There is frequently a failure to appreciate how decision-making power is established in a Private Limited Company. Many entrepreneurs believe that if there are a majority of directors on the Board, then the company will belong ‘to’ them. But according to Indian company law, ownership comes from having a major shareholding and not just a number of directors. This is very important because through this principle, a director with a 52% shareholding could be outvoted by other directors who may have greater numbers on the Board, whom do not have majority shareholding. This is particularly the case in the new venture businesses, family-run or closely held companies, where directors may experience boardroom disagreements because their business vision, business/operational strategy and overall style of governance are different from one another's. These types of situations are also addressed within the Indian Companies Act and there is an established procedure pursuant to which company directors can be removed by a company that has a majority rule. In this article, I discuss how a director with 52% shareholding can remove and/or replace other directors in a Private Limited Company based in India with respect to relevant legal provisions as well as relate this process to the appropriate procedural steps, risks and best practices involved. Written from the perspective of the audience (i.e. promoters, founders and/or majority shareholders) that require clearly understood processes that are compliant with the law, provide them with a manner to retain control of their company without the risk of litigation.
Understanding the Difference Between Shareholding Power and Board Majority
Before diving into the Remove Director of Company Process, it is essential to understand the distinction between:
• Shareholders = Who owns the company
• Directors = Who runs/ manages the company
According to the Companies Act 2013, the shareholders are at the top of the hierarchy chart created by the Company for the purpose of having the Company governed as provided for by the law. Shareholders also have the authority to appoint directors to govern your Company, however they also have the authority to remove directors from the company as long as they comply with the law.
To illustrate this point:
• Suppose a majority of directors are present at a Board meeting (what we refer to as a majority of the Board), however one director has 52% equity ownership in the Company.
• In this case the Shareholder with 52% of the Equity will prevail over the other board members that are in the majority.
This principal is the basis for the Remove Director process that exists in the Indian Companies Act.
Legal Provisions Governing Removal of Directors in India
Primarily, the laws governing the removal of directors from a private limited company are set forth within:
• Section 169 of the Companies Act, 2013;
• The Articles of Association (or by-law) of that private corporation.
• Any applicable procedures outlined in the Companies (Management & Administrative) Rules, 2014.
Section 169 - Summary of the main points to keep in mind:
• A director may be removed prior to the completion of their term (if known);
• Upon the passage of an ordinary resolution; and
• An ordinary resolution shall be deemed passed by an affirmative vote of more than fifty percent (50%) of the votes cast.
To illustrate, if a shareholder holds 52% of the shares of the Corporation's stock, they will have approximately 52% of the percentage of the total votes needed to remove another director from the board.
Can a 52% Shareholding Director Remove Other Directors Alone?
Yes, A director with 52% voting power (legally and practically) can remove other directors, even if more directors than the director holding the 52% voting power are sitting, if the following are satisfied:
1. Removal must occur via the conduct of a general meeting of shareholders, and not merely a Board Meeting
2. The Articles of Association contain no restrictive clauses concerning removal
3. There must be strict compliance with due process pursuant to Section 169
If the procedure is not conducted carefully, claims for oppression, mismanagement, or lapses of procedure could arise.
Can Board Majority Block Removal?
A common myth is that a board majority can slow down the removal process by using leisure tactics. This is incorrect under the law.
Although a Board may:
• Delay holding meetings
• Object to receiving notice
• Creating operating obstacles
The Shareholders don't have to wait for the Board's permission to exercise their legal rights.
If the Board will not cooperate, the majority shareholder can:
• Call an Eagles meeting
• Apply to the National Company Law Tribunal
Thus, there is no difference between being numerically dominant over a Board and having legal dominance over the Board.
Key Preconditions Before Initiating Director Removal
Before starting the Remove Director of Company Process, the majority shareholder must verify the following:
1. Articles of Association (AOA)
If the AOA conflicts with the Companies Act, the Act will prevail.
2. Director Category
Not all directors are removable under Section 169:
Director Type
Can Be Removed?
Ordinary Director
Yes
Managing Director
Yes (subject to contract)
Whole-Time Director
Yes (with compensation risks)
Nominee Director
Depends on nominating agreement
Director appointed by Tribunal
No
3. Shareholder Agreements
Legal Framework for Removing a Director in India
In India, the Companies Act 2013 governs the removal of directors of private companies. A company can remove a director from office if they hold a majority of shares in the company by passing a special resolution at a general meeting; this is also true for directors who do not hold a majority of shares.
1.Right of Shareholders to Remove a director:
2. Notice Requirement
3. Filing Requirement
4. Legal Restrictions:
Step-by-Step Remove Director of Company Process
Here is a comprehensive and compliant Directors’ Removal Process of Companies registered in India.
Step 1: Verify the Company’s AOA
Before the initiation of the removal, check to see if:
If the company’s AOA limits the right to remove a director, then the AOA would need to be modified via a special resolution in accordance with the Companies Act 2013
Step 2: Send out a Special Notice
Section 169 of the Companies Act 2013 requires that:
Step 3: Call an Extraordinary General Meeting (EGM)
Step 3: Arrange for an Extraordinary General Meeting (EGM)
Due to the possibility that the Board may be unfriendly or difficult to work with:
In this way, it keeps the process in the hands of the shareholders.
4.Giving the Director an Opportunity to Be Heard
Directors must be given the following:
• A reasonable opportunity to be heard
• The right to make a written representation (if the representation is subsequently read and distributed to all members present in the meeting) also a reasonable opportunity to present evidence
5.Making the Removal Resolution
• The resolution for the director’s removal will be voted on
• Ordinary Resolution (52% voting power required to pass)
Following an ordinary resolution, the removed director is removed from office and removed from office on a specified date (immediately or as per the resolution passed).
Step 6: Appointment of New Director (Optional but Strategic)
In the same meeting:
• A new director can be appointed to fill the vacancy
• This ensures continuity and avoids governance gaps
7.Filing with the ROC
There are mandatory filings following the removal that must be completed before the expiration of the applicable 30-day period.
• Filing DIR-12 form (no later than 30 days post-removal)
• Board Resolution to Remove Director
• Shareholder Resolution to Remove Director
• Updated registers and statutory records
Penalties for failing to file documents within prescribed time limits will be enforced.
The complete Remove Director of Company Process in India.
What If Removed Directors Hold Board Majority and Try to Block the Process?
This is an issue that many people have raised. However:
• Directors have no authority to override shareholder resolutions
• Shareholder-led EGMs are not affected by board refusal
• The Companies Act grants shareholders the ability to act independently
Therefore, a shareholder with a 52% ownership has the authority and right to proceed without Board approval.
Risks and Precautions While Removing Directors
Majority shareholders are legally protected, however improper conduct may result in disputes between shareholders.
Risk Factors:
• Accusations of oppression or mismanagement
• Improper Procedures
• Violation of Articles of Association
• Litigation in NCLT
Best Practices:
• Maintain complete records
• Strict compliance with timelines
• Provide adequate notice of hearings
• Obtain professional Director of Company Removal services
Special Cases Where Removal Is Restricted
Directors who are protected by a Statutory framework include:
Any removal process for these directors should take into account the requirement for:
In these situations, it is necessary to utilize the services of a Professional Director Removal Organization.
Role of NCLT in Director Removal Disputes
If disputes rise in number, NCLT is a significant aspect of the process. Some of the main types of grounds that a party may file an application with NCLT are:
• Oppression and mismanagement
• Management deadlocks
• Abuse of Majority Boards
NCLT can:
• Remove directors
• Reconstitute the Board
• Regulate the Company's affairs
Risks and Strategic Considerations
Director Removal legally clear, will carry risks including:
• Minority oppression claims
• Business Interruption
• Loss of investor confidence
• Cost of litigation
For this reason, you need to develop a strategic plan and get legal advice prior to starting the Remove Director of Company in India process.
Impact of Removing a director
The decision to remove a director can have significant implications for both the organization and its stakeholders. There are multiple considerations to be considered prior to proceeding with removal.
Operational Impact:
• There may be changes in the dynamic of the board, and it may change the manner in which decisions are made.
• Major strategic initiatives previously led by the director being removed may now be delayed due to their absence.
Financial Impact:
• Any removal of a director (even when done in compliance with the law) could impact investor confidence.
• There may be significant costs associated with litigation if a dispute arises out of any decision to remove the director from office.
Employee Morale:
• An abrupt removal of directors can have a significant impact upon the culture of the organization, as well as trust levels amongst employees.
• Clear communication explaining the reasons and legal framework for the removal of a director is imperative to maintain employee morale.
Market/Stakeholder Perception:
• Removing the director may cause shareholders and partners' perception to be that the organization is unstable.
• Using proper legal compliance tools/tools of good governance will help mitigate the risk of reputational damage.
Consequences of Removing Directors
Legally, the removal of a company director is a fairly simple process, but there are several consequences to consider:
Legal Consequences.
• Not following the laws, or statutory procedures, properly may cause the removal to be declared invalid.
• If a director has been removed inappropriately, they may have a claim for damages against the company.
Strategic Consequences.
• The company may suffer from strategic delays and setbacks if the director that has been removed is responsible for critical functions of the company.
• The overall corporate strategy of the company may be affected by the change of directors on the Board of Directors.
Shareholder Relations.
• Some of the company’s shareholders may feel alienated if they perceive that the removal process is an aggressive process.
• Clear and timely communication and transparency will help prevent disputes among the company’s shareholders.
Removal of Multiple Directors at Once
To regain control of the board, a shareholder with 52% can:
• Remove multiple directors in an EGM
• Pass separate resolutions for each director
• Appoint new directors right after the removal of the old directors
This is typically seen in promoter disputes and when investors exit.
Challenges Faced During the Removal Process
Even with clear legal authority, there may be practical roadblocks to overcome:
1.Board Resistance
Some directors may among other things:
• Not circulate notices or hold meetings as directed, or;
• Challenge the procedural validity of the actions of the new board or some other form of resistance.
2. Litigation
Former directors can file suit (with either the NCLT or civil courts) claiming they've been oppressed or may have been denied due process.
3. Shareholders' Agreements
Certain agreements contain restrictions regarding the ability to call a meeting and/or vote. It will be necessary to closely review any such agreement to determine rights thereunder.
Common Scenarios Where Majority Shareholders Remove Directors
1.Strategic deadlocks of the board
2.Authority misuse by Directors
3.Breaches of fiduciary or non-performance duties
4.Conflicts of interest
5.Loss of Promoter Trust
In all the instances noted, the remove director process is a means to correct governance rather than to resolve a conflict.
Conclusion
In a Private Limited Company, the ultimate decision about the company is held by the shareholders, who own the shares of the company. If a director possesses 52% shares, this gives them the legal right to remove any other Director(s) regardless of whether or not they have a majority of votes on the Board—by complying with the Company's statutory Remove Director of Company Process contained within Companies Act, 2013. In other words, the law provides majority shareholders the right to act, whereas, majority shareholder's success rests with the enforcement of their rights. To avoid disputes and/or regulatory enforcement issues, majority shareholders must make every effort to comply with the Companies Act and follow any procedures on removal of Director(s), embrace the concept of Natural Justice whenever possible, maintain sufficient documentation, and engage a professional Remove Director of Company service (or a company that provides the complete range of company secretarial services) for compliance purposes and to protect the integrity of the company's governance framework, reputation and long-term growth potential. When used properly, the removal of Director(s) by shareholders majority is not a tool for resolving disputes, it is a method of establishing shareholder democracy and promoting corporate discipline in India.
FAQs
1. Can a director holding 52% shares remove another director without Board approval?
Yes. Removal is a shareholder action under Section 169 and does not require Board consent.
2. Is a special resolution required to remove a director?
No. An ordinary resolution is sufficient unless the AOA states otherwise.
3. Can directors challenge their removal?
Yes, they may approach NCLT, but removal done with due process is legally sustainable.
4. Is removal possible without appointing a new director?
Yes, but companies must ensure minimum director requirements are maintained.
5. How long does the Remove Director of Company process take?
Typically, 15–30 days, depending on notice periods and filings.
Your email address will not be published. Required fields are marked *