Section 169 of Companies Act, 2013 – Removal of directors

SECTION 169. REMOVAL OF DIRECTORS

[Effective from 1st April, 2014 except sub-section (4) which is effective from 1st June, 2016]

(1) A company may, by ordinary resolution, remove a director, not being a director appointed by the Tribunal under section 242, before the expiry of the period of his office after giving him a reasonable opportunity of being heard:

[1][Provided that an independent director re-appointed for second term under sub-section (10) of section 149 shall be removed by the company only by passing a special resolution and after giving him a reasonable opportunity of being heard;]

[2][Provided further that] nothing contained in this sub-section shall apply where the company has availed itself of the option given to it under section 163 to appoint not less than two-thirds of the total number of directors according to the principle of proportional representation.

(2) A special notice shall be required of any resolution, to remove a director under this section, or to appoint somebody in place of a director so removed, at the meeting at which he is removed.

(3) On receipt of notice of a resolution to remove a director under this section, the company shall forthwith send a copy thereof to the director concerned, and the director, whether or not he is a member of the company, shall be entitled to be heard on the resolution at the meeting.

(4) Where notice has been given of a resolution to remove a director under this section and the director concerned makes with respect thereto representation in writing to the company and requests its notification to members of the company, the company shall, if the time permits it to do so,—

(a) in any notice of the resolution given to members of the company, state the fact of the representation having been made; and

(b) send a copy of the representation to every member of the company to whom notice of the meeting is sent (whether before or after receipt of the representation by the company),

and if a copy of the representation is not sent as aforesaid due to insufficient time or for the company’s default, the director may without prejudice to his right to be heard orally require that the representation shall be read out at the meeting:

Provided that copy of the representation need not be sent out and the representation need not be read out at the meeting if, on the application either of the company or of any other person who claims to be aggrieved, the Tribunal is satisfied that the rights conferred by this sub-section are being abused to secure needless publicity for defamatory matter; and the Tribunal may order the company’s costs on the application to be paid in whole or in part by the director notwithstanding that he is not a party to it.

(5) A vacancy created by the removal of a director under this section may, if he had been appointed by the company in general meeting or by the Board, be filled by the appointment of another director in his place at the meeting at which he is removed, provided special notice of the intended appointment has been given under sub-section (2).

(6) A director so appointed shall hold office till the date up to which his predecessor would have held office if he had not been removed.

(7) If the vacancy is not filled under sub-section (5), it may be filled as a casual vacancy in accordance with the provisions of this Act:

Provided that the director who was removed from office shall not be re-appointed as a director by the Board of Directors.

(8) Nothing in this section shall be taken—

(a) as depriving a person removed under this section of any compensation or damages payable to him in respect of the termination of his appointment as director as per the terms of contract or terms of his appointment as director, or of any other appointment terminating with that as director; or

(b) as derogating from any power to remove a director under other provisions of this Act.

Applicable Orders

Companies (Removal of Difficulties) Order, 2018

Notification no S.O. 768(E) dated 21^st February, 2018

S.O. 768(E) Whereas, sub-section (2) of section 152 of the Companies Act, 2013 (18 of 2013) (hereinafter referred to as the said Act) provides that every director (including an independent director) shall be appointed by the company in general meeting;

And whereas, sub-section (10) of section 149 of the said Act provides that subject to the provisions of section 152, an independent director shall hold office for a term up to five consecutive years on the Board of a company, but shall be eligible for re-appointment on passing of a special resolution by the company and disclosure of such appointment in the Board’s report;

And whereas, sub-section (1) of section 169 of the said Act provides that a company may, by ordinary resolution, remove a director, not being a director appointed by the Tribunal under section 242, before the expiry of the period of his office after giving him a reasonable opportunity of being heard;

And whereas, the following difficulties have arisen in giving effect to the above provisions of the said Act regarding appointment and removal of independent directors from the boards of companies, namely :-

(i) various stakeholders have suggested difficulties regarding proper monitoring and implementation of corporate governance requirements in companies and in order to strengthen corporate governance process, such stakeholders have suggested for reviewing section 169 of the said Act, which, inter-atia, deals with the removar of independent directors;

(ii) in view of the fact that presently an independent director is re-appointed for second term under sub-section (10) of section 149 of the said Act, only by way of a special resolution, such independent director can be removed by an ordinary resolution and not by a special resolution;

And whereas, in order to remove above said difficulty, and to ensure better corporate governance in companies, and balancing of powers of the board of the company, it is felt that there is a need for an amendment in section 169 of the Companies Act, 2013 to provide for removal of such re-appointed independent director by way of a special resolution;

Now, therefore, in exercise of the powers conferred by sub_section (l) of section 470 of the Companies Act, 2013 (18 of 2013), the Central Government hereby makes the following order to remove the aforesaid difficulty, namely:-

2018. Short title and commencement.- (l) This Order may be called the Companies (Removal of Difficulties) Order, 2018.

(2) It shall come into force from the date of its publication in the Official Gazette.

2. In the Companies Act,2013, in section 169, in sub-section (1), –

(i) before the proviso, the following proviso shall be inserted, namelv:-

“Provided that an independent director re-appointed for second term under sub-section (10) of section 149 shall be removed by the company only by passing a special resolution and after giving him a reasonable opportunity of being heard;”

(ii) in the existing proviso, for the words “provided that”, the words “Provided further that” shall be substituted.

[1] Inserted by Companies (Removal of Difficulties) Order, 2018 vide Notification no S.O. 768(E) dated 21^st February, 2018

[2] Substituted for the words “ Provided that” by Companies (Removal of Difficulties) Order, 2018 vide Notification no S.O. 768(E) dated 21^st February, 2018