A Comprehensive Guide To Removing A Director From A Company In India

Removing a director is one of the most sensitive decisions a company can make. While directors play a vital role in guiding the company’s vision and operations, there may be instances where their continuation is not in the best interest of the business or its shareholders. Because of the impact such a step can have on the company and the individual concerned, the law has laid down strict provisions under the Companies Act, 2013. These provisions are designed to ensure fairness, transparency, and protection of rights for both shareholders and directors. This article serves as a comprehensive guide to the legal framework and procedure for removing a director in India. We will cover the valid grounds for removal, the step-by-step process that companies must follow, the documents required, and the common mistakes to avoid. By the end, you will have a clear roadmap to ensure compliance while safeguarding your company’s interests.

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

At the heart of this framework lies Section 169, which is the cornerstone provision for director removal in India. Under this section, the shareholders, acting collectively, have the authority to remove a director before the expiry of their term by passing an ordinary resolution in a general meeting. An ordinary resolution means that more than 50 percent of the shareholders present and voting must agree to the decision. This provision reflects the principle of shareholder supremacy, ensuring that directors remain accountable to the owners of the company.

However, Section 169 is not a blank cheque for companies to oust directors at will. To protect the rights and reputation of the individual concerned, the law explicitly mandates that the director proposed to be removed must be given a reasonable opportunity of being heard. This means they have the right to present their case, explain their actions, and contest the grounds of removal before shareholders vote on the resolution. This safeguard prevents misuse of the provision and ensures that removals are based on reasoned decisions rather than personal rivalries or power struggles.

It is equally important to understand the exceptions under Section 169. The law draws boundaries by excluding certain categories of directors from this removal process. For instance, directors appointed by the Tribunal under Section 242, often in cases where the Tribunal intervenes to prevent oppression or mismanagement, cannot be removed by shareholders. Similarly, directors appointed through proportional representation under Section 163 enjoy protection, as their appointment is designed to secure minority shareholder rights. These carve-outs emphasize that while majority shareholders have power, it must not come at the cost of judicial oversight or minority representation.

In practical terms, Section 169 serves as both a sword and a shield. It is a sword for shareholders to act when a director jeopardizes the company’s well-being, and a shield for directors to ensure they are not removed without due process. Companies must therefore not only be aware of this section but also follow its procedure meticulously, as any lapse in compliance could render the removal invalid and open the door to 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: There are circumstances where a director’s office becomes vacant automatically without the need for a shareholder resolution. For instance, if a director is disqualified under Section 164 due to reasons such as conviction for certain offences or default in filing financial statements, they must vacate the office immediately. Another example is when a director fails to attend all board meetings for a continuous period of twelve months. These provisions ensure that directors remain active and qualified to discharge their duties, and that companies do not retain inactive or ineligible directors on their boards. By distinguishing between removal, resignation, and automatic vacation, companies can better understand the different legal avenues for a director’s cessation and follow the correct procedure in each case.

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 makes 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 special notice is received, the Board must act promptly. Give at least 7 days’ Board notice; a shorter-notice meeting is permitted for urgent business only if at least one independent director (if any) attends. If no independent director is present, the decisions must be circulated and ratified by an independent director before they take effect.

At this meeting, the Board should:

• Take note of the special notice and confirm member eligibility/thresholds.
• Fix the EGM details (date, time and venue/mode) and approve the EGM notice with the s.102 explanatory statement.
• Authorise issuance of the EGM notice (and e-voting calendar, cut-off date, scrutiniser—where applicable).
• Direct that a copy of the special notice be sent to the concerned director and invite any written representation (handled in the next step at the EGM).
• Authorise a director/CS to complete all incidental filings and actions flowing from the members’ decision.

Step 3: Company Notifies the Concerned Director

After receiving the special notice, the company must immediately send a copy to the director concerned. The director has a statutory right to make a written representation explaining their case.

• If received in time, the company must:
• Circulate the representation to all members (if practicable), or

If circulation isn’t possible, read out the representation at the EGM before the resolution is put to vote.

Note: This right to have the representation circulated or read out is fundamental under Section 169. It ensures that the director’s viewpoint is formally placed before shareholders prior to the removal decision.

Step 4: Hold an Extraordinary General Meeting (EGM)

At the EGM, members vote on the removal. For unlisted companies, removal is by ordinary resolution (>50% of votes cast) except where the independent director is in a second term; then a special resolution is mandatory. 

For listed entities, SEBI LODR Reg. 25(2A) requires a special resolution for the appointment, re-appointment, and removal of independent directors (in force since January 1, 2022).

Additionally, per the LODR Sixth Amendment (Nov 14, 2022), if a special resolution fails for a first-term ID, the resolution can still be deemed approved if both: (i) votes in favour exceed votes against overall, and (ii) votes by public shareholders in favour exceed votes against; a similar alternate route applies on removal for IDs appointed via this mechanism.

The concerned director retains the right to be heard at the meeting before the vote.

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.

Process Timeline (Notices & Filings)

Timeline for notices and ROC filing in director removal under the Companies Act, 2013

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 the 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.

Conclusion

Removing a director is a shareholder right, but it must be executed strictly under the Companies Act, 2013. Every stage; from special notice to filing DIR-12—demands precision and timelines. Doing it right protects the company, ensures fairness, and upholds good governance; shortcuts invite disputes and penalties. Approach the process with diligence, transparency, and respect for due process.

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