VACATION OF DIRECTORS: SECTION 167

The Role of a Director in any company is crucial yet circumstances may arise leading to the vacation of their office. Section 167(1) of the Companies Act, 2013 delineates the specific grounds upon which the office of a director becomes vacant. This discussion aims to delve into these grounds, elucidating the legal nuances and implications of such vacancies.

Section 167 of the Act contains provisions detailing out as to when the office of a director shall become vacant. As soon as, any such event occurs, the director is required to demit the office of director of the company. These provisions are given as under:

(i) Grounds for vacation: According to Section 167 (1), the office of a director shall become vacant in case:

(a) he incurs any of the disqualifications specified in section 164;

However, if he incurs disqualification under section 164(2), the office of the director shall become vacant in all the companies, except the company which is in default under that sub-section;

(b) he absents himself from all the meetings of the Board of Directors held during a period of 12 months with or without seeking leave of absence of the Board;

(c) he acts in contravention of the provisions of section 184 relating to entering into contracts or arrangements in which he is directly or indirectly interested;

(d) he fails to disclose his interest in any contract or arrangement in which he is directly or indirectly interested, in contravention of the provisions of section 184;

(e) he becomes disqualified by an order of a court or the Tribunal;

(f) he is convicted by a court of any offence, whether involving moral turpitude or otherwise and sentenced to imprisonment for 6months or more.

Exception: The office shall not be vacated by the director in case of orders referred to in clauses (e) and (f)—

(i) for thirty days from the date of conviction or order of disqualification;

(ii) where an appeal or petition is preferred within thirty days as aforesaid against the conviction resulting in sentence or order, until expiry of seven days from the date on which such appeal or petition is disposed of; or

(g) he is removed in pursuance of the provisions of the Companies Act, 2013 like when he is required to vacate office for disqualification incurred under Section 217 (6) (ii) i.e. conviction for committing an offence under Section 217;

(h) he, having been appointed a director by virtue of his holding any office or other employment in the holding, subsidiary or associate company, ceases to hold such office or other employment in that company.

Provision of additional ground for vacation by a private company: According to Section 167(4), a private company may provide any other ground for the vacation of the office of a director in addition to those specified above, through its articles.

(ii) Punishment: Section 167(2) prescribes punishment in case of contravention of section 167(1). Thus, if a person functions as a director even when he knows that the office of director held by him has become vacant on account of any of the disqualifications specified in Section 167(1), he shall be punishable with fine of = 1,00,000 extendable to 5,00,000.

(iii) All the Directors vacating the office: Section 167(3) mentions about the eventuality when all the directors of a company vacate their offices under any of the disqualifications specified in Section 167(1). In that case, the promoter or, in his absence, the Central Government shall appoint the required number of directors who shall hold office till the directors are appointed by the company in the general meeting.

RESIGNATION OF DIRECTORS: SECTION 168

Provisions regarding resignation of directors have been included in the Companies Act, 2013 for the first time. Section 168 read with Rule 15 and Rule 16 of the Companies (Appointment and Qualifications of Directors) Rules, 2014 deals with resignation of a director as under:

Signing and Filing of Form DIR-11 in case of a Foreign Director: In case a company has already filed Form DIR-12 with the Registrar, a foreign director of such company resigning from his office may authorise in writing a practising chartered accountant or cost accountant in practice or Company secretary in practice or any other resident director of the company to sign Form DIR-11 and file the same on his behalf intimating the reasons for the resignation.

Clarification:

MCA vide General Circular No. 3/15, dated 3rd March, 2015 has clarified that in the event of deactivation of Digital Signature Certificate (DSC) following en masse resignation of all the directors of a company before appointment of new directors in their places, where Form DIR-12 cannot be filed by a company due to lack of an authorized signatory director, the Registrars of Companies within their respective jurisdictions are authorized, on request from the stakeholders, and after due examination, to allow any one of the resigned directors who was an authorized signatory director for the purpose of filing DIR-12 only along with additional fees, as applicable and subject to compliance of other provisions of Companies Act, 2013.

Effective date of resignation:

The resignation of a director shall take effect:
(i) From the date on which the notice is received by the company, OR
(ii) The date, if any, specified by the director in the notice, whichever is later.

Liability:

The director who has so resigned shall be liable even after his resignation for the offences which occurred during his tenure.

All the Directors tendering resignation:

In case all the directors of a company resign from their offices, or vacate their offices under section 167, the promoter or, in his absence, the Central Government shall appoint the required number of directors who shall hold office till the directors are appointed by the company in a general meeting.

VACATION AND RESIGNATION OF DIRECTORS