Change in Director

Directors are typically appointed in accordance with the relevant provisions of the Companies Act 2013, by the company’s shareholders, with the aim of ensuring the effective day-to-day operations of the company. They bear a fiduciary responsibility to the company and its shareholders, signifying that they are obligated to manage the company’s affairs in a manner that promotes success and profitability, ultimately enhancing the company’s image and reputation.

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    Changes in the directorship of a company can occur as necessary, either voluntarily or in response to a demand. Demand for a change may arise when there is a need for expertise on the board or due to the resignation or death of an existing director.

    Categories of Directors in a Company

    Managing Director:

    A person designated as a Managing Director holds the position as outlined in the Articles of Association of a company, through an agreement with the company, or by a resolution passed in a general meeting or by the Board of Directors. This designation is significant because the board of directors is entrusted with substantial managerial powers over the company’s affairs.

    Whole-time Director or Executive Director:

    An individual in full-time employment with the company is classified as an executive director or whole-time director.

    Ordinary Director:

    An ordinary director is a standard director who attends board meetings and engages in matters brought before the Board of Directors. These directors are not in full-time or managing director roles.

    Additional Director:

    An additional director is a person appointed by the Board of Directors between two annual general meetings, in accordance with the company’s Articles of Association. Their term lasts until the next annual general meeting, and the total number of directors and additional directors combined cannot exceed the maximum set by the Articles of Association.

    Alternate Director:

    In the absence of a director for a period of not less than three months, the Board of Directors, in a general meeting, may appoint an alternate director to act on behalf of the original director. This is often the case for non-resident Indians or foreign collaborators of a company.

    Professional Director:

    A professional director possesses relevant qualifications and lacks any financial interest in the company. These directors are appointed to leverage their professional expertise in managing the company.

    Nominee Director:

    Banks and private equity investors offering equity assistance often stipulate the appointment of their representative on the company’s Board, known as the Nominee Director.

    Appointment of a Director

    Board Meeting:

    • Directors must receive notice of the meeting agenda at least 7 days before the scheduled date, sent to their respective registered addresses.
    • The Board needs to pass a resolution to convene a General Meeting, where the appointment of the director will be discussed.
    • Shareholders must be informed of the meeting details, including agenda, date, time, and venue.

    Annual General Meeting/Extraordinary General Meeting: Following the Board Meeting, the appointed person responsible for circulating the notice for the General Meeting (“GM”) should notify the following parties:

    • Directors
    • Shareholders
    • Auditors

    The GM notice should be issued at least 21 days before the scheduled date. However, a shorter notice may be given with the consent of at least 95% of the members entitled to vote, obtained through either written or electronic means. The resolution will be passed at the GM, subject to shareholder approval.

    Submission of Form DIR – 12 to the Registrar is required within 30 days from the date of appointment.

    Prerequisites for Directorship:

    Director’s Resignation (Section 168 of the Companies Act 2013)

    A director contemplating resignation may communicate this intention to the company by providing a written notice detailing the reasons for the resignation.

    Upon receiving the director’s notice, the Board of Directors is obligated to present it in the General Meeting for shareholders’ awareness. The information about the director’s resignation must also find a place in the directors’ report presented to the shareholders during the General Meeting.

    To complete the formalities, the company is required to submit Form DIR – 12 to the Registrar within 30 days from the resignation date.

    The effective date of resignation is determined as the later of:
    • The date on which the company receives the resignation notice.
    • The date specified in the notice.

    The resigning director must submit Form DIR – 11, accompanied by the prescribed fees, within 30 days from the resignation date. This submission includes a copy of the resignation notice and a comprehensive explanation of the reasons behind the decision to the Registrar of Companies (“RoC”).

    Director’s Removal (Section 169 of the Companies Act 2013)

    The removal of a director can only occur before the expiration of their term. This process involves passing an ordinary resolution during a General Meeting of the shareholders, but not before providing the director with a fair opportunity to be heard.

    a) Notice of the Resolution:

    b) Written Representation:

    c) Filing with the ROC:

    Form DIR – 12 needs to be filed with the Registrar within 30 days from the director’s resignation date. This submission should include the prescribed fees and necessary attachments.

    Obligation of a Resigning Director

    When a director decides to resign from their position, they can do so by submitting a written notice to the Board of Directors. Communication through email or a formal letter to the company is considered a valid mode of conveying the resignation.

    Additionally, a copy of the resignation, along with a comprehensive explanation for resigning, must be forwarded to the Registrar of Companies using Form DIR-11. This submission should be made within 30 days from the date of resignation, accompanied by the prescribed fees as per the Companies Rules, 2014.

    Effective Date of Resignation: The resignation takes effect from the date on which the company receives the notice, or any specified date mentioned by the director. The effective date aligns with the cessation date entered in Form DIR-12.

    With DIR-11, the resigning director is required to attach the following documents:

    • Notice of resignation submitted to the Company (the resignation letter can also be attached).
    • Proof of dispatch of the resignation letter.
    • If an acknowledgment has been received from the Company, it is mandatory to include it if the director has selected ‘Yes’ in Form DIR-11.
    • Additional information can be provided as optional attachments.

    Company’s Obligations

    Upon receiving the notice of resignation, the Board of Directors is required to deliberate on it. Subsequently, the Board should pass a resolution formally accepting the resignation, and it is essential to document the minutes of the Board of Directors’ meeting.

    As per Rule 15 of the Companies Rules, 2014, the Registrar must be informed through Form DIR12 within 30 days from the date of receiving the resignation.
    The resignation should be explicitly stated in the Director’s report during the annual general meeting, and this information should also be made available on the company’s website.
    While filing DIR1, the company is mandated to attach the following documents:
    • The notice of resignation (mandatory)
    • Evidence of cessation (either the board resolution or the acceptance letter can be attached)

    Process for the Removal of a Director

    A company holds the authority to remove its directors before their term expires, a power vested in the shareholders. Here, we will discuss the procedure for removing company directors, emphasizing that non-compliance with any step can render the decision void if challenged in court.

    Basic Prerequisite: Initiating the removal process requires providing an opportunity for the director in question to be heard. This fundamental prerequisite, based on legal provisions, ensures that the defendant or defaulter can present their case.
    Issuing Notice: The removal of directors must commence with a notice. Shareholders with a minimum voting power of 1% or those holding shares with an aggregate sum of not exceeding Rs. 5,00,000 on the date of the notice should process this special notice. It must be signed by all members and delivered to the company at least 14 days before the meeting where the resolution will be passed. The notice becomes invalid if not issued within three months of the meeting date.
    Notice to Members: A copy of the notice must be sent to the director who will be heard on the resolution at the meeting, regardless of their membership status. This notice should be served at least seven days (one week) before the meeting date. In the event of delivery challenges, the notice can be published in two newspapers—one in English and one in the vernacular newspaper. Additionally, it must be posted on the company’s website, complying with the seven-day requirement.
    Representation in Writing: The concerned director has the right to make a representation against the removal notice. They can request the company to circulate the representation to all members, with members being notified through a notice. If circulating to all members is not feasible, the director may request reading the representation during the meeting.
    Appeal to the Tribunal: If the company or any aggrieved party decides against circulating the representation to members or reading it during the meeting, an application can be made to the tribunal to nullify the process. The tribunal may annul the process if it finds that the director is exploiting this right for unnecessary publicity or defamation. The tribunal can also issue an order requiring the director to cover the application costs incurred by the company.

    Director’s Liability Following Resignation

    Upon the Director’s resignation and its acceptance by the Board, the Director is absolved of any liabilities arising in the company after the acceptance date.

    Nevertheless, the Director remains accountable for any offenses that took place during their tenure as a director of the company.

    Form DIR – 12

    This form is required for submitting details related to the appointment of directors and key managerial personnel, along with any changes among them. The following information needs to be provided:
    • Company details
    • Information about the number of directors, managers, etc.
    • The date of cessation or appointment, as applicable.
    • Inclusion of respective Director Identification Numbers (DINs) and Digital Signature Certificates (DSCs) where required.
    • Declaration from the director being appointed.
    • In cases of removal or resignation:
    • Notice of resignation.
    • Evidence of cessation.
    • Any other optional attachments.

    Form DIR – 11

    This form is to be completed to formally notify the Registrar about the resignation of a director. The required details include:
    • Company particulars.
    • Director Identification Number (DIN) of the resigning director.
    • Date when the resignation was filed with the company.
    • Reasons for the resignation.
    • Copy of the resignation notice submitted to the company.
    • Evidence of dispatch.
    • Any acknowledgment received from the company, if applicable.
    • Any other optional attachments.
    Even though a company enjoys perpetual succession and separate legal entity status, it must comply with the regulations outlined in the Companies Act, 2013, and the specified rules by submitting the relevant forms to the appropriate authorities within the prescribed timeframe.

    Sadique and Ameen Associates, skilfullymanoeuvres through the complex landscape of directorship changes and resignations, ensuring strict compliance with the Companies Act 2013. Their commitment is visible in the careful processes for appointing, resigning, or removing directors, coupled with the timely submission of necessary forms to the Registrar of Companies. As specialists in managing these crucial aspects, Sadique and Ameen Associates showcase a dedication to upholding legal standards and corporate governance for their clients.