Reappointed independent director to be removed by passing special resolution and with reasonable opportunity-MCA

Further, sub-section (10) of section 149 of the Act provides that subject to the provisions of section 152, an independent director shall hold office for a term up to five consecutive years on the Board of a company, but shall be eligible for re-appointment on passing of a special resolution by the company and disclosure of such appointment in the Board’s report;

Again, sub-section (1) of section 169 provides that a company may, by ordinary resolution, remove a director, not being a director appointed by the Tribunal under section 242, before the expiry of the period of his office after giving him a reasonable opportunity of being heard;

As per MCA, various stakeholders have suggested difficulties in giving effect to the above mentioned provisions of the Companies Act, 2013 regarding appointment and removal of independent directors from the boards of companies:-

(i) Difficulties in proper monitoring and implementation of corporate governance requirements in companies. Suggestion was made for reviewing section 169 of the said Act, which, inter- alia, deals with the removal of independent directors;

(ii) Presently an independent director is re-appointed for second term under sub-section (10) of section 149 of the said Act, only by way of a special resolution, such independent director can be removed by an ordinary resolution and not by a special resolution;

In view of the above, MCA felt the need for an amendment in section 169 of the Companies Act, 2013 to provide for removal of such re-appointed independent director by way of a special resolution.

Accordingly, the MCA has issued the Companies (Removal of Difficulties) Order, 2018 inserting a proviso in section 169((1) providing that an independent director re-appointed for second term under sub-section (10) of section 149 shall be removed by the company only by passing a special resolution and after giving him a reasonable opportunity of being heard.

Download the Companies (Removal of Difficulties) Order, 2018 Click Here >>