How other members are removed?
As per section 284(2) of Act, a director of the incorporated company may be removed from the office before the completion of his/her term by
- Shareholders of the company
- Central Government or;
- Company Law Board
Removal of a director by shareholders:
Shareholders of the company may remove a director by passing an ordinary resolution at a general meeting prior to expiry of the period of his office. However, the following directors cannot be removed in the said manner by the company unless otherwise stipulated in the terms of the appointment:
- Director appointed by Central Government under Section 408
- Director appointed by a Financial Institution /bank in accordance with the loan agreement
- Director of a private company holding office for life on April 1, 1952 by virtue of Articles or otherwise
- Where company availed an option to appoint not less than 2/3rd of the total number of directors under Section 265.
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Removal of Director is a statutory right given to the shareholders under Section 284, and it cannot be taken away by the Memorandum or Articles of Association or by any contract or any other document, and such a provision will become void. Civil Court has no jurisdiction to entertain a suit for removal of directors.
Procedure :
- A special notice of resolution for removal of director to the director.
- Director upon receiving the notice is entitled to be heard on resolution at meeting
- Director can make representation in writing against his removal and request to send the representation to the other company members
- The company in its general meeting discusses the issue and passes the necessary resolution.
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Non-compliance of the above requirement may invalidate the resolution passed in the general meeting.
Please note that Section 284 is applicable only if there are any charges made against the director and therefore the company may seek removal of that director.
II. Central Government has power to remove managerial personnel from a office after obtaining recommendation from the Company Law Board. Section 388 B to 388E deals with the said procedure.
- The central government may make reference to the Company Law Board, if it opines that
- Such director is guilty of fraud, misfeasance, negligence or default in carrying out its obligations or conducted to defraud the creditors or members or caused any prejudice to public interest
- If the director not performed the business by following the usual or prudent business principles
- Such director caused any damage or injury to the industry or trade which the company is engaged in
Procedure:
Application to be filed before Company law board, making such director as a party to the application. Company law board pronounces the order whether director is a fit and proper person to hold office. Thereupon, if the Board found that the director is not fit person in its order, the Central Government remove such director from the office. By the order, the person becomes disqualified to hold the office as director of any office for five years from date of removal.
Removal by the Company Law Board : When an application is filed before Company Law Board under Section 397 and 398 that deals with prevention of oppression and mismanagement, it pronounces its order either terminating the persons involved therein. Such director cannot serve except with the leave of the law board, any company for five years
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Expulsion of members:
The Department of Company Affairs clarified that power of Board of Directors to expel a member by alteration of Articles of Association is illegal and void.
A member ceases to be member only when his name is removed from the Register of members, which can be done if any of the following circumstances:
- Forfeiture of shares
- Shares sold by company to enforce a lien
- In the even t of death of such member
- Member adjudicated insolvent and official assignee disclaims his shares
- Redemption of his preference shares
- If the member committed fraud or misrepresentation
- In the event of winding up of company
- If any person purchased those shares
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Adv. Anitha Gutti