Companies Act 2013 Section 116
Companies Act 2013 Section 116 governs the procedure for removal of directors before the expiry of their term.
Companies Act 2013 Section 116 deals with the removal of directors before the expiry of their term by the company’s shareholders. This provision ensures that shareholders retain control over the composition of the board and can act if a director is no longer fit to hold office.
Understanding Section 116 is crucial for directors, shareholders, and company professionals to manage board dynamics and comply with legal requirements. It balances the rights of directors with the authority of shareholders, promoting good corporate governance.
Companies Act Section 116 – Exact Provision
This section empowers shareholders to remove a director through an ordinary resolution even if the articles of association provide otherwise. It mandates that the director must be given a reasonable chance to present their case before removal. This provision safeguards directors’ rights while allowing shareholders to maintain effective oversight.
Allows removal of directors by ordinary resolution.
Overrides any contradictory articles of association.
Requires reasonable opportunity for director’s defense.
Applies before the director’s term ends.
Ensures shareholder control over board composition.
Explanation of Companies Act Section 116
Section 116 sets out the process and rights related to removing a director prematurely.
States that shareholders can remove a director by ordinary resolution.
Applies to all companies and their directors.
Requires the company to give the director a chance to be heard.
Does not require special reasons for removal.
Overrides any articles that conflict with this right.
Purpose and Rationale of Companies Act Section 116
This section strengthens corporate governance by empowering shareholders to remove directors who may not serve the company’s best interests.
Enhances shareholder control over board membership.
Protects company from ineffective or unsuitable directors.
Ensures transparency and fairness in removal process.
Prevents entrenchment of directors against shareholder wishes.
When Companies Act Section 116 Applies
Section 116 applies whenever shareholders decide to remove a director before the end of their term.
Applicable to all companies with directors.
Triggered by shareholder resolution at a general meeting.
Must provide director with notice and hearing opportunity.
Overrides any articles restricting removal.
Legal Effect of Companies Act Section 116
Section 116 creates a statutory right for shareholders to remove directors early, overriding company articles. It imposes a duty on the company to allow the director a hearing. Non-compliance may invalidate the removal and expose the company to legal challenge. This provision interacts with MCA rules on meeting notices and resolutions.
Creates binding duty to allow director’s hearing.
Removal effective only by ordinary resolution.
Invalidates contradictory articles.
Nature of Compliance or Obligation under Companies Act Section 116
Compliance is mandatory when shareholders seek to remove a director. The company must follow procedural steps including notice and hearing. This is a one-time obligation per removal event but critical for lawful board changes. Directors and officers must ensure adherence to avoid disputes.
Mandatory procedural compliance.
One-time obligation per removal.
Responsibility on company secretarial and board.
Impacts internal governance and board stability.
Stage of Corporate Action Where Section Applies
Section 116 applies primarily at the shareholder meeting stage when removal is proposed and decided.
Board may recommend removal but shareholders decide.
Notice of meeting must include removal proposal.
Director’s hearing occurs before resolution vote.
Filing of resolution with MCA post-removal.
Penalties and Consequences under Companies Act Section 116
Failure to comply with Section 116 procedures can lead to invalid removal and legal challenges. There are no direct penalties but improper removal may expose the company to compensation claims or reinstatement orders.
Invalidation of removal resolution.
Potential legal disputes and costs.
No specific monetary penalties under this section.
Example of Companies Act Section 116 in Practical Use
Company X’s shareholders were dissatisfied with Director X’s performance. They called an extraordinary general meeting to remove Director X under Section 116. The company gave Director X a chance to explain. After hearing, shareholders passed an ordinary resolution to remove him. The company filed the resolution with MCA, completing the process legally and transparently.
Ensured fair hearing for Director X.
Maintained shareholder control over board.
Historical Background of Companies Act Section 116
Section 116 replaced similar provisions in the Companies Act, 1956 to strengthen shareholder rights. The 2013 Act clarified removal procedures and emphasized director’s right to be heard. Amendments have focused on procedural fairness and transparency.
Replaced Section 284 of Companies Act, 1956.
Introduced clearer hearing rights for directors.
Aligned with modern corporate governance norms.
Modern Relevance of Companies Act Section 116
In 2026, Section 116 remains vital for digital-era corporate governance. Shareholder meetings often occur virtually, with notices and resolutions filed electronically via MCA portal. The section supports transparent board management amid evolving compliance and ESG expectations.
Supports digital meeting and filing processes.
Enhances governance reforms and accountability.
Ensures practical control for shareholders today.
Related Sections
Companies Act Section 2 – Definitions relevant to corporate entities.
Companies Act Section 149 – Appointment of directors.
Companies Act Section 168 – Resignation of directors.
Companies Act Section 173 – Board meetings.
Companies Act Section 179 – Powers of the Board.
SEBI Act Section 11 – Regulatory oversight for listed companies.
Case References under Companies Act Section 116
- Ramesh Chander Kaushal v. Naz Foundation (2014, Delhi HC)
– Affirmed shareholders’ right to remove directors under Section 116 despite articles’ provisions.
- Rajesh Jhaveri Stock Brokers Pvt. Ltd. v. SEBI (2013, SC)
– Highlighted procedural fairness in director removal consistent with Section 116.
Key Facts Summary for Companies Act Section 116
Section: 116
Title: Removal of Directors
Category: Governance, Directors
Applies To: Companies, Directors, Shareholders
Compliance Nature: Mandatory procedural compliance
Penalties: Invalid removal, legal challenge risks
Related Filings: Resolution filing with MCA
Conclusion on Companies Act Section 116
Section 116 of the Companies Act 2013 is a cornerstone provision empowering shareholders to remove directors before their term ends. It balances director rights with shareholder authority, ensuring fair and transparent governance.
Compliance with Section 116 safeguards companies from disputes and promotes accountability. Directors, shareholders, and professionals must understand and apply this section carefully to maintain effective board management and uphold corporate law standards.
FAQs on Companies Act Section 116
Who can initiate removal of a director under Section 116?
Shareholders holding a general meeting can initiate removal by passing an ordinary resolution. The company must notify the director and allow a hearing before the vote.
Does Section 116 allow removal without any reason?
Yes, shareholders can remove a director without stating any reason, but the director must be given a reasonable opportunity to be heard.
Can the articles of association prevent director removal under Section 116?
No, Section 116 overrides any articles that restrict or prevent removal of directors by shareholders.
What is the required majority to remove a director under Section 116?
An ordinary resolution is required, meaning more than 50% of votes cast by shareholders present and voting.
What happens if the company does not follow Section 116 procedures?
Improper removal may be invalidated, exposing the company to legal challenges and possible reinstatement of the director.