Removal of a Director: Section 169 Explained

The removal of a director before his term ends is a members' power, not a board power. Section 169 of the Companies Act, 2013 lets a company remove a director by ordinary resolution, but wraps the power in procedure: special notice, a reasonable opportunity of being heard, a right for the director to have his written representation circulated, and rules on who fills the seat afterwards. One class of director needs a special resolution instead, and one class cannot be removed under the section at all.

How does removal of a director work?

Section 169(1) states the power and its three built-in limits in one sentence. A company may, by ordinary resolution, remove a director, not being a director appointed by the Tribunal under section 242, before the expiry of the period of his office, after giving him a reasonable opportunity of being heard.

So the section confers a power on the company, exercisable at the ordinary-resolution majority, and it carves out one appointee entirely. A director appointed by the Tribunal under section 242, which is the oppression and mismanagement jurisdiction, is outside the section: the members who could not resolve the dispute do not get to remove the director the Tribunal put there.

Two provisos then qualify the sub-section, and they do different things:

Both provisos were touched in 2018 and the consolidation attributes the change to a notification rather than an amending Act. The first proviso was inserted by Notification No. S.O. 768(E), dated 21 February 2018, with effect from 21 February 2018, and the words "Provided further that" in the second were substituted by the same notification for "Provided that", with effect from the same date.

The distinction the first proviso draws is narrow and easy to overstate. It applies to an independent director re-appointed for a second term under section 149(10). An independent director serving a first term is not within it, so the ordinary-resolution route in section 169(1) is what applies to him.

Special notice is the gate

Section 169(2) requires special notice of any resolution to remove a director under the section, or to appoint somebody in place of a director so removed, at the meeting at which he is removed.

That single sub-section is why removal cannot be sprung on a meeting. Special notice is itself a machine with a timetable: members holding one per cent of total voting power, or the prescribed paid-up value, must give the company notice of their intention, and the company must then notify its members. Resolution requiring special notice covers the section 115 and rule 23 mechanics, including the requirement that the members' notice reach the company at least fourteen days before the meeting, exclusive of both the day it is given and the day of the meeting.

What the director facing removal is entitled to

Sections 169(3) and 169(4) build a right of reply that the company has to help deliver.

Section 169(3). On receipt of notice of a resolution to remove a director, the company shall forthwith send a copy to the director concerned, and the director, whether or not he is a member of the company, shall be entitled to be heard on the resolution at the meeting. The words "whether or not he is a member" matter: the right to speak on the resolution does not depend on holding shares.

Section 169(4). Where the director makes a representation in writing to the company and requests its notification to members, the company shall, if the time permits it to do so:

• state the fact of the representation having been made in any notice of the resolution given to members; and
• send a copy of the representation to every member to whom notice of the meeting is sent, whether before or after receipt of the representation by the company.

If the copy is not sent because of insufficient time or the company's default, the director may, without prejudice to his right to be heard orally, require that the representation be read out at the meeting.

The proviso to section 169(4) supplies the safety valve against abuse of that right. The copy need not be sent out and the representation need not be read out if, on the application of the company or of any other person claiming to be aggrieved, the Tribunal is satisfied that the rights conferred by the sub-section are being abused to secure needless publicity for defamatory matter. The Tribunal may also order the company's costs on the application to be paid in whole or in part by the director, even though he is not a party to it.

Who fills the seat

Section 169(5) to 169(7) deal with the vacancy, and the routes are not interchangeable.

1. At the same meeting, section 169(5). A vacancy created by the removal may be filled by appointing another director at the meeting at which he is removed, if the removed director had been appointed by the company in general meeting or by the Board, and provided special notice of the intended appointment has been given under section 169(2).
2. The replacement's term, section 169(6). A director so appointed shall hold office till the date up to which his predecessor would have held office if he had not been removed. He inherits the term, not a fresh one.
3. As a casual vacancy, section 169(7). If the vacancy is not filled under section 169(5), it may be filled as a casual vacancy in accordance with the Act. The proviso adds that the director who was removed shall not be re-appointed as a director by the Board of Directors.

Read that last proviso at the scope of its own words. It bars re-appointment by the Board. It is not drafted as a bar on the members appointing him, and section 169(5) itself contemplates the meeting appointing "another director in his place".

What removal does not take away

Section 169(8) closes the section with two savings. Nothing in section 169 shall be taken:

• as depriving a person removed of any compensation or damages payable to him in respect of the termination of his appointment as director, as per the terms of contract or terms of his appointment, or of any other appointment terminating with that as director; or
• as derogating from any power to remove a director under other provisions of the Act.

The first is why a removal can end an office and still leave a contractual claim behind. The second is why section 169 is not the only way a director's tenure ends: vacation of office under section 167, resignation under section 168, and the Tribunal's own powers all operate independently of it.

Where this sits in the disclosure picture

• Resolution requiring special notice covers the section 115 and rule 23 gate section 169(2) puts in front of a removal.
• Resignation of a director, section 168 covers the exit that does not need a resolution at all.
• Ordinary resolution vs special resolution covers the two majorities section 169(1) and its first proviso distinguish.
• What is a voting results filing is where the outcome of a removal resolution reaches the public record.
• Duties of a director, section 166 covers the obligations usually in issue when removal is proposed.
• What is a proxy contest covers the wider fight a removal resolution is often one item in.

Flock reports the filings themselves, each stamped with its date and linked back to the exchange or regulator that published it. What any of it means for you is your call to make.