Legal Provisions and Procedures for Removing a Director

A company’s shareholders trust the board to run the business well. When a director stops delivering on that trust, or worse, starts working against the company’s interest, the law does not force shareholders to wait out the director’s full term. The Companies Act, 2013 gives them a clear, structured way to remove a director before their tenure ends. But this power comes with checks and balances, because removing a director is a serious step that affects both corporate governance and an individual’s reputation. Here’s how the process actually works, who can use it, and what happens to the director once they’re out.

The general rule: shareholders can remove a director 🔗

Under Section 169 of the Companies Act, 2013, a company can remove a director by passing an ordinary resolution in a general meeting, before the expiry of their term. This is a significant power because it does not require a supermajority. A simple majority of shareholders present and voting is enough, unlike decisions that need a special resolution.

There is one important exception carved into the same section. If the director being removed is an independent director serving a second term, the company must pass a special resolution instead of an ordinary one, and the director must still get a reasonable opportunity to be heard. This higher bar reflects the added protection independent directors are meant to have under Indian corporate governance norms.

Special notice: the first legal requirement 🔗

A director cannot be removed on the spur of the moment during a routine meeting. The law requires a special notice under Section 115 of the Act before the resolution can even be tabled. This notice must be given by members holding a minimum stake, and the company must then circulate it to the director concerned.

The director’s right to be heard 🔗

Natural justice runs through this entire process. Once notified, the director whose removal is proposed has the right to make a written representation and request that it be circulated to members. If time does not allow circulation, the representation must be read out at the meeting. The director also has the right to attend the meeting and speak in their own defence, whether or not they are a shareholder of the company.

This is not just a formality. Courts and tribunals have repeatedly emphasised that skipping this step can make the removal procedurally invalid, regardless of how strong the underlying reasons are. The company can, however, apply to the Tribunal to stop the representation being circulated if it is being used to secure needless publicity for defamatory content, as noted in this detailed reading of the removal provisions.

Who cannot be removed under Section 169 🔗

Two categories of directors sit outside this shareholder-driven route entirely:

• Directors appointed by the Tribunal under Section 242, typically as part of resolving disputes between shareholders or management. Shareholders cannot vote these directors out; only the Tribunal that appointed them can remove them.
• Directors appointed through proportional representation under Section 163, where a company’s articles allow minority shareholder blocs to elect their own representatives on the board. This system exists precisely to protect minority voices, so allowing a simple majority to undo it would defeat its purpose.

Once removed, the vacancy can be filled at the same meeting if special notice for the appointment was also given, or later by the board as a casual vacancy. One safeguard worth noting: the board cannot simply reappoint the very director who was just removed, as explained in this reference guide to Section 169.

When the Tribunal steps in: oppression and mismanagement 🔗

Not every problematic director situation can be solved by an ordinary resolution. Sometimes, the people controlling the company are the very ones causing the harm, and minority shareholders don’t have the numbers to pass a removal resolution on their own. This is where Sections 241 and 242 come in.

If a company’s affairs are being run in a way that is oppressive to some members or prejudicial to the company’s interests, an eligible member can approach the National Company Law Tribunal (NCLT). Under Section 242, the Tribunal has wide powers to fix the problem, including regulating how the company is run going forward, ordering the majority to buy out the minority’s shares, setting aside prejudicial agreements, and, crucially, removing and replacing directors or managing directors.

Oppression and mismanagement mean different things in law. Oppression is conduct that is harsh, burdensome, and unfair to a member specifically in their capacity as a shareholder. Mismanagement, on the other hand, points to conduct that damages the company itself, such as diversion of funds or reckless business decisions, as distinguished in this analysis of shareholder remedies.

Why this route matters for minority shareholders 🔗

Section 169 works well when the majority wants a director out. But majority shareholders and the board are sometimes the source of the problem, and a minority group with, say, 15% shareholding cannot pass an ordinary resolution on its own. The oppression and mismanagement route exists for exactly this gap. It shifts the decision from a shareholder vote to a judicial body that examines evidence and decides what’s fair.

It’s worth noting that removal by the Tribunal is treated as a distinct legal event from removal by shareholders. The Supreme Court has held that a director’s removal, by itself, is not automatically oppressive conduct; the petitioner must show a broader pattern of unfair prejudice, as discussed in this review of oppression and mismanagement remedies.

Can a removed director claim compensation? 🔗

Losing office is not always the end of the financial story. The Companies Act allows a company to pay compensation for loss of office to a managing director, whole-time director, or manager under Section 202. This compensation cannot exceed what the person would have earned for the remainder of their term, or three years, whichever is shorter, calculated on their average remuneration over the preceding three years, according to this explanation of Section 202.

This right, however, has firm limits:

• It applies specifically to managing directors, whole-time directors, and managers, not to ordinary non-executive directors.
• No compensation is payable if the director resigned in connection with a company reconstruction or amalgamation and was reappointed in the reconstructed entity.
• No compensation is payable if the director was removed for fraud, breach of trust, or gross mismanagement.
• No compensation is payable if the company is being wound up due to the director’s own negligence or default.

The outline’s core point holds true in practice: when a director is removed by the Tribunal under Section 242 for oppression or mismanagement, they generally cannot claim this compensation. The very grounds for a Tribunal-ordered removal, misconduct, unfair prejudice to shareholders, or mismanagement, are the same grounds that disqualify a person from compensation under Section 202. The law is designed so a director cannot profit from conduct serious enough to warrant judicial removal.

A quick way to remember the two routes 🔗

Think of it as two doors leading to the same outcome. The first door, Section 169, is opened by shareholders through a vote, with the director getting a fair hearing along the way. The second door, Sections 241-242, is opened by the Tribunal when the ordinary shareholder process cannot deliver justice, typically because the wrongdoers themselves control the majority vote. Compensation for loss of office sits closer to the first door; it is rarely, if ever, available when the second door is used.

What do you think? If you were a minority shareholder in a closely held company and saw the majority mismanaging funds, would you rather push for an ordinary resolution first, or go straight to the Tribunal? And should independent directors have even stronger protection than the special resolution requirement currently gives them?

References

1. https://ibclaw.in/section-169-of-the-companies-act-2013-removal-of-directors/
2. https://taxguru.in/company-law/procedure-removal-director-shareholders-section-169-companies-act-2013.html
3. https://taxguru.in/company-law/removal-director-section-169-companies-act-2013.html
4. https://ca2013.com/169-removal-of-directors/
5. https://lukeandluka.in/insights/oppression-mismanagement-companies-act/
6. https://www.equitylist.co/blog-post/oppression-mismanagement-companies-act
7. https://www.azbpartners.com/bank/action-against-oppression-and-mismanagement-an-effective-tool/
8. https://ibclaw.in/section-202-of-the-companies-act-2013-compensation-for-loss-of-office-of-managing-or-whole-time-director-or-manager/