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Director of a company is a person elected by the shareholders for managing the affairs of the company as per the Memorandum of Association and Articles of Association of the company. Since a company is an artificial judicial person created by law, it can only act through the agency of natural persons. Thus, only living persons can be Directors of a company and the management of a company is entrusted to the Board of Directors. Appointment of Directors can be required for a company from time to time based on the requirements of the shareholders of the business.
To appoint a director, the person proposing to become a Director must obtain a digital signature certificate (DSC) and director identification number (DIN). DIN can be obtained for any person who is above the age of 18. The nationality or residency status of the DIN applicant does not matters. Hence, Indian Nationals, Non-Resident Indians and Foreign Nationals can obtain DIN and be appointed as Director of a company in India.
The following are the types of Director in Company:
A “Managing Director” means a Director who, by virtue of Articles of Association of a Company or an agreement with the company or a resolution passed in its general meeting, or by its Board of Directors, is entrusted with substantial powers of management of affairs of the company.
An Executive Director or whole-time Director is someone in full-time employment of the company.
An “Ordinary Director” means a simple Director who attends the Board meetings of a company and participate in the matters put before the Board of Directors. These Directors are neither whole-time Directors or Managing Directors.
An Additional Director is someone appointed by the Board of Directors between two annual general meetings subject to the provisions of the Articles of Association of a Company. Additional Directors shall hold office only upto the date of the next annual general meeting of the Company. Number of Directors and additional Directors of a company together shall not exceed the maximum strength fixed for the Board of Directors by the Articles of Association.
Alternate Director is someone appointed by the Board of Directors in a general meeting to act for a Director called the “original director” during his absence for a period of not less than three months from India. Generally, alternate Directors are appointed for a person who is Non-Resident Indian (NRI) or for foreign collaborators of a company.
Any Director possessing professional qualifications and do not have any pecuniary interest in the company are called Professional Directors. In large companies, Professionals are sometimes appointment to the Board to utilize their expertise in the management of the Company.
Banks and Private Equity investors who grant debt or equity assistance to a company generally impose a condition as to appointment of their representative on the Board of the concerned Company. These nominated persons are called as nominee Director.
In a One Person Company (OPC), a nominee Director is someone nominated by the sole Director of the One Person Company to take over affairs of the OPC in case of death or incapacitation of sole Director.
A Director in a company may need to resign or the Board may want to remove a Director for a number of reasons. The Director of a Company can resign from the Board by filing a resignation letter with the company and filing the intimation with the ROC. In this article, we look at the procedure for such resignation of Director.
A Director may resign from a company by giving a notice in writing to the company and the Board is required to intimate the ROC of such notice within 30 day in Form DIR-12. In case the Director chooses, he/she may also send a copy of the resignation letter to the ROC along with the reasons for resignation using form DIR-11. The format for resignation letter of Director is as follows:
Once the company receives the resignation letter, and the Chairman of the Board has noted it, a letter must be sent to the resigning Director that his/her resignation letter has been received. The Company must also file with the ROC e-Form DIR-12 about the resignation of the Director from the Company.
Once, the ROC is informed, in the subsequent Board Meeting, the letter of resignation of the Director is placed before the Board and that fact would be recorded in the minutes of the meeting.
After a Director has tendered his/her resignation and the Board has accepted the resignation, the Director cannot be held liable for liabilities incurred by the company after the date of acceptance of resignation. However, a Director who has resigned shall be liable even after his/her resignation for any offenses which occurred during his/her tenure as Director of the Company.
A company is empowered to remove its directors before the expiry of their term, the powers of which is vested with the shareholders. This article deals with the process of removal of directors in a company. Non-compliance with any of the stipulated processes can make the decision void, if appealed in a court.
One of the common requisites in the various laws ordained involves providing the defendant or defaulter with an opportunity of being heard. It is no different with the removal of a director. The process of removal cannot not be initiated without providing this opportunity to the director who is to be removed.
Issue of Notice
The process of removal must be initiated by way of a notice. This notice must be processed by shareholders holding a minimum voting power of 1%; or who holds shares on which an aggregate sum of not more than Rs 5,00,000 has been paid up on the date of notice. Such a notice, known as special notice must be signed by all the members. The special notice must be delivered to the company at-least 14 days prior to the date of meeting, at which the resolution will be passed. It may be delivered earlier but wouldn’t be valid if issued before three months of the date of meeting.
Notice to Members
A copy of the notice must be sent to the director concerned, who in-turn is entitled to be heard on the resolution at the meeting, whether or not the director is a member of a company. The notice must be served at-least seven days, which is a week prior to the date of meeting. Alternatively, if the shareholders are unable to deliver the notice due to any reasonable circumstances, it can be published in two newspapers, one in English and the other in the regional language. In addition to this, the notice must mandatorily be posted on the company’s website, if it maintains any. Similar to the issuance of copy to the directors, the notice must be posted on the website at-least seven days prior to the date of meeting.
Representation in Writing
The concerned director can make a representation in writing to the company against the notice of removal. He/she is also entitled to make a plea to the company that the representation must be sent to all the members. Also, the members must be notified of the representation through a notice. If the company is unable to send the copies to all the members, the director may request for the representation to be read out at the meeting. The director is entitled to this right in addition to and without prejudice to his right to be heard orally.
Appeal to the Tribunal
If the organization or any aggrieved person decides against sending out the representation to the members or reading it out in a meeting, they can make an application to the Tribunal, requesting a nullification of the process. The Tribunal is entitled to annul the process, if it finds that the director uses this right to secure unnecessary publicity for defamatory matter. Further, the director is also bestowed with the right to issue an order demanding the director to cover the cost of application borne by the company.