Thursday, 22 February 2018

Removal of Re-appointed Independent Director

The Ministry of Corporate Affairs (“MCA”) vide its order dated 21st February, 2018 clarified that re-appointed Independent Director can be removed by the company by passing Special Resolution.

Section 152(2) of the Companies Act, 2013 provides that every director (including an independent director) shall be appointed by the company in General meeting. 

Presently section 149(10) of the Companies Act 2013 provides that subject to the provisions of section 152, an independent director shall hold office for a term up to five consecutive years on the Board of a company, but shall be eligible for re-appointment on passing of a special resolution by the company.

Section 169(1) states that 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.

Various stakeholders have suggested to the MCA difficulties regarding proper monitoring and implementation of corporate governance requirements in companies and in order to strengthen corporate governance process and for reviewing section 169 of the said Act, which, inter-alia, deals with the removal of independent directors.

Presently an independent director is re-appointed for second term under sub-section (10) of section 149, only by way of a special resolution; such independent director can be removed by an ordinary resolution and not by a special resolution.

In order to remove above said difficulty, and to ensure better corporate governance in companies, and balancing of powers of the board of the company, the MCA have made the following amendment:

In the Companies Act, 2013, in section 169, in sub-section (1)-

(i) before the proviso, the following proviso shall be inserted, namely:-

“Provided that an independent director re-appointed for second term under sub-section (10) of section 149 shall be removed by the company only by passing a special resolution and after giving him a reasonable opportunity of being heard:"

(ii) in the existing proviso, for the words "provided that", the words "Provided further that" shall be substituted.

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