Removal of a Director: Section 169, Procedure and Remedies

Disputes over who sits on a company's board are among the most heated in corporate law, particularly in promoter-run and family companies. A director may be removed because the majority has lost confidence, because relations between co-owners have broken down, or because an investor wants a change. Whatever the reason, the Companies Act, 2013 lays down a specific procedure, and a removal that skips it can be challenged.

Who Can Remove a Director?

Under Section 169, a company may, by ordinary resolution passed at a general meeting, remove a director before the end of the director's term. The power rests with the shareholders, not the board. A board of directors cannot, by its own resolution, remove another director, though it can withdraw executive powers or recommend action to the shareholders. The ordinary resolution requires a simple majority of the votes cast, which is why the controlling shareholder usually decides the outcome.

There are exceptions. A director appointed by the NCLT under Section 242, in an oppression matter, cannot be removed under Section 169. The articles of association or a shareholders' agreement may also give particular shareholders the right to nominate directors, and those contractual rights will affect how and whether a removal can be carried out in practice, even if the Act itself allows it.

What Procedure Must Be Followed?

The procedure under Section 169 is designed to give the director a fair hearing:

• Special notice of the resolution must be given under Section 115
• The company must send a copy of the notice to the director concerned
• The director is entitled to be heard on the resolution at the meeting, whether or not a member
• The director may make written representations, which must be sent to members or read at the meeting

Special notice means a member or members holding at least 1 percent of the total voting power, or shares with an aggregate paid-up value of at least ₹5 lakh, must give notice of their intention to move the resolution to the company not earlier than three months and not less than 14 days before the meeting. The company must then give members notice of the resolution at least seven days before the meeting. Members holding at least one-tenth of the voting power can also requisition a general meeting under Section 100 for this purpose.

If the director who is being removed was appointed by the company at a general meeting or by the board, the vacancy can be filled at the same meeting, provided special notice of the intended appointment is given. A director removed under Section 169 cannot be reappointed by the board. Within 30 days, the company must file the prescribed form with the Registrar of Companies recording the cessation of the director.

Does Removal Affect Compensation or Employment?

Section 169 itself says that removal does not deprive the director of compensation or damages payable for the termination of the appointment as director, or any appointment that terminates with it, such as a managing director's contract. If the director has a written employment or service agreement, its notice period and termination provisions continue to apply, and a breach may give rise to a separate claim. A director who is also a shareholder remains a shareholder, with all rights as such, after being removed from the board.

Can a Removed Director Challenge the Removal?

A removal that does not follow the procedure can be challenged on grounds such as defective special notice, failure to give the director a hearing or to circulate representations, an invalid or improperly convened meeting, or non-compliance with the articles. Where the removal was valid in form, a challenge is much harder. The Supreme Court held in Tata Consultancy Services v. Cyrus Investments (2021) that removal of a director by the majority in accordance with law is not oppression merely because the director has lost the majority's confidence.

The position can differ in a quasi-partnership company, where the parties came together on the understanding that each would participate in management. Exclusion from the board in such a company, particularly if coupled with sidelining the shareholder in other ways, can in appropriate cases form part of an oppression claim under Sections 241 and 242, which we discuss in our guide to oppression and mismanagement. Courts have also held that a director who is not a shareholder cannot himself bring a Section 241 petition.

Which Forum Is Right?

The forum depends on the relief. Statutory claims such as oppression and mismanagement go to the NCLT, which also has jurisdiction over matters under the Act that civil courts are barred from entertaining. Claims arising from a shareholders' agreement or a service contract may be subject to an arbitration clause or lie before a civil court. Choosing the wrong forum can waste months, so the first task is to identify what is being claimed and under which document.

What Should a Director Do Immediately on Receiving a Notice?

Act quickly, because the process is short. Obtain the notice, the agenda and the articles, check whether special notice was properly given, and decide whether to attend, send written representations, or both. Request the draft resolution and any supporting material. Review the shareholders' agreement for nomination rights, consent rights and any restriction on removal. And consider your financial position as a shareholder, because removal as a director often precedes pressure on the shareholding itself.

If you are a company planning a removal, the converse applies: follow the procedure exactly, keep proof of service of notices, and make sure the contractual position is cleared before the meeting is held. For related issues arising between founders, see co-founder disputes: exit, buyout and reverse vesting.

Removal disputes often turn on a small defect in notice or a clause in a shareholders' agreement. Our NCLT & Corporate Litigation practice advises both directors and companies on removal, and you can request a consultation.