Removal of Directors – Seek advice before you act! Sometimes the simplest of changes can be the most problematic. The power to appoint a Director is typically delegated to the Board of Directors in the Articles of Association. However when it comes to the removal of a director, this power rests with the members (shareholders).
In practice Directors might take steps to remove a Director before they take the appropriate advice on the process. However by acting without following the correct procedures may give the “Removed Director” an option to take an action against the company.
Section 182 (1) of the Companies Act, 1963 states that “A company may by ordinary resolution (of shareholders) remove a director before the expiration of his period of office notwithstanding anything in its articles or in any agreement between it and him so, however, that this subsection shall not, in case of a private company, authorize the removal of a director holding office for life”.
Such a process would be initiated by the shareholders requisitioning the directors to convene an Extraordinary General Meeting (EGM) for the purposes of considering the requisite Ordinary Resolution.
Members holding not less than one-tenth of the voting rights of all the members may at any time lodge a requisition requiring the Board of Directors to convene an EGM for the purposes stated in the requisition which may include the removal of a Director.
Extended notice of 28 days must be given to the Company of a resolution to remove a member of the Board of Directors other than a member holding office for life, before the expiration of this period of office or to appoint somebody in place of the member of the Board of Directors so removed at the meeting at which he is removed. If the Board of Directors resolve to submit the resolution it may be put before a meeting to be held within this 28 day period. This business will be transacted by ordinary resolution i.e. passed by a simple majority of those present and voting. Therefore, fourteen days’ notice in writing of the meeting must be given to the Members.
As soon as the company receives notice of the resolution proposing the removal of a Director of the Board of Directors, a copy of the notice must be sent to the Director concerned. He may, in turn, make representations in writing to the Company and may request their circulation to the members of the company. He also may attend the meeting and give and make an oral representation.
If the ordinary resolution is passed a B10 should be filed within 14 days at the Companies Registration Office.
If the Director is also a shareholder, the provisions of Section 205 Companies Act, 1963 should be considered in great detail as the Director/Shareholder may take a Sec 205 action against the company for the oppression of minority interest.