[Opinion] Vacation of Office of a Director u/s 167(1)(b) of Companies Act 2013

Dr K R Chandratre – [2023] 149 taxmann.com 272 (Article)

Under section 167 of the Companies Act 2013, a director of a company loses his directorship in the company on the grounds mentioned in subsection (1). One of the grounds due to which the office of a director shall become vacant if the director, as specified in clause (b) of subsection (1) of section 167 is: a director absents himself from all the meetings of the Board of Directors held during a period of twelve months with or without seeking leave of absence of the Board. This provision corresponds to section 283(1)(g) of the Companies Act 1956.

This disqualification would come into operation only if meetings of the board during a particular period have been actually held. The period of three months would commence from the date of the first of the three meetings that a director has absented himself from attending.

It has been held in several cases that if notices of the board meetings are found to have not been duly given, the vacation of office under section 283(1)(g) would be illegal and sometimes even mala fide.

Where proof of having sent notices of the board meetings to claim vacation of the office of director by the petitioner’s nominees, was not produced, the vacation of office of the director was bad in law.

In another case, it was held that the petitioner had denied receipt of notices of the meetings. No documentary evidence to prove that notices were served on the petitioner had been produced. The respondent had failed to produce even the minutes of such meetings. In the absence of any proof that notices had been issued, the provisions of section 283(1)(g), were held to be not applicable.

This provision is sometimes used as a device to oust or get rid of an unwanted director. Going strictly by the law laid down by courts on the subject of vacation of office of a director, a director should be treated as vacated his office once he is found to have absented himself from the statutorily prescribed number of board meetings. However, the vacation is designed and planned so as to let the law come into play and perform its role and force the director to step down and, therefore, much hinges on the circumstances leading to the vacation (or the allegation of the vacation), such as, whether or not:

• the criterion as to the statutorily prescribed number of meetings was satisfied;
• the meetings were validly convened;
• the meetings were validly held (the required disinterested quorum);
• notice of the board meeting was given to the affected director;
• the affected director had asked for, and was granted, a leave of absence;
• there are documents proving the validity of the meetings and service of notice.

Where a director pleaded that he was not a director at the date of winding up of the company, as he had not attended any of its board meetings for two years, it was held that he must be deemed to be a director as there was nothing to show that any meeting of the board was held during the period he was away or that any notice of any such meeting was issued or he did not obtain leave of absence from attending such meetings.

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