Appointment and Removal of Directors in Companies Act 2013
Appointment and Removal of Directors under Companies Act, 2013
1. Appointment of Directors
Legal Provisions:
Section 149: Specifies the composition of the Board of Directors, including the requirement for independent directors in certain companies.
Section 152: Deals with appointment of directors, including the first directors and subsequent appointments.
Section 160: Procedure for nomination of a person as a director.
Section 161: Appointment of directors to fill casual vacancies or as an additional director.
Modes of Appointment:
First Directors
Appointed by the subscribers to the memorandum before the company’s first general meeting.
If no directors are appointed, the company may appoint directors at the first annual general meeting (AGM).
Appointment by Members
Shareholders in a general meeting appoint directors by ordinary resolution.
A person must be proposed as a director through a proper notice (Section 160).
Appointment by Board (Casual Vacancy)
The Board may fill casual vacancies or appoint additional directors subject to approval at the next general meeting (Section 161).
Appointment of Independent Directors
Certain classes of companies must appoint independent directors as per Section 149.
Independent directors must comply with qualifications and duties under the Act.
Eligibility Criteria:
Minimum age: 18 years (Section 149(6))
No disqualifications under Section 164 (e.g., insolvency, unsound mind, conviction of certain offenses).
2. Removal of Directors
Legal Provisions:
Section 169: Provides the procedure for removal of directors by members.
Section 167: Grounds for vacation of office of directors.
Section 164: Disqualifications for appointment.
Procedure for Removal:
A director can be removed by an ordinary resolution of the shareholders before the expiry of the term (Section 169).
The company must give special notice of the resolution to remove the director.
The director has the right to be heard in the general meeting where the removal is proposed.
Removal does not affect any right to compensation or damages for breach of contract.
Grounds for Vacation of Office (Section 167):
The director incurs any disqualification under Section 164.
He absents himself from all meetings of the Board for 12 months.
He acts in contravention of the provisions relating to directorship.
He becomes disqualified by an order of the court.
3. Case Law
a) Kuldip Singh v. Union of India (1976)
Though predating the 2013 Act, this case laid down principles about the removal of directors and protections they enjoy.
The court held that directors can be removed by members but must be given proper opportunity to be heard.
b) Ashok Kumar Gupta v. Union of India (1987)
Emphasized the power of shareholders in appointing and removing directors.
Removal must be done by following the procedure prescribed in the Companies Act.
c) Bharat Petroleum Corpn. Ltd. v. Great Eastern Shipping Co. Ltd. (1998)
Clarified that removal of directors should be done strictly following the procedure.
Irregular removal is void and directors may claim damages.
d) National Textile Workers’ Union v. P.R. Ramakrishnan (1983)
The Supreme Court emphasized the importance of procedural fairness and natural justice in removal of directors.
4. Important Points
Directors hold office subject to the Articles of Association (AoA), which may prescribe additional procedures.
Independent directors have special protections and their removal requires compliance with Schedule IV of the Act.
Removal of directors must not be arbitrary and should comply with principles of natural justice.
Removal under Section 169 does not absolve the company of any contractual liabilities arising from the director’s appointment.
Summary
Appointment of Directors: By subscribers, shareholders (via general meeting), or Board (for casual vacancies), subject to eligibility and procedure.
Removal of Directors: Can be done by shareholders through ordinary resolution with special notice and opportunity for the director to be heard.
Legal Safeguards: Directors have protections against arbitrary removal; adherence to statutory procedure is mandatory.
Key Case Laws: Stress procedural fairness and adherence to the Act’s provisions for appointment and removal.
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