Resignation and Removal of Director as Per Companies Act 2013

Directors are key players in a company. They are in charge of decision making, compliance, and business development. But sometimes a director resigns or is removed. There are finally rules prescribed under Companies Act 2013 for both scenarios. Awareness of these legal guidelines helps in compliance as well as smooth transitions.

At Mind Your Tax, we help businesses navigate legal processes at ease. If you are a director who is considering resigning, or a company concerned about how to remove a director, this guide will outline the process.

Resignation of a Director

A director can resign on their own accord for personal, professional or ethical reasons. Companies Act 2013 lays down a uniform procedure for Resignation.

Steps to Resign as a Director

• Resignation Letter Submission

The director needs to submit a resignation letter to the board. It must mention the reason behind resigning and the date on which the resignation comes into effect.

•  Communications Board’s Acknowledgment

The board mentions the resignation and notes it in the meeting minutes.

• Filing With Registrar of Companies (ROC)

The Director resigning from the company has to file Form DIR-11 within 30 days. The ROC is notified of this resignation. The company is also required to file Form DIR-12 to update its records.

• Disclosure to the public

The resignation must be made public in the next report of the Board of Directors, and statutory registration must be updated.

After these steps are taken, the director’s duties are officially done. But they are still responsible for decisions taken while they were in power.

The Realities of Resignation and Legal Options

Directors are responsible for any misconduct or non-compliance in their function.

This means that if the company does not file DIR-12, though the resignation is valid but the director may have to prove the same in the event of litigation.

In listed companies, departing directors are required to disclose pending obligations.

Removal of a Director

Such removal may be necessary due to a director's misconduct, failure to perform, or legal disqualification. The procedure is given in the Companies Act 2013.

Grounds for Removal

• Failure to Attend Board Meetings: (Twelve month may absent without leave from the board meeting is deemed to have vacated their office, by the board of directors.)

• Disqualification U/S 164A: Director found guilty of an offence or entered into a scam can be removed.

• Decision By Board or Resolution By Shareholders: If a director is found to be unfit by the board or shareholders, removal proceedings may be initiated.

Procedure for Removal

• Board Meeting and Special Notice: A special notice as per the provisions of Section 169 of the Companies Act should be served by the shareholders or the board.

• General Meeting & An Opportunity for Defence: A general meeting is called to grant the director an opportunity to defend themselves.

• Votes: Shareholders vote on the resolution. With a simple majority vote, that makes the director OUT.

Impact of Removal

• One who is removed as director cannot sue for wrongful termination unless he has a contract saying otherwise.

• There could be legal recourse if the removal contravenes employment terms.

• Re-appointment of directors disqualified under Section 164 for five years in all company.

What Are the Key Differences of Resignation and Removal

• Resignation is voluntary; removal is at the direction of the company.

• In resignation, it’s the director who does it; in removal, it’s the company that does.

• A resigned director could join another company anytime, but removed directors could see their wings clipped.

Regulatory Considerations: Don't Get an Enforcer Knocking At Your Door

Failure to establish a resignation or removal process can have legal consequences. Once again, companies and directors should ensure that these documents are victory. If no intimation is sent to ROC, it has consequences for penalty and governance.

At Mind Your Tax, our experts will help you with everything from director resignations and removals, compliance and more. Everything related to Company registration in Bangalore and other related works, we are here for you.

Head to Mind Your Tax, the best CA firm in Bangalore, for professional advice to have a clear legacle transition in your company leadership.