APPOINMENT / REMOVAL OF DIRECTORS

The appointment / removal can be divided into 6 parts :-

(1) First Director (Sec 152)

(2) Small Shareholder Director by small shareholders
(Sec 151)
(3) Subsequent Directors by Co. in general meeting (Sec
152)
(4) Appointment of Additional Director, Alternate
Director, Nominee Director, Filling up casual
vacancy by BOD
(5) Appointment of Independent Director

Appointment of Directors :-

(1) General procedure for appointment :- (provided

u/s152) :-
(a) every director shall be appointed in General
meeting of Co.
(b) Every such Individual must posses DIN
(c) Every person (proposed to be appointed) :-must
furnish :-
 DIN
  Declaration (that he is not disqualified to
become a director)
(d) Once appointed as Director such person must give
his consent to hold office as directors
(e) Once consent has been given :- it must be filed
with the Registrar within 30 days (from such
appointment)
(f) On consent + Registration = the person is
appointed as director
(g) Principle of Proportional Representation
(Sec162):- The Article of Co. may provide for 2/3 rd
of total no. of Directors of Co. to be appointed by
proportional representation.

(2) First Directors :- (Sec152(1))

The procedure for appointment of 1 st Directors is provided

under Articles of Co.
If no such provision is provided then the subscribers of MOA
act as 1st Directors. Such directors hold office of 1 st Director
until Director’s are duly appointed.
In case of OPC – Individual member is deemed to be 1 st
Director

(3) Appointment of Small Shareholders Directors :-

Small Shareholder Directors are appointed by small
Shareholders in a listed Co.

Procedure for election / appointment of small shareholder

director :- (Sec 151 + Co. (Appointment and Qualification)
Rules, 2014 provide for appointment of small shareholder
director)
A listed Co. may appoint small shareholder director under 2
conditions :-
(a) suo moto (i.e. Co. may itself opt to have Director
representing small shareholder)
(b) Notice by share holder to Co. :- provided such notice
must be given by :-
 Not less than 1000 small shareholders, or
 Atleast 1/10th of total No. of shareholders
[Note :- Time period of notice :- notice must be given by
small shareholders to 14 days prior to meeting.
Particulars of Notice :- The notice must contain :-
(a) Details of person whose name is proposed for post
of small shareholder director
 Name
 Address
 Shares held
 Folio No.
 (b) Details of the small shareholders proposing such
person to office of Co.
(c) A statement from small shareholder Director
providing following details :-
 DIN of proposed Director
 A statement that he is nkt disqualified to
become a director
 Consent (of proposed director) to act as
Director. ]

Tenure of office of small shareholder Director :- must

not exceed 3 consecutive years

Disqualification :- provision u/s 164 apply

Reappointment :- Once Small Shareholder Director ceases

to be a director then for 3 years(from date on which he so
ceases) the same person cannot be appointed/ associated
with the Co. in any capacity (directly / indirectly)

Small shareholder Director shall be treated as

independent Director :- if it gives declaration of his
independence.

(4) Appointment of subsequent Directors :-

 (a) any person who is not a retiring director may be
eligible to be a director of a Co.
(b) Provided the member proposing :- has given a notice
to that effect.
(c) Notice:-
 Must be in writing
 Submitted along with deposit :- Min. 1 lakh/-
And Max. such higher amt. as may be
prescribed. [This deposit shall be refunded if
such proposed person either gets elected or
gets more than 25% of valid votes.]
 Must be given 14 days prior to meeting at the
Registered office of the Co.
(d) The Co. must inform its members for the office of
directors (in the manner prescribed)

(5) Appointment of Additional Directors :-

(a) Who appoints ? :- BOD
(b) Who can be appointed ? :- No person can be
appointed as Additional director who has failed to
get appointed as a Director in the general meeting.
(c) Tenure :- can be appointed at any time
+
 Cont. to hold office either till next AGM or last date
on which AGM is held (whichever is earlier).

(6) Appointment of Alternate Directors :-

(a) Who appoints ? :- BOD
(b) Conditions for such appointment :-
 Bod must either be appointed to do so by
Articles or by resolution passed in general
meeting
 Can be appointed in place of director who is
absent from India for 3 months

(c) Qualification :-
 The Individual must not already an alternate
director for any director in Co.

(d) Tenure :- may hold office for:-

 Term permissible by original director
 as / when the original director returns to india.

(e) Reappointment :- The provision for reappointment

applicable to original director does not apply to Alternate
director.
(7) Appointment of Nominee Directors :-

(a) Who appoints ? :- BOD

(b) Who nominates ? :- can be nominated by :-
(i) any institution :-
 In pursuance of any law for time being in
force
 In pursuance of any agreement
(ii) By virtue of shareholding in Govt. Co. can be
nominated by :-
 Central Govt.
 State Govt.

(8) Appointment of Independent Directors :-

(a) Selection of Independent Director :- A data bank
(as notified by Central Govt.) is maintained. This
date bank contains :-
Names, address, qualifications of persons (who are
eligible / willing to act as Independent Director)
Purpose of Date bank :- is to create + maintain data
of person willing to act as Independent Director in a
Co.
Co. with due diligence must select a person from
Data bank to act as Independent director.
 (b) Notice :- The notice of meeting in case of
appointment of Independent Director must contain
an explanatory statement.
The explanatory statement here indicate :-
justification for choosing such person
+
reason for considering appointment.
(c) Appointment :- Based on selection + Fulfillment of
Qualification
(d) After Selection :- the Co. for such appointment
must get approval in general meeting

WHEN AN INDIVIDUAL STOPS TO BE A DIRECTOR?

There are 3 ways in which an Individual stops to hold

position of Directors :-

(1) Vacation of Directors

(2) Resignation of Directors
(3) Removal of Directors
(4) Retirement of Directors

(A) Retirement of Directors :- (Sec 152 (6) and (7))

u/s 152(7) Explanation :- “ Retiring means Retiring by
rotation”
In case of Public Co (including its subsidiary Pvt. Co.) :-
 Articles may provide that all director shall retire at
every AGM
 Other wise (i.e. if Articles do not provide for
retirement of all) then :-
2/3rd must retire by rotation (i.e. only 1/3rd directors
are permanent)
The 2/3rd No. here exclude independent directors

No. of person liable to retire at 1st AGM or subsequent

AGM every year :-
 1/3rd of directors
 where No. of director is neither 3 / nor in multiple of 3
then – No. nearest to 1/3rd

Which director are liable to retire at every AGM :-

 Those who have longest tenure in office
 If more than 1 became director on same day then they
shall retire by lot or as per their mutual agreement
 The Independent Director are not liable to retire by
rotation.

Vacancy created due to retirement :-

The vacancy created due to retirement may be filled by Co.
by:-
 Reappointing the retired director
 By appointing some other person

(B)Vacation of Office of Directors :- provided u/s 167

the office of director falls vacant under following
circumstances :-
(1) If director become disqualified
(2) Do not attend (i.e. absent himself) from meetings of
Co. for 12 months without seeking any leave of
absence from Board.
(3) Non disclosure of interest :- (i.e. fails to disclose his
interest in contracts / arrangements entered by Co.)
(i.e. contravene provisions u/s 184)
(4) Disqualification of Director by order of Court /
Tribunal
(5) Conviction :- (i.e. convicted by Court ) :-
 For an offence involving moral turpitude/
otherwise, or
 Sentenced to Imprisonment for not less than 6
months.
[Note :- Even if an appeal is filed still the Director will have
to vacate his office in this case]
(6) Removed as per provisions of Co. Act, 2013
(7) Cessation of office / employment :- If the
appointment of any person to office of Director was
because such person held some office / employment
and now such person has ceased to hold such office
or employment
On Vacation of office as by all Directors :- If all Directors
vacate office at same time due to any disqualification then :-
 The promoter, or
 The Central Govt. (in absence of Promoter )
Have the power to appoint required no. of directors. The
person so appointed shall hold office until next general
meeting.
Contravention by any Director :- If any person knowing
that the office he holds has fallen vacant (i.e. he knows he is
no more a director) still continue to hold office then such
person is punishable with :-
Imprisonment :- Max :- 1 year
Fine :- Min :- 1 lakh and Max. :- 5 lakh
Or Both

Casual Vacancy :- (sec 161(4)) :-

Meaning :- In case of a Public Co. if the office of any Director
(appointed in the general meeting) gets vacated before the
expiry of his term then this creates a casual vacancy

In case of casual vacancy :- the vacancy must be filled by

BOD in accordance with the Articles of the Co.

Tenure :- any person appointed here shall hold office upto

date till the original director would have held.
(i.e. Date of vacancy of original director = date of vacancy by
person appointed)
[Note :- u/s 169(7) Where a casual vacancy created in case
of removal of Director in this case the person removed
cannot be reappointed as Director by BOD.]

(C) Resignation of a Director :- Sec 168

How can Director resign?
A Director may resign from his office :-
 by giving notice to Co. and Board
 must also forward a copy of resignation to the
Registrar WITHIN 30 DAYS FROM RESIGNATION

Format of Resignation :- shall be such as may be

prescribed
On receipt of Resignation :-
(a) The co. :-
 must intimate this to Registrar to make a note of it
 place the fact of resignation in Director report
(b) The resignation given is effective from :- (whichever is
later)
 date on which notice is received by Co., or
 date specified on notice
(c) If all directors resign at same time or vacate office at
same time :- then the vacancy created must be filled by such
no. of persons as appointed by :-
 Promoters
 Central Govt. (if no promoters)
Such persons appointed must hold office till directors are
appointed in the general meeting.

(D) Removal of Director :-

A Director of Co. may be removed under the provisions of

sec 169.
A Director may be removed by Co. or by Tribunal subject
to following provisions :-

(1) Removal by Co. :-

Who may remove and when ? :-
A Co. may remove a Director at anytime before expiry of his
term after providing Director an opportunity of being heard

Provided the Directors falling under the following categories

cannot be removed by Co :-
(a) Any Director appointed by Tribunal u/s 242
(b) Any director appointed by Co. through
Proportional representation.
(c) Director appointed by Central Govt.
(d) Director holding office for life

Special Notice :- must be given of resolution to remove a

director
The copy of the special notice must be to director concerned

Statement by Director :- The representation by the

concerned director can also be made in writing. Such
statement must be either circulated or read out at meeting
by the Co. to / among all the members
The Court has power to prohibit such circulation if it
contains defamatory matter.

Meeting held for removal may also involve appointment of

another director in the such place.
Right of Director on removal :- If the Director (so
removed), was by agreement/ otherwise entitled to receive
compensation for premature termination of his services
then such director posses a right to compensation / damages

(2) Removal by Tribunal :-

u/s 242 The Tribunal has power to remove the director of
the Co. on application made in case of oppression and
mismanagement
The application here can be made by :- shareholders or
member of Co.
Relief :- In such cases the Tribunal has the power :-
(a) to set aside any agreement / contract entered
between Co. and managing director or director or
manager of the Co.
(b) removal of guilty manager or director.

The Director / manager removed by Tribunal

 cannot be reappointed without the consent of Tribunal
for next 5 years
 nor can claim for damages for loss of office of
directorship