Section 167 of the Companies Act, 2013 (CA 2013) provides for vacation of office of director. This section came into force on 1st April, 2014 vide Notification No. S.O. 902(E) issued dated 27-03-2014. Section 167 of the CA 2013 corresponds to the section 283 of the Companies Act, 1956 which provides for vacation of office by director.
Vacation of Office of Director of Private and Public Company
The provision of this section shall be applicable to both private as well as public company. In accordance with the provisions of section 167(1) of the CA 2013, the office of a director shall become vacant in the following cases:
a) Disqualified under Section 164:
If any director of company incurs any of the disqualifications specified in section 164 of the CA 2013 which provides for disqualifications for appointment of director, then he shall vacate the office of director. Therefore, you have to vacate the office of director if any of the provision of section 164 applies to you.
b) Absent from Board Meetings:
If the director of the company 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 then he shall vacate the office of director. As per section 2(10) “Board of Directors” or “Board”, in relation to a company, means the collective body of the directors of the company.
Thus, irrespective of seeking leave of absence, the director shall vacate office in case he does not present in any of the BM held within 12 months. Note that such 12 months is not a calendar year or financial year or accounting year or previous year or any other year. The period of 12 months shall be counted from the date of BM in which the director was absent for the first time.
The provision of section 167(1)(b) shows that if director has casual approach and he is not serious about his position then he should vacate the office as a director. This is because he thinks that there is no relevant to attend at least one meeting held during a year i.e. 12 months.
However, the fact is that this provision hardly affects the position of director as because now-a-days the BM can also be attended through video conferencing or other audio visual means in addition to physically present as provided in section 173(2) of the CA 2013.
c) Not complying Section 184:
If the director of the company acts in contravention of the provisions of section 184 relating to entering into contracts or arrangements in which he is directly or indirectly interested, then he shall vacate the office as director.
According to section 2(49) “interested director” means a director who is in any way, whether by himself or through any of his relatives or firm, body corporate or other association of individuals in which he or any of his relatives is a partner, director or a member, interested in a contract or arrangement, or proposed contract or arrangement, entered into or to be entered into by or on behalf of a company.
d) Disclosure of Interest:
The director of a company shall have to vacate the office if 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) Disqualified as Director:
If any director of the company becomes disqualified by an order of a court or the Tribunal. This provision has already been covered in section 167(1)(a) above read with section 164(1)(e) of the CA 2013. Thus, this clause may be deleted by the CG in future amendments. In other words, clause (e) of section 167(1) is not so relevant due to clause (a) as discussed above.
f) Minimum 6 Months Jail:
In case, a director of the company is convicted by a court of any offence, whether involving moral turpitude or otherwise and sentenced in respect thereof to imprisonment for not less than 6 months.
You should note that the proviso of section 167(1)(f) of the CA 2013 states that the office shall be vacated by the director even if he has filed an appeal against the order of such court. The similar provision is contained in section 164(1)(d) of the CA 2013 and therefore, this clause shall also need to be deleted in the coming amendments.
The term “or otherwise” has been used in both sections i.e. section 164(1)(d) and section 167(a)(f) of the CA 2013 and the same shall be referred to any offence in respect of which the director has been convicted by a Court under the CA 2013 or the Companies Act, 1956.
You may refer Rule 2(1)(s) of the Companies (Specification of Definitions Details) Rules, 2014 and Rule 2(1)(k) of the Companies (Appointment and Qualification of Directors) Rules, 2014.
g) Removed from Office:
If any director of the company is removed in pursuance of the provisions of the Companies Act, 2013. You may refer section 169 of the CA 2013 which provides for removal of directors.
h) Ceases to hold Ex-Officio Positon:
If a director 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.
No Compensation to Directors [Section 202(2)(c)]:
According to section 202(2)(c) of the CA 2013, no payment by way of compensation for loss of office of director shall be made under section 202(1) where the office of the director is vacated under sub-section (1) of section 167.
Vacation of Office of Small Shareholder’s Director
As per Rule 7(7)(b) of the Companies (Appointment and Qualification of Directors) Rules, 2014, a person appointed as small shareholders’ director shall vacate the office if the office of the director becomes vacant in pursuance of section 167 of the CA 2013.
Vacation of Office of Director of a Private Company
The provisions of section 167(4) of the CA 2013 states that a private company may, by its articles, provide any other ground for the vacation of the office of a director in addition to those specified in sub-section (1) as discussed above.
That means in addition to 8 clauses of section 167(1) of the CA 2013 as discussed above, the private company may provide any other ground for vacation of office by the director.
Punishment for contravention of Provisions of Section 167
In accordance with the provisions of section 167(2) of the CA 2013, 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 imprisonment for a term which may extend to one year; or
- with fine of ₹1,00,000 to ₹5,00,000; or
- with both i.e. fine and Jail.
Office of Director vacated by all Directors of a Company
Where all the directors of a company vacate their offices under any of the disqualifications specified in sub-section (1) of section 167 of the CA 2013, the promoter shall appoint the required number of directors. However, in the absence of promoters, the Central Government shall appoint the required number of directors.
Note that such appointed directors either by promoters or CG shall hold office till the directors are appointed by the company in the general meeting. You may also refer section 168(3) which provides the same provisions in case where all the directors of a company resign from their offices.