Can You Legally Remove A Co-Founder Or Director In India?

Yes, a co-founder or director can be legally removed in India, but only by following the procedure prescribed under the Companies Act, 2013. Removing someone as a director does not automatically end their ownership as a co-founder or shareholder. The process must also comply with the company's Articles of Association and any applicable shareholder or founder agreements.

Grounds for Removing a Director

The removal of a director is not a routine act but a significant corporate decision. While Section 169 of the Companies Act, 2013 empowers shareholders to remove a director without necessarily proving misconduct, in practice, having strong, fact-based grounds is essential. Clear reasons not only strengthen the shareholders’ case but also protect the company from allegations of arbitrariness or bad faith.

Here are the most common grounds on which directors are removed in India:

Misconduct or dereliction of duty

Directors are expected to uphold the highest standards of conduct. When a director is involved in unethical behavior such as misappropriation of company funds, harassment of employees, violation of statutory obligations, or willful neglect of responsibilities, removal becomes a corrective measure to protect the company’s governance and reputation.

Conflict of interest

Directors must put the company’s interests above their own. If a director enters into contracts that benefit them personally, uses insider information for personal gain, or takes decisions that favor competitors or family-owned businesses, this creates a clear conflict. Persistent or undisclosed conflicts of interest are a strong ground for removal.

Poor performance or failure to act in the company’s best interest

Not all misconduct is active; sometimes directors are ineffective. A director who consistently fails to contribute to board discussions, misses strategic opportunities, or does not adequately supervise management can drag down company performance. Removal in such cases is often about ensuring fresh leadership and accountability.

Breach of fiduciary duties

Directors are fiduciaries, which means they are legally bound to act with loyalty, care, and good faith toward the company. Breaching these duties may include negligent decision-making, concealment of material information, or approval of transactions that harm shareholders. Such breaches often form the legal backbone for initiating removal proceedings.

Loss of confidence from shareholders

Corporate governance thrives on trust. Even if a director has not committed misconduct, situations may arise where shareholders lose faith in their judgment, leadership style, or decision-making. For example, repeated failed strategies, inability to adapt to market changes, or strained relations with investors can justify removal.

Regulatory non-compliance

If a director fails to ensure compliance with statutory filings, corporate governance standards, or financial reporting requirements, the company may face penalties and reputational damage. Shareholders may decide to remove the director to mitigate risks and signal commitment to compliance.

Absenteeism and lack of participation

While Section 167 already provides for automatic vacation if a director misses all board meetings for twelve months, persistent absenteeism and lack of meaningful participation in decision-making can also serve as grounds for removal. Companies expect directors to provide active oversight, not just hold the title.

Fraud or criminal liability

When a director is involved in fraudulent practices, financial mismanagement, or faces criminal charges that compromise their credibility, shareholders often move swiftly to remove them to protect the company’s image and avoid liability.

By identifying these grounds, shareholders demonstrate that removal is not a matter of personal rivalry but a legitimate step in the company’s best interest. The stronger and more fact-driven the rationale, the more likely the decision will withstand scrutiny from regulators, courts, or aggrieved directors.

Step-by-Step Procedure for Removing a Director

The removal of a director requires strict adherence to procedure. Missing even one legal step can render the process invalid and expose the company to disputes. Below is a clear, sequential guide to ensure compliance under the Companies Act, 2013.

Step 1: Shareholders Issue a Special Notice (Section 115)

The process begins with shareholders initiating a special notice. Under Section 115, a special notice is required when shareholders propose a resolution for matters such as the removal of a director. This notice can only be given by members holding at least 1 percent of the total voting power or shares with an aggregate paid-up value of not less than five lakh rupees. The notice must be delivered to the company at least 14 clear days before the general meeting at which the resolution is to be considered. This ensures that the company has sufficient time to circulate the proposal and prepare for the meeting.

Step 2: Company Convenes a Board Meeting

Once the company receives the special notice, the Board of Directors is obligated to act. The Board must convene a meeting to formally schedule an Extraordinary General Meeting (EGM) where the removal resolution will be discussed and voted upon. The Board meeting itself must be convened with at least 7 days’ prior notice to all directors, in compliance with Section 173 of the Companies Act, 2013. At this meeting, the Board will also decide on the date, time, and venue of the EGM and authorize the issuance of the notice of the EGM to shareholders.

Step 3: Company Notifies the Concerned Director

After the special notice is received, the company must immediately send a copy of it to the director proposed to be removed. This is not just a formality but a legal safeguard of the director’s rights. The director is entitled to a reasonable opportunity of being heard before the resolution is passed. They also have the right to prepare a written representation against their removal and request the company to circulate this representation to all members before the meeting. If circulation is not possible, the director can ask for it to be read out at the meeting itself. These protections ensure that the decision is made transparently and fairly.

Step 4: Hold an Extraordinary General Meeting (EGM)

The EGM is the critical stage where shareholders formally decide whether the director will continue or be removed. At this meeting, the proposed resolution is put to a vote. In most cases, removal requires an ordinary resolution, which means a simple majority (more than 50 percent of members present and voting) is sufficient. However, in the case of an independent director, the law requires a special resolution, which means that at least 75 percent of members present and voting must agree to the removal. The director facing removal also retains the right to speak at the meeting, allowing them to present their side before the final vote is taken.

Step 5: File Forms with the Registrar of Companies (ROC)

Once the resolution is passed, the company must complete the post-removal compliance process. The key requirement is filing Form DIR-12 with the Registrar of Companies within 30 days of passing the resolution. This filing officially updates the public record to reflect the cessation of the director’s appointment. Failure to file within the stipulated time can lead to penalties on the company and its officers. By ensuring timely filing, the company avoids unnecessary fines and keeps its statutory records up to date.

Required Documents & Attachments

For the successful filing of Form DIR-12 and to ensure the legal validity of a director’s removal, the company must maintain and attach the following documents:

• Certified true copy of the Special Notice – Proof that the removal was lawfully initiated by shareholders under Section 115.
• Board Resolution – Confirmation that the Board properly convened the Extraordinary General Meeting (EGM).
• Ordinary or Special Resolution passed at the EGM – The shareholders’ final approval authorizing removal.
• Proof of dispatch of notice to the concerned director – Demonstrates that the director was informed and given a fair chance to present their case.
• Minutes of the EGM – A formal record of discussions, the director’s representation (if any), and the voting outcome.

Maintaining these documents not only fulfills statutory obligations but also safeguards the company against possible disputes or penalties from the Registrar of Companies.

Common Mistakes to Avoid

The process of removing a director is not just about following steps; it requires strict compliance with the Companies Act, 2013. Even small errors can render the removal invalid or give the director grounds to challenge the decision in court. Below are some of the most common mistakes companies make:

1. Not giving proper notice to the director or shareholders
   Many companies either fail to issue the special notice within the prescribed time or do not circulate it properly to shareholders. Similarly, not sending the notice to the director proposed to be removed is a serious lapse. This undermines the principle of natural justice and can make the removal invalid.
2. Failing to provide the director a chance to be heard
   Section 169 clearly protects the director’s right to defend themselves. If the company ignores this and proceeds without allowing a written representation or oral statement at the EGM, the entire process may be challenged and overturned.
3. Attempting to remove a director via a board resolution instead of a shareholder resolution
   The power to remove lies exclusively with the shareholders, not the Board. Any attempt to bypass an EGM and proceed only with a board decision has no legal force and will be struck down if challenged.
4. Delaying the filing of Form DIR-12 with the ROC
   Many companies make the mistake of not filing Form DIR-12 within the statutory period of 30 days. This can result in monetary penalties and create compliance gaps in the company’s records. In some cases, it can even cause issues in future corporate actions like raising capital or restructuring.
5. Not recording proceedings accurately
   Companies sometimes fail to properly draft and maintain minutes of the Board and General Meetings. In case of disputes, these minutes serve as crucial evidence to prove that due process was followed. Inadequate or inaccurate documentation can weaken the company’s position.
6. Ignoring exceptions under law
   A common oversight is attempting to remove directors who cannot legally be removed, such as those appointed by the Tribunal under Section 242 or appointed through proportional representation. Attempting removal in such cases is invalid and can lead to litigation.
7. Lack of transparency with stakeholders
   If shareholders are not given clear and complete information regarding the reasons for removal, they may lose confidence in the company’s governance practices. This can damage the company’s reputation and shareholder relations.

Legal Framework for Director Removal

In corporate governance, directors play a pivotal role in steering the company’s vision, making critical decisions, and ensuring compliance with law. But situations may arise where a director’s continuation becomes detrimental, whether due to negligence, conflict of interest, misconduct, or loss of trust among shareholders. Because such a move can impact the company’s functioning and reputation, the law does not leave this decision entirely to discretion. Instead, the Companies Act, 2013 prescribes a well-defined legal framework to ensure that any removal is both justified and procedurally sound. This framework strikes a balance between empowering shareholders to protect the company’s interests and safeguarding directors against arbitrary or unfair removal.

Section 169 of the Companies Act, 2013

Section 169 of the Companies Act, 2013 gives shareholders the power to remove a director before their term ends by passing an ordinary resolution. This requires the approval of more than 50% of the shareholders present and voting at a general meeting. The provision ensures that directors remain accountable while allowing companies to take action when necessary.

At the same time, the law protects directors by giving them a fair chance to explain their side before any decision is made. It also excludes certain directors, such as those appointed by the Tribunal or through proportional representation, from this process. Following the correct legal procedure is essential, as any mistake can make the removal invalid and result in legal challenges.

Other Scenarios for a Director's Cessation

While removal under Section 169 is a significant mechanism, it is not the only way in which a director’s office can come to an end. The Companies Act, 2013, recognizes other scenarios of cessation that operate differently from removal.

Resignation under Section 168: A director may choose to step down on their own by submitting a written resignation to the company. This is a voluntary act and is effective from the date the notice is received by the company or the date specified in the resignation letter, whichever is later. The company is also required to notify the Registrar of Companies by filing the prescribed form to ensure proper compliance.

Automatic Vacation under Section 167: A director's office may become vacant automatically without a shareholder resolution in certain situations. For example, a director must vacate the position if they are disqualified under Section 164 or fail to attend any board meetings for 12 consecutive months. Understanding the difference between removal, resignation, and automatic vacation helps companies follow the correct legal process in each case.

Conclusion

Removing a director is an important decision and must be carried out in accordance with the Companies Act, 2013. Every step, from issuing the required notice to filing Form DIR-12 with the Registrar of Companies, should be completed correctly and within the prescribed timelines. Following the proper procedure helps avoid legal disputes, protects the company’s interests, and ensures a fair and transparent removal process.

At Rest The Case, we aim to simplify complex corporate law procedures and provide businesses with clear, reliable information so they can make informed decisions with confidence.