Background

The Companies Act, 2013 devotes two distinct provisions to the departure of directors from the board: Section 168 deals with voluntary departure, i.e. resignation, while Section 169 addresses involuntary departure, i.e. removal by the shareholders. Together, read with Rules 15 and 16 of the Companies (Directors) Rules, 2014, these sections establish a comprehensive framework that balances the autonomy of directors, the supervisory rights of shareholders, and the overriding interest of corporate governance and public disclosure.

Compliance Requirements for Resignation & Removal of Director

Mode and Manner of Resignation: 

Written Notice (Section 168(1))

Section 168(1) mandates that a director may resign from office only by giving a notice in writing to the company. Upon receipt of such notice, the Board of Directors shall take note of it.

Obligation of the Company

On receipt of the resignation notice, two obligations fall upon the company. First, the Board must formally take note of the resignation at its next meeting or through a resolution. Second, the company is bound to intimate the Registrar of Companies within the prescribed time and in the prescribed manner. As clarified by Rule 15, this intimation is to be made within thirty days from the date of receipt of the notice.

Reporting to Shareholders

Section 168(1) further requires that the fact of the director’s resignation be placed before the shareholders by way of the Directors’ Report laid at the immediately following general meeting of the company. This ensures transparency and keeps the shareholders informed of changes in the board composition.

Director’s Own Intimation to the Registrar (Proviso to Section 168(1))

The Proviso to Section 168(1) empowers the director himself to forward a copy of his resignation, along with detailed reasons, directly to the Registrar of Companies. This is to be done within thirty days of the date of resignation.

Companies (Directors) Rules, 2014 (Rules 15 and 16 of the Companies (Appointment and Qualification of Directors) Rule, 2014:

Rule 15: Intimation by the Company (Form DIR-12)

Rule 15 operationalises the company’s obligation under Section 168(1) to intimate the Registrar. It specifies the prescribed form, the prescribed timeline, and an additional obligation to post the information online.

Two key obligations arise from this rule: the company must file Form DIR-12 with the Registrar within thirty days, and it must also update its website with the relevant information regarding the resignation.

Rule 16: Copy of Resignation by the Director (Form DIR-11)

Rule 16 governs the director’s own right to forward a copy of his resignation to the Registrar, along with reasons in Form DIR-11. This corresponds to the Proviso to Section 168(1).

Proviso to Rule 16 — Foreign Directors

An important proviso to Rule 16 addresses the practical difficulties faced by foreign directors. It provides that where the company has already filed Form DIR-12 under Rule 15, a foreign director who is resigning may authorise, in writing, a practising chartered accountant, a cost accountant in practice, a company secretary in practice, or any other resident director of the company to sign Form DIR-11 and file it on his behalf.

Effective Date of Resignation (Section 168(2))

Section 168(2) lays down the rule for determining the date from which the resignation takes effect. Two scenarios are contemplated.

1. 1. If the notice does not specify a future date, the resignation takes effect from the date on which the notice is received by the company.

   2. If the notice specifies a particular date, the resignation takes effect from that specified date, provided it is later than the date of receipt.

Continuing Liability of the Resigned Director (Proviso to Section 168(2))

A critical safeguard under the Act is the Proviso to Section 168(2), which provides that a director who has resigned shall remain liable for any offences committed during the period of his tenure. Resignation does not operate as a shield against past defaults.

This provision is particularly significant in the context of criminal proceedings, penalties under the Companies Act, and tax liabilities. The burden of liability does not cease merely because the director has ceased to hold office.

Resignation of All Directors (Section 168(3))

Section 168(3) addresses the contingency where all directors of a company resign simultaneously or vacate their offices under Section 167 (which deals with vacating of seats). In such an event, it is essential to avoid a complete absence of board governance.

The hierarchy of authority in this scenario is clear: the promoter is the primary party responsible for filling the vacancies on an interim basis. Only where the promoter is absent or unable to act does the Central Government step in. The directors so appointed are to hold office on an interim basis until the shareholders formally appoint directors in a general meeting.

Section 169 — Removal of a Director:

Power of the Company to Remove a Director (Section 169(1))

Section 169(1) confers upon the company the power to remove a director before the expiry of his term of office. This power is exercisable by way of an ordinary resolution passed at a general meeting. The section explicitly excludes directors appointed by the Tribunal under Section 242 from this power, thereby preserving the independence and authority of tribunal-appointed directors.

The requirement that the director be given “a reasonable opportunity of being heard” is a cardinal procedural safeguard. It ensures that the removal is not carried out in an arbitrary or summary fashion and that the principles of natural justice are adhered to.

Removal of Independent Directors on Second Term (First Proviso to Section 169(1))

The first Proviso to Section 169(1) carves out a special category: independent directors who have been re-appointed for a second term under sub-section (10) of Section 149. Such directors can be removed only by a special resolution, not an ordinary resolution. This elevated threshold is a deliberate legislative choice to insulate independent directors from facile removal and to strengthen the integrity of board oversight.

Exclusion Where Proportional Representation Applies (Second Proviso to Section 169(1))

The second Proviso to Section 169(1) provides an exception to the entire removal mechanism. Where the company has elected to appoint not less than two-thirds of its total directors by the principle of proportional representation under Section 163, the power of removal under Section 169 does not apply. This is because proportional representation inherently confers a right on specific groups of shareholders to have their chosen candidates on the board, and ordinary majority removal would undermine that structural entitlement.

Requirement of Special Notice (Section 169(2))

Section 169(2) makes it clear that any resolution to remove a director, or to appoint a replacement in his place at the same meeting, requires special notice.

Communication of Notice to the Director (Section 169(3))

Upon receipt of notice of a resolution to remove a director, the company is obligated to promptly forward a copy of that notice to the director concerned. Critically, the right to be heard at the meeting is conferred upon the director regardless of whether he is a member of the company.

Written Representation by the Director (Section 169(4))

Section 169(4) provides an additional avenue for the director to defend his position. Where the director makes a written representation to the company and requests that it be notified to the members, the company is obligated if time permits to state the fact of such representation in the notice of the resolution and to send a copy of the representation to every member to whom notice of the meeting is sent.

(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).

If the representation cannot be circulated due to insufficient time or company default, the director may, without prejudice to his right to be heard orally, require that the representation be read out at the meeting.

Tribunal’s Intervention (Proviso to Section 169(4))

The Proviso to Section 169(4) is a balancing mechanism. It allows either the company or any aggrieved person to approach the Tribunal if the director’s written representation is being used to secure needless publicity for defamatory matter. If the Tribunal is so satisfied, it may direct that the representation need not be sent out or read at the meeting. Additionally, the Tribunal may order that its costs be borne wholly or in part by the director, even though he may not be a formal party to the application.

Filling the Vacancy at the Same Meeting — Section 169(5)

Section 169(5) permits the company to fill the vacancy created by the removal at the very same meeting at which the director is removed. This is conditioned on two requirements: first, the director must have originally been appointed by the company in general meeting or by the Board; and second, special notice of the intended appointment of a replacement must have been given under sub-section (2).

Tenure of the Replacement Director (Section 169(6))

A director appointed to fill the vacancy created by removal does not get a fresh term. Section 169(6) makes it explicit that the replacement director shall hold office only until the date up to which the removed director would have continued, had he not been removed. This prevents any manipulation of board tenure through the removal-and-replacement mechanism.

Casual Vacancy If Not Filled at the Meeting (Section 169(7))

If the vacancy is not filled at the meeting itself, Section 169(7) provides that it may be filled as a casual vacancy in accordance with the provisions of the Act. However, the Proviso to this sub-section imposes an important restriction: the director who was removed shall not be re-appointed as a director by the Board of Directors.

Savings as to Compensation and Other Powers (Section 169(8))

Section 169(8) is a savings clause. It makes clear that nothing in Section 169 deprives a removed director of any compensation or damages to which he may be entitled under his contract of appointment or under any other appointment that was linked to his directorship. Equally, it does not derogate from any other power to remove a director that may exist under the Act.

Sub-clause (a) preserves contractual rights independently. A removed director may claim wrongful termination damages or contractual severance pay; the Act does not extinguish those claims. Sub-clause (b) preserves the operation of other removal mechanisms available under the Companies Act, 2013.

Penalty & Punishment

Section 172: Penalty

If a company is in default in complying with the provisions where no specific penalty or punishment is provided therein, the company and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees, and in case of continuing failure, with a further penalty of five hundred rupees for each day during which such failure continues, subject to a maximum of three lakh rupees in case of a company and one lakh rupees in case of an officer who is in default.