Appointment and Removal of Directors in Companies Act 2013

Directors play an important role in steering the company towards growth and success. The Companies Act 2013, a landmark legislation in India, provides a comprehensive framework for the appointment and removal of directors, ensuring transparency, accountability and effective governance. In this article, we will discuss the appointment and removal of directors under the Companies Act 2013.

Appointment of Directors

The appointment of directors can be done in the following way:

Types of Directors:

The Act recognises various types of directors, including executive, non-executive, independent, nominee and additional directors. The nature of their appointment and duties are defined based on their categorisation.

First Directors:

The first directors of a company are usually named in the articles of association. If not, the subscribers to the memorandum of association will act as the first directors until the directors are duly appointed.

Appointment by Shareholders:

Directors are generally appointed by shareholders in the annual general meeting (AGM). The process involves proposing a resolution for the appointment, which is then voted upon by the shareholders.

Appointment by Board:

The board of directors has the authority to appoint additional directors, alternate directors and nominee directors. However, these appointments are usually temporary and subject to ratification by shareholders in the subsequent AGM.

Independent Directors:

Independent directors are appointed for their expertise and to bring objectivity to the board’s decisions. Their appointment process is more stringent, requiring a majority of independent directors on the selection committee.

Women Directors:

The Act mandates certain classes of companies to have at least one woman director on their board to promote gender diversity.

Resident Director:

Every company is required to have at least one director who has stayed in India for a total period of not less than 182 days in the previous calendar year.

Director Identification Number (DIN):

Every individual intending to be appointed as a director must obtain a DIN issued by the Ministry of Corporate Affairs.

Consent and Declaration:

The appointee must give consent to act as a director in writing and a declaration that they are not disqualified under the Act.

Removal of Directors

The directors of a company can be removed by:

By Shareholders:

Directors can be removed by shareholders through an ordinary resolution, except for directors appointed by the Tribunal or in the case of private companies where the articles provide for a different procedure.

By Board:

The board can remove a director if they abscond, is declared of unsound mind, are convicted of an offence or fail to attend board meetings over a certain period.

Disqualification:

Directors can be automatically disqualified under certain conditions specified in the Companies Act, such as insolvency, conviction of an offence or involvement in fraudulent activities.

Resignation:

A director can resign by giving notice in writing to the board. The resignation takes effect from the date on which the notice is received or the date specified in the notice.

Vacation of Office:

The office of a director is vacated if they are disqualified, resign or are removed.

Filling of Vacancy:

The vacancy created by the removal of a director can be filled by the board or shareholders, depending on the circumstances of the removal.

Recording and Reporting:

The removal of a director must be recorded in the minutes of the meeting and the company must notify the Registrar of Companies (ROC) of the change in directorship.

Legal Recourse and Penalties

Directors or companies not complying with the provisions of the Act regarding the appointment and removal of directors can face legal consequences, including fines and disqualification from directorship.

Conclusion

The appointment and removal of directors are critical processes governed by the Companies Act 2013 to ensure effective corporate governance. The Act provides a clear framework to maintain a balance between the powers of the board and the rights of the shareholders, ensuring that directors are appointed and removed in a transparent and fair manner.

Directors are appointed by shareholders during the Annual General Meeting (AGM) or by the Board of Directors in the case of additional or alternate directors. The Companies Act 2013 mandates obtaining a Director Identification Number (DIN) and providing written consent. Independent directors and women directors have specific appointment criteria to ensure diversity and objectivity.

Directors can be removed by shareholders through an ordinary resolution, except those appointed by the Tribunal. The Board can also remove directors under certain circumstances, such as non-attendance at meetings. Resignation is another route for director removal, requiring written notice to the Board.