A director may be removed by the shareholders or by the Central Government or by the Court. Procedure for removal of Director of a company according to the Companies Act 1956 are briefly discussed below.
The removal of a director or appointment of a director in the place of a removed director needs a resolution requiring special notice. Hence, the proposer has to send a notice to the company not less than 14 days before the meeting and the company has to send the proposed resolution to the concerned director and the members. The director has a right to make representations and to speak at that general meeting.
He may also request that these representations be notified to the members of the company. Under such circumstances, the company shall
- state the fact of the representations having been made in any notice of the resolution given to the members of the company; and
- send a copy of the representations to every member of the company to whom notice of the meeting is sent (whether before or after receipt of the representations by the company).
If a copy of the representations is not sent as aforesaid because they are received too late or because of the company’s default, the director may (without prejudice to his right to be heard orally) require that the representations shall be read out at the meeting.
The removed director may get compensation or damages for the termination of his appointment. If the vacancy is not filled at the same meeting, the Board may fill it as if it is a casual vacancy. But the removed director cannot be reappointed.
2. Removal of Director by the Central Government
As per Secs. 388 B to 388 E of Companies Act 1956, the Central Government has power to remove a managerial personnel on the recommendations of the National Company Law Tribunal. The Central Government may refer the case to the National Company Law Tribunal if it is of the opinion that:
1. the director or directors is or are guilty of fraud, misfeasance, negligence or default in carrying out his/their functions, or
2. the business is carried on against sound business principles or commercial practices, or
3. the company is carried on in a manner likely to cause injury to the interest of the trade, industry or business to which it belongs, or
4. the concerned director manages the company for defrauding the creditors or members or for a fraudulent or unlawful purpose.
If the National Company Law Tribunal after inquiry decides against the director or directors, the Central Government may remove him/them from office. In this case, no compensation is payable for the loss of office.
3. Removal of Director by National Company Law Tribunal
As per Sec. 402 of Companies Act 1956, if, on hearing an application for prevention of oppression or mismanagement, the National Company Law Tribunal feels that a relief ought to be granted, it may set aside, terminate or modify any agreement of the company with a director. Such a terminated director cannot get compensation for the loss of office.