Removal of Directors in India – Complete Guide

A director can be removed from their position in a company under certain conditions. The Companies Act, 2013 provides clear procedures and protections to ensure fairness and compliance.

1. Legal Basis

• Section 168 of the Companies Act, 2013 – Removal of directors (other than independent directors) by shareholders’ resolution.

• Section 169 – Notice of resolution for removal.

• Schedule IV – Applies for removal of independent directors.

• Articles of Association (AoA) – May provide additional rules for removal.

Key Principle: Directors can’t be removed arbitrarily; the procedure ensures natural justice (the director has the right to be heard).

2. Who Can Be Removed?

• Any director except:

  • Independent Directors (they have special protection under Section 149 and Schedule IV)

  • Nominee Directors (appointed by financial institutions or government – removal may depend on agreement)

Important: Independent directors cannot be removed before their term ends, except under specific circumstances (resignation, disqualification, or tribunal order).

3. Grounds for Removal

Unlike appointment, directors can be removed with or without cause, but common reasons include:

1. Non-performance or inefficiency

2. Mismanagement of company affairs

3. Conflict of interest or breach of fiduciary duties

4. Loss of confidence by shareholders

5. Legal disqualification under Section 164 (e.g., insolvency, criminal conviction)

Note: For listed companies, removal may trigger SEBI disclosure obligations.

4. Procedure for Removal of Directors

Step 1: Shareholders’ Resolution

• A special resolution of shareholders is required.

• For a private company, majority shareholders may approve removal.

• Independent directors cannot be removed via ordinary resolution before term expiry.

Step 2: Notice of Resolution (DIR-169)

• Company must give special notice of resolution to:

  • Director to be removed

  • All members of the company

• Minimum 14 days’ notice required before passing the resolution.

Content of Notice:

• Intention to remove director

• Date, time, and venue of meeting

• Right of director to submit representations

Step 3: Director’s Right to Be Heard

• Director may submit a written explanation against removal.

• Company must circulate the explanation to all shareholders.

• Director can also attend the meeting and present arguments.

Step 4: Shareholders’ Meeting

• Removal is decided by a special resolution (≥75% votes of shareholders present and voting).

• Independent directors and nominee directors may have additional procedures.

Step 5: Filing with MCA

• Company must file Form DIR-12 within 30 days of removal.

• Attachments:

  • Copy of board resolution

  • Notice of shareholders’ resolution

  • DIN of removed director

Effect: Removal is effective from the date of passing resolution, subject to MCA filing.

5. For Independent Directors

• Independent directors cannot be removed before their term except:

  1. By tribunal due to disqualification

  2. Resignation

  3. Failure to meet independence criteria

• Schedule IV requires written explanation for removal and representation to shareholders if removed prematurely.

6. For Nominee Directors

• Appointment/removal depends on agreement with appointing authority (e.g., bank, government, investor).

• MCA filing is required via DIR-12 after removal.

7. Documentary Requirements

1. Board Resolution approving removal (if required by AoA)

2. Shareholders’ resolution (special resolution)

3. Notice of removal to shareholders & director (DIR-169)

4. Director’s representation (if submitted)

5. DIR-12 filing with MCA

6. DIN of removed director

8. Filing Forms with MCA

Tip: Filing DIR-12 is mandatory, otherwise penalties may apply.

9. Timeline Summary

10. Penalties for Non-Compliance

• DIR-12 not filed: ₹5,000 per default

• Removal without following proper procedure: May be challenged by director in court/tribunal

• Company may be liable for damages if director’s rights violated

11. Advisory Notes / Best Practices

1. Check Articles of Association before initiating removal

2. Always issue special notice (DIR-169) to comply with Section 169

3. Allow director opportunity to submit representation

4. Keep MCA filings updated to avoid fines

5. For listed companies, disclosure to SEBI and stock exchanges may be needed

6. For foreign directors, consider FEMA / RBI compliance if salary or investment involved

7. Maintain minutes of meetings carefully for audit purposes

12. Key Points to Remember

• Removal must follow Section 168 & 169 of Companies Act

• Requires special notice and shareholders’ resolution

• Independent directors cannot be removed arbitrarily

• Proper filing of DIR-12 is mandatory

• Failure to comply can result in penalties or legal challenges

Additional Information – Appointment & Removal of Directors

1. Directors’ Rights During Removal

• Directors have statutory rights to be heard before removal.

• They can submit written representations to shareholders.

• For independent directors, Schedule IV provides protection against arbitrary removal.

• Even after removal, directors may have claims for unpaid remuneration or damages if the removal violates Articles or law.

2. Resignation vs. Removal

• Resignation is voluntary; director submits DIR-11 to the company and MCA.

• Removal is involuntary; requires shareholder resolution (DIR-12).

• Even if a director resigns, the company must update MCA via DIR-12.

3. Casual Vacancies

• Section 167 & 161 allow filling casual vacancies caused by:

  • Death

  • Resignation

  • Removal

  • Disqualification

• Board may appoint a director temporarily until the next shareholders’ meeting.

4. Independent Directors – Special Considerations

• Cannot be removed prematurely except in:

  • Tribunal order

  • Breach of independence

  • Resignation

• Removal triggers disclosures under SEBI Listing Regulations for listed companies.

• Companies must comply with Schedule IV, including giving reasons for removal.

5. Nominee Directors

• Appointed by investors, banks, or government.

• Removal is governed by the appointment agreement.

• Filing DIR-12 with MCA is mandatory after removal.

6. MCA Compliance & Penalties

• Non-filing of DIR-12: ₹5,000 per default

• Non-compliance with Section 168/169: Risk of tribunal challenge

• Companies must maintain up-to-date registers of directors (Section 170)

• Annual DIR-3 KYC update required for active DINs

7. Effect of Removal

• Director ceases to hold office from the date of passing of resolution, unless Articles specify otherwise.

• Director’s DIN remains valid, but company must update statutory registers.

• Removal does not automatically remove liabilities incurred during tenure.

8. Shareholder Agreements & Special Cases

• In some companies, shareholder agreements or Articles of Association may include:

  • Special conditions for removal

  • Supermajority vote requirements

  • Approval from specific investors

• MCA filings must still comply with statutory requirements.

9. Foreign Directors

• Must comply with FEMA / RBI regulations for appointment/removal.

• May require notarized copies of passport and address proof.

• MCA filings (DIR-12) remain mandatory.

10. Documentation Checklist

1. Board resolution (if required by AoA)

2. Special notice of resolution (DIR-169)

3. Shareholders’ resolution for removal

4. Director’s representation (if any)

5. DIR-12 filing with MCA

6. Update register of directors

7. Annual DIR-3 KYC update

11. Advisory Notes for Companies

• Always check Articles of Association before removal

• Ensure natural justice: director can submit explanation

• Maintain proper minutes of meetings

• File all MCA forms on time to avoid fines

• For listed companies, comply with SEBI disclosures

Summary

The appointment and removal of directors is not just procedural—it’s legal and governance-critical. Key points:

• Directors have rights and protections under Sections 149–172, 164, 168, 169

• Independent and nominee directors have special rules

• MCA filings (DIR-2, DIR-12, DIR-3 KYC) are mandatory

• Proper documentation and registers prevent legal disputes