Process for Removing a Director (Companies)

The process differs based on whether the removal is due to automatic vacation or shareholder action. Below are the steps for each scenario.

Scenario 1: Automatic Vacation of Office (Section 167)

If a director’s office is vacated automatically (e.g., due to prolonged absence or disqualification), the process is straightforward:

1. Board Acknowledgment:
        o Convene a Board Meeting to acknowledge the vacation of office.
        o Pass a resolution noting the reason (e.g., absence for 12 months or disqualification under Section 164).
2. File Form DIR-12:
        o File Form DIR-12 with the MCA within 30 days of the vacation to notify the cessation of the director.
        o Documents Required:
                o Board resolution acknowledging the vacation.
                o Evidence of the ground for vacation (e.g., attendance records for absence, proof of disqualification like court order).
                o Digital Signature Certificate (DSC) of a signing director (e.g., MD or another director).
                o Certification by a practicing Chartered Accountant (CA), Company Secretary (CS), or Cost Accountant (CMA).
        o Fee: ₹200–₹600 (based on the company’s authorized capital).
3. Update MCA Records: 
        o Upon approval of Form DIR-12, the MCA updates the company’s director details.
        o Track the status using the Service Request Number (SRN) on the MCA portal (www.mca.gov.in).
4. DIN eKYC Compliance:
        o The removed director must continue filing DIR-3 KYC annually by September 30 to keep their DIN active for future use.
        o If the DIN is deactivated (e.g., due to non-filing of DIR-3 KYC), the director must reactivate it using the process outlined in my previous response (file DIR-3 KYC e-Form with a ₹5,000 penalty).

Scenario 2: Removal by Shareholders (Section 169)

Removing a director by shareholder decision requires a formal process to ensure fairness and compliance:

1. Issue Special Notice:
        o Shareholders holding at least 1% of voting power or shares worth ₹5 lakh (as per paid-up capital) must send a special notice to the company, proposing the removal of the director.
        o The notice must be sent at least 14 days before the general meeting.
2. Notify the Director:
        o The company must send the special notice to the director concerned, giving them an opportunity to be heard.
        o The director can submit a written representation, which must be circulated to shareholders unless it’s defamatory or received too late.
3. Convene Extraordinary General Meeting (EGM): 
        o Hold an EGM to discuss and vote on the removal.
        o Pass a special resolution (75% majority of votes cast) to approve the removal.
        o For private companies, ensure compliance with the Articles of Association (AoA), which may specify additional requirements.
4. File Form MGT-14 (for Public Companies):
        o File Form MGT-14 within 30 days of the special resolution to register the resolution with the MCA.
        o Documents:
                 o Copy of the special resolution.
                 o EGM notice and explanatory statement.
                 o DSC of a signing director and certification by a CA/CS/CMA.
        o Note: Private companies are exempt from filing MGT-14 for director removal unless otherwise required by the AoA.
5. File Form DIR-12: 
        o File Form DIR-12 within 30 days of the EGM to notify the MCA of the director’s cessation.
        o Documents:
                o Special resolution copy.
                o Special notice from shareholders.
                o Proof of communication to the director (e.g., courier receipt).
                o Director’s representation (if any).
                o Board resolution acknowledging the removal.
                o DSC of a signing director and certification by a CA/CS/CMA.
6. Update MCA Records:
        o Upon approval, the MCA updates the company’s director details.
        o Track status via SRN on the MCA portal.
7. DIN eKYC Compliance:
        o As with automatic vacation, the removed director must file DIR-3 KYC by September 30 annually to keep their DIN active.
        o If the DIN is deactivated, reactivate it with a ₹5,000 penalty (see my previous response for details).

Exceptions

    • Managing Director/Whole-Time Director: Removal may require additional compliance with their appointment agreement or employment terms.  
    • Nominee Directors: Removal depends on the agreement with the nominating authority (e.g., financial institution).
    • Small Shareholders’ Director: Special rules apply under Section 151.

Process for Removing a Designated Partner (LLPs)

For LLPs, the removal of a designated partner is governed by the LLP Agreement or the LLP Act, 2008, if the agreement is silent.

1. Check LLP Agreement:
        o Review the LLP Agreement for provisions on partner removal. It may specify voting requirements or procedures.
        o If silent, follow the LLP Act, which requires consent of all partners or a majority as per the agreement.
2. Pass Resolution:
        o Convene a meeting of partners to pass a resolution for removal.
        o Notify the designated partner and provide an opportunity to be heard (as per natural justice principles).
3. Update LLP Agreement:
        o Amend the LLP Agreement to reflect the removal, if required.
        o File Form LLP-3 within 30 days to register the updated agreement.
        o Documents:
                o Revised LLP Agreement.
                o Resolution for removal.
                o DSC of a designated partner and certification by a CA/CS/CMA.
4. File Form LLP-12:
        o File Form LLP-12 within 30 days to notify the MCA of the cessation of the designated partner.
        o Documents:
                o Resolution for removal.
                o Consent or notice to the partner.
                o Identity proof of the outgoing partner (if required).
                o DSC of a designated partner and certification by a CA/CS/CMA.
5. DIN/DPIN eKYC Compliance: 
       o The removed partner must file DIR-3 KYC annually by September 30 to keep their DIN/DPIN active.
       o If deactivated, reactivate with a ₹5,000 penalty (as per my previous response).

Key Compliance Points

    • Timelines: 
             o File DIR-12 (companies) or LLP-12/LLP-3 (LLPs) within 30 days of the removal/resolution.
             o File DIR-3 KYC by September 30 annually (e.g., for FY 2024-25, due by September 30, 2025).
     •  Penalties: 
             o Late filing of DIR-12/LLP-12: ₹5,000–₹50,000 (depending on delay).
             o Non-compliance with removal process: Penalties under Section 172 (companies, up to ₹50,000) or LLP Act provisions.
             o Non-filing of DIR-3 KYC: DIN deactivation + ₹5,000 reactivation penalty.
     • DIN Status: 
             o The removed director/partner retains their DIN/DPIN, which must remain active for future use.
             o If the DIN is deactivated at the time of removal, it doesn’t affect the removal process but must be reactivated for future appointments (file DIR-3 KYC e-Form with ₹5,000 penalty).
     • MCA Portal: All filings are done via www.mca.gov.in using DSC for authentication.
     • Professional Certification: Forms require certification by a practicing CA/CS/CMA to avoid rejections.

Common Issues and Solutions

   • Rejection of Forms: 
             o Cause: Mismatch in director details (e.g., name in DSC vs. PAN), invalid DSC, or missing documents.
             o Solution: Ensure all details match, use a valid DSC, and attach required resolutions/notices.
    • Director Disputes: 
             o If the director challenges removal, ensure compliance with Section 169 (right to be heard) to avoid legal disputes.
             o Consult a lawyer if the director files a case with the NCLT.
    • Deactivated DIN: 
             o Removal can proceed even if the DIN is deactivated, but the director must reactivate it for future roles.
             oFollow the reactivation process (DIR-3 KYC e-Form, ₹5,000 penalty) as outlined previously.