Can Director vacate the office under the Companies Act, 2013?

A Comprehensive Guide by a CA on the company law matters on the Various Modes, Statutory Requirements, Effective Dates, Compliance Obligations, and Penalties for Non-Compliance Under the Companies Act, 2013.

Vacation of Office of Director under the Companies Act, 2013

The Companies Act, 2013, prescribes specific provisions regarding the vacation of the office of a director. These provisions ensure that the governance of companies is compliant with statutory requirements and ethical business practices. This blog provides a comprehensive overview by CA who gives consultancy on the company law matters advises how a director vacates their office, the various modes, statutory requirements, effective dates, compliance requirements, and penalties associated with non-compliance.

1. Modes of Vacation of Office of Director

The office of a director may be vacated under the following circumstances:

a) Resignation:

  • A director may voluntarily resign by submitting a written notice to the company.
  • The resignation is effective from the date mentioned in the notice or, if no date is specified, from the date the notice is received by the company.

b) Disqualification under Section 164:

  • A director becomes ineligible to continue in office if disqualified under Section 164 of the Act. Common disqualifications include:
    • Being of unsound mind.
    • Insolvency.
    • Conviction of an offense involving moral turpitude and sentenced to imprisonment for six months or more.
    • Non-compliance with financial reporting requirements.

c) Removal by the Company:

  • The shareholders of a company may remove a director by passing an ordinary resolution at a general meeting as per Section 169.

d) Failure to Attend Board Meetings:

  • As per Section 167(1)(b), if a director fails to attend any Board Meeting for twelve months without seeking leave of absence, the office shall be vacated.

e) Expiry of Term:

  • Directors appointed for a fixed tenure cease to hold office upon the expiry of their term.

f) Vacation under Section 167:

  • Section 167 specifies other conditions leading to vacation, such as:
    • Contravention of provisions relating to related party transactions.
    • Ceasing to hold the required number of shares in the case of a shareholder-director.

2. Statutory Requirements for Vacation

The Companies Act mandates certain steps to be followed upon the occurrence of any event leading to the vacation of a director’s office:

a) Resignation Letter:

  • The director must submit a signed resignation letter addressed to the Board of Directors.

b) Board Resolution:

  • The Board must acknowledge the resignation and pass a resolution accepting the same.

c) Recording in Minutes:

  • The company must record the resignation in the minutes of the Board Meeting.

d) Disclosure in Annual Return:

  • Changes in the composition of the Board must be disclosed in the company’s annual return.

e) Intimation to Registrar of Companies (RoC):

  • Filing of Form DIR-12 is mandatory to inform the RoC of the change in directorship.

3. Effective Date of Vacation

The effective date of vacation depends on the mode of exit:

a) Resignation:

  • Effective from the date mentioned in the resignation letter or the date of receipt by the company.

b) Disqualification or Other Grounds under Section 167:

  • The vacation is effective immediately upon the occurrence of the disqualifying event.

c) Removal by Shareholders:

  • Effective upon passing of the resolution in the general meeting.

d) Non-Attendance of Meetings:

  • Effective upon the expiry of twelve months from the date of the last Board Meeting attended.

4. Filing Requirements and Forms

a) Filing with the RoC:

  • The company must file Form DIR-12 with the RoC within 30 days of the event.

b) Supporting Documents:

  • Board resolution accepting the resignation.
  • Resignation letter of the director.
  • Notice of the general meeting and resolution, in case of removal.

c) Fees for Filing DIR-12:

  • The fees depend on the company’s authorized capital, as specified in the Companies (Registration Offices and Fees) Rules, 2014.

d) Additional Fees for Delayed Filing:

  • Delay in filing attracts additional fees, calculated based on the period of delay.

5. Penalties for Non-Compliance

Failure to comply with the provisions related to the vacation of office results in penalties:

a) On the Company:

  • Monetary penalties for non-filing or delayed filing of Form DIR-12.

b) On Officers in Default:

  • Directors and officers responsible for the default are liable for fines.

c) Other Consequences:

  • Continued participation of a disqualified director in Board Meetings or other decisions is void and may lead to legal challenges.

6. Practical Example

Scenario: ABC Private Limited has a Board of four directors. One of the directors, Mr. X, submits his resignation on January 1, 2025, citing personal reasons.

Steps Taken:

  1. Mr. X sends a signed resignation letter to the company.
  2. The company convenes a Board Meeting on January 10, 2025, and passes a resolution accepting the resignation.
  3. The resignation is recorded in the minutes of the meeting.
  4. The company files Form DIR-12 with the RoC on January 15, 2025.

Outcome: Mr. X’s resignation is effective from January 1, 2025 (date mentioned in his letter). The company’s records are updated, and statutory compliance is ensured.

7. Key Takeaways

  • Adherence to statutory provisions is critical to avoid penalties.
  • Timely filing of required forms, such as DIR-12, ensures compliance.
  • Companies must maintain accurate records of Board Meetings and resolutions.
  • Directors must be aware of the consequences of disqualification or non-compliance with the Act.

Conclusion

the vacation of the office of a director is a significant event that impacts the governance of a company. Ensuring compliance with the Companies Act, 2013, helps avoid legal complications and maintains the integrity of corporate operations. This comprehensive guide, prepared by a Chartered Accountant, covers the various modes, statutory requirements, effective dates, compliance obligations, and penalties for non-compliance under the Companies Act, 2013. However , This is for informational purposes only and does not constitute legal or professional advice. For specific guidance, please consult a our qualified professional or legal expert.”

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