation in such manner as may be prescribed.

• The resignation of a director shall take effect from the date on which the notice is received by the company or the date, if any, specified by the director in the notice, whichever is later:

1. Provided that the director who has resigned shall be liable even after his resignation for the offences which occurred during his tenure.

• Where all the directors of a company resign from their offices, or vacate their offices under section 167, the promoter or, in his absence, the Central Government shall appoint the required number of directors who shall hold office till the directors are appointed by the company in general meeting.

Steps are Required to be taken by the company in such a case

A Director is part of a collective body of Directors called the Board, responsible for the superintendence, control and direction of the affairs of the Company. Meaning thereby, director is a person who is responsible to carry out operations in the company and perform all other related activities.

Every director is allotted with a unique number called as Director’s Identification Number (“DIN”) under Companies Act, 2013 (“The Act”). Registrar of Company (“RC”) keeps details of all the directors of company including their appointment, change in information related to them and their resignation.

• Resignation by Director (Section 168 of the Act)

1. Section 168 of the act contains provisions related to resignation of director from company. Section 168(1) provides that a director may resign from his office by giving a notice in writing to the company. Board shall take note of such notice on its receipt.
2. Resignation of director shall be effective from the date on which notice is received by the company or any other date specified by director in the notice, whichever is later. (Section 168(2)

• Intimation about resignation to ROC

   1. Intimation by Company (Section 168 read with Rule 15)

• • The Company shall intimate the ROC about resignation of director within 30 days from date of receipt of notice in form DIR-12 and shall also publish the information about resignation on its website. (Section 168(1) of the Act read with Rule 15 of Companies (Appointment and Qualification of Directors) Rules, 2014.)
  • Company shall also place the fact of such resignation in director’s report to be laid in the immediately following general meeting.

   2. Intimation by Director (Section 168 read with Rule 16)

• • Proviso to Section 168(1) read with Rule 16 of Companies (Appointment and Qualification of Directors) Rules, 2014 provides that director may also forward a copy of his resignation alongwith detailed reasons to registrar within 30 days of his resignation in form DIR-11.   
  • It is imperative to note that till 6th May, 2018, proviso to Section 168(1) and rule 16 contained “Shall” instead of “May” for filing of Form DIR-11, i.e., till 6th Mar, 2018, filing of DIR-11 was mandatory on part of director. However, Companies (Amendment) Act, 2017 and The Companies (Appointment and Qualification of Directors) Second Amendment Rules, 2018 replaced “Shall” with “May” thereby removed mandatory filing requirement of DIR-11. Accordingly, filing of DIR-11 is at discretion of director

• Information to be furnished in DIR-11

1. Corporate Identification Number (“CIN”)

2. Name, address and email id of the company will auto-populate based on CIN.

3. DIN of director resigning from the company

4. Name and nationality of director will auto-populate based on DIN

5. Date of appointment

6. Designation of director

7. Category of director (Promoter/professional/independent)

8. Date of filing of resignation with the company

9. Effective date of resignation specified in the notice of resignation

10. Reason for resignation

11. Whether confirmation is received from the company (Yes/No)

• Attachment to form DIR-11

Director is required to attach following documents to form DIR-11:

1. Notice of resignation filed with the company

2. Proof of dispatch

• Other points to be considered

When a director files eForm DIR-11 for intimating about his resignation before the company files eForm DIR-12, an email will be sent to the company for filing the eForm DIR-12 and the status of the Director in the company will be changed to ‘Resigned’ against the selected designation. Once the company files the relevant eForm DIR-12, the status shall be changed as per the existing system.

Removal of Directors [Section 169]

• The shareholders of a company may, by passing an ordinary resolution at a general meeting, remove a director before the expiry of the period of his office. However, the following directors cannot be removed by the company unless otherwise stipulated in terms of their appointment;-

1. Where the company has availed itself of the option to appoint not less than 2/3rd directors according to the principle of proportional representation u/s 163;
2. A nominee director appointed by a financial institution under the terms of a loan agreement;
3. a director appointed  by NCLT u/s 242.

• It may be noted that an independent director re-appointed for second term u/s 149(10) shall be removed by the company only by passing a special resolution after giving him a reasonable opportunity of being heard.
• A special notice shall be required off the intention to make any resolution for the removal of a director not less than 14 days (excluding the day of service & the date of meeting) before the meeting. On receipt of notice, the company shall forthwith send a copy of the same to the director concerned, whether or not he is a member of the company, is entitled to be heard on the resolution at the general meeting.
• Where the notice is received well in advance, the company can conveniently send the notice of the resolution to the members by including the same in the notice of general meeting. Otherwise, the company has to notify the same by way of two newspaper advertisement, one in English newspaper and another in vernacular language, atleast 7 days before the meeting.
• Where the director make representations in writing to the company (subject to reasonable length) and request for circulation for the same to the members, the company is duty bound to do so, unless it is received by to it too late. If a copy of the representation is not sent to the members, as aforesaid because they were received too late or because of the company’s default, the director may require that the representation shall be read out at the meeting. However, a copy of the representations need not be sent to the members and representations need not be read out at the meeting, if on the application, either of the company or of aggrieved party, the national Company Law Tribunal (NCLT) is satisfied that the rights so conferred are being abused to the needless publicity for defamatory matter.
• The company shall, in its general meeting, discuss the proposal and pass the necessary resolution. The vacancy caused by such removal may be filled at the same meeting; provided special notice of the proposed appointment has also been given. If the vacancy is not filled at the meeting, it may be filled by the Board as a casual vacancy. However, the director who has been shall not be appointed.
• The director so appointed shall hold office till the removed director could have held office, had he not been removed.
• It may be noted that the provisions of this Section shall not deprive a person removed under this section of any compensation  or damages payable to him in respect of the termination of his appointment as director as per the terms of contract or terms of his appointment as director, or of any other appointment terminating with that as director.

Steps are Required to be taken by the company in such a case

Two cases arise either the company itself removes the director, or in case the director does not attend three Board meetings in a row.

• In case the company removes the Director:

1. Seven days notice will be given to all the Directors informing about the removal of Directors.
2. In the Board meeting, a resolution for the holding of an (EGM) extraordinary general meeting will be held along with the resolution for the removal of the director subject to the approval of the shareholders.
3. The Board members of the company will hold a Board meeting by providing seven days of clear notice. This notice has to be issued within 21 days by the company which excludes the day on which the notice was sent and received.
4. In the board meeting, the Board members will discuss and then decide whether to remove the director.
5. Before passing the final resolution, a choice is given to the director to present anything in favour of himself.
6. After the resolution is being passed, two forms of DIR-11 and DIR-12 are needed to be filed in this case. The director files DIR-11 while the company itself files DIR-12 with the ROC (Registrar of the Companies) along with the Board Resolution.
7. In the end, the name of the concerned director has to be removed and finally withdrawn from the master data of the company of the MCA (Ministry of Corporate Affairs) website.

• In case the director does not attend three Board meetings in a row:

1. According to Section 167 of the Companies Act, 2013, if a director does not attend three consecutive Board meeting during the time period of 12 months then it is considered as a director has vacant the office. This 12 month means the day on which he was absent at the first board meeting even if he/she got the prior notice of all the meetings.
2. The absence of the director will be considered as if he/she has left the office and the FORM DIR-2 is filed then.
3. After this, the name of that concerned director will be removed from the MCA website.

Final thoughts

The Removal of the director in any company entirely depends upon the company itself and the director. The concerned director who is removed has to follow a procedure prescribed by the Board of Directors or the shareholders in accordance with the provisions of the Companies Act 2013.

Retirement of Directors [Section 152(6)]

• Section 152(6) provides that unless the articles provides otherwise for the retirement of all directors at every annual general meeting, not less the two-third (2/3rd) of the total number of directors (excluding independent directors, whether appointed under this act or under any other law) of a public company shall----

1. be persons whose period of office is liable to determination by retirement of directors by rotation; and
2. save as otherwise expressly provided in this Act, be appointed by the company in general meeting.
   The remaining directors (i.e. non-rotational/non-retiring/permanent directors) in the case of public company shall be appointed as per provisions contained in the articles of the company.

• In case there are no such provisions in the articles, those directors shall also be appointed by the company in general meeting.
• At the first annual general meeting held after the date of general meeting at which the first directors are appointed in accordance with aforesaid provisions and at every subsequent AGM, one-third (1/3rd) of the rotational directors shall retire at every subsequent AGM, or if there number is not three or multiple of three, then the number nearest to one-third (1/3rd) shall retire from office. Thus, if there are six rotational directors (i.e. director liable to retire by rotation), two will retire in each of the three years. However, if seven such directors and three in the third year. In case of eight such directors, the number to retire would be three, three and two.
• Those directors, who have been longest in office since their last appointment, will retire. As between persons who became directors on the same day, retirement, in the absence of an agreement, will be determined by lot.
• Where a director retires by rotation at the annual general meeting of a company, the company at the same meeting may appoint: i. the retiring director; or ii. some other person in the vacancy.
• If the AGM of the company is not the held or cannot be held, the directors due to retire by rotation shall retire on the last day on which AGM should have been held. If AGM is adjourned, then they will retire at the adjourned AGM; provided it is within the prescribed time. [Consolidated Nickel Mines Ltd.] 
• Consequences of non-appointment of directors at an AGM u/s 152 [Sec. 152(7)]: if at the said AGM, the vacancy is not so filled and the meeting has not expressly resolved not to fill the vacancy, the meeting, through it has disposed of all other matter on the agenda, shall stand adjourned till the same day in the next week, at the same time and place, or if that day be a national holiday, till next succeeding day which is not a national holiday, at the same time and place.
• If at the adjourned meeting also, the vacancy is not so filled-up and resolution not to fill the vacancy is not passed , the retiring directors shall be deemed to have been re-appointed (i.e. automatic reappointment). However, in the following cases even if automatic re-appointment of retiring director shall not take place:-

1. at that meeting or at the previous meeting a resolution for the re-appointment of such director has been put to the meeting and lost;
2. the retiring director has, by a notice in writing addressed to the company or its Board of directors, expressed his unwillingness to be so re-appointed;
3. he is not qualified or is disqualified for appointment;
4. a resolution, whether special or ordinary, is required for his appointment or re-appointment by virtue of any provisions of this Act; or
5. section 162 is applicable to the case.]

• The re-appointment as above shall be effective from the day of adjourned meeting.
• In case the vacancy is not so filled at the AGM and also be the retiring directors do not get automatically re-appointed, the vacancies may be filled by the Board of Directors.

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