A director of a company may be removed in the following ways: 1. Removal by Shareholders 2. Removal by Central Government 3. Removal by Court.
1. Removal by Shareholders (Sec. 284):
The shareholders may remove the director before the expiry of term of his office for negligence and fraud. But for that, a special notice must be given to the company at least fourteen days before the meeting. On receipt of a copy of the same must be served to the director concerned.
The director is entitled to be heard on the resolution at the meeting. The company sends the representation of the director to all the members of the company. If the representation is received late, the director may request to read it in the meeting. [Sec. 284]
Some new director shall be appointed in the same meeting and the person so appointed will hold his office only for the period, which the removing director holds.
ADVERTISEMENTS:
The directors appointed by the Central Government, third party and director elected by proportionate system cannot be removed so.
2. Removal by Central Government [Sec. 388 E]:
The Central Government is empowered to investigate enquiry against the director of the company and can refer the same he High Court for enquiry whether the person is tit to hold the office or not.
The Central Government investigate an enquiry when the directors are performing their duty fraudulently, negligently and make default in carrying out their obligations, or the business is not running with sound business principles, or the company’s business has been running in a manner which is likely to cause serious damage to the trade, and or the business is conducted to defraud the creditors or the members of the company. After the decision of the High Court, the director is removed from his office and after this, such person cannot be appointed as director of a company for a period of five years after that.
The company, with the approval of the Central Government may appoint any other person as the director of the company.
3. Removal by Court (Sec. 402):
ADVERTISEMENTS:
The court is also empowered to remove the director on an application for prevention of oppression or mismanagement. [Sec. 397 and 398]
When the person is so removed, he cannot claim compensation from the company. Moreover, he cannot be appointed as a director of a company for the period of five years after that. [Sec. 407]