Detailed Analysis of Section 167 of Companies Act 2013 Vacation of office of a director to understand the section in a better way
Section 167(1) of Companies Act 2013
The office of a director shall become vacant in case:
- he incurs any disqualifications specified in section 164;
Provided that where he incurs any disqualification under subsection 2 of section 164, the office of the director shall become vacant in all the companies, other than the company which is in default of that subsection;
- he absents himself from all the meetings of the board of directors held during the period of 12 months with or without seeking leave of absence of the board;
Here 12 months not the financial year or calendar year, it is the 12 months starting from the date of absence in a board meeting. For example: if Mr. A absent in the meeting held on 5 August, then if Mr. A not able to hold any meeting held from till 4th August, then he has to vacant the office of director.
Office of director shall be vacated even if leave of absence is granted.
When a director participated in the meeting by means of video conferencing or other visual audio means, it amounts to attending the board of meetings.
- he acts in contravention of the provision of section 184 relating to entering into contracts or arrangements in which he is directly or indirectly interested. (refer section 184);
- he fails to disclose his interest in any contract or arrangement in which he is directly or indirectly interested in contravention of the provision of section 184. (refer section 184)
- he becomes disqualified by an order of a court or the tribunal;
- he is convicted by the court of any offence whether involving moral turpitude or otherwise and sentenced in respect thereof to imprisonment for not less than 6 months; refer otherwise definition
- he is removed in pursuance of the provision of the company act 2013; (refer section 169 or 217)
- he, having been appointed a director by the 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.
Exception to clause (e) or (f) refer in section 167(1)
Provided that the office of the person shall not be vacated in case or order referred to in clause (e) or (f)
- for 30 days from the date of conviction or order of disqualification;
- where any appeal or petition is preferred within 30 days as aforesaid against the conviction resulting in sentence in order, until the expiry of 7 days from the date on which such appeal or petition is disposed of; or
- where further appeal or petition is preferred against order or sentence within 7 days until such further appeal or petition is disposed of.
For example: Mr. A is disqualified by the court to act as a director, then in such cases vacation of office after 30 days (i.e. Vacation is after 30 days)
But where Mr. A prefer to file appeal and petition against the order in against such conviction within 30 days, then vacation of office after 7 days from the date such appeal or petition is disposed of;
And further where appeal or petition is filed within 7 days until such further appeal or petition is disposed of.
Section 167(2) -Punishment for contravention
If a person functions as a director even when he knows that office of director held by him has become vacant on account of any disqualification specified in subsection (1) of section 167 of companies act 2013 then
- he shall punishable with imprisonment for a term which may extend to 1 year or
- with fine which shall not less than Rs. 1 lakh but which may extend to Rs. 5 Lakh, or
- or with both
Section 167(3)-Where all the director vacating the office
Where all the directors of the company vacate their offices under any of disqualification specified in subsection (1), in that case, the promoter or in this absence Central Government shall appoint the required number of directors who shall hold office till the director who shall hold office till the directors are appointed by the company in the general meeting.
Section 167(4) -Additional grounds for vacation
A private company (not being a subsidiary of a public company) may by its articles provide any other grounds for the vacation of office as a director in addition as specified in section 167 (1) of the companies act.
For example: No educational qualification or age is provided as per section 167(1) of that act, but private companies may provide such additional ground for vacation after amendment in its articles.