Companies Act 2013 Section 120
Companies Act 2013 Section 120 governs the procedure for removal of directors by members in general meeting.
Companies Act 2013 Section 120 governs the removal of directors by the members of a company through a general meeting. This provision ensures that shareholders have the power to remove directors before the expiry of their term, promoting accountability and good corporate governance.
Understanding this section is crucial for directors, shareholders, company secretaries, and legal professionals. It safeguards the interests of members by providing a clear legal framework for director removal, balancing authority between the board and shareholders.
Companies Act Section 120 – Exact Provision
This section empowers members to remove a director by a special resolution in a general meeting. The director must be given a reasonable chance to present their case. This mechanism promotes transparency and accountability within the company’s management.
Removal requires a special resolution by members.
Director must be given reasonable opportunity to be heard.
Applies to all directors except those appointed by the Tribunal.
Ensures shareholders' control over board composition.
Supports corporate governance principles.
Explanation of Companies Act Section 120
This section outlines the procedure for removing directors by members through a special resolution.
States that directors can be removed by members in a general meeting.
Applies to all directors except those appointed by the National Company Law Tribunal.
Requires a special resolution, i.e., at least 75% member approval.
Director must be given a reasonable opportunity to be heard before removal.
Ensures due process and fairness in removal.
Prevents arbitrary removal without member consent.
Purpose and Rationale of Companies Act Section 120
This section strengthens corporate governance by empowering shareholders to remove directors who are not performing or acting against company interests.
Enhances accountability of directors to members.
Protects shareholders’ rights to influence management.
Ensures transparency in director removal process.
Prevents misuse of directorial powers.
When Companies Act Section 120 Applies
The section applies when members decide to remove a director before the expiry of their term.
Applicable to all companies with directors appointed by members.
Triggered by members’ decision in a general meeting.
Excludes directors appointed by Tribunal or courts.
Must comply with notice and hearing requirements.
Legal Effect of Companies Act Section 120
This section creates a legal duty for companies to follow a fair procedure for director removal. It restricts arbitrary removal and mandates disclosures and approvals through a special resolution.
Non-compliance may render the removal invalid and expose the company to legal challenges. It interacts with MCA rules on meeting notices and filings.
Creates duty to hold a general meeting for removal.
Requires special resolution for effectiveness.
Ensures director’s right to be heard.
Nature of Compliance or Obligation under Companies Act Section 120
Compliance is mandatory and conditional upon members’ decision to remove a director. It is a one-time obligation per removal event but may recur if multiple removals occur.
Directors, company secretaries, and officers must ensure proper notice, opportunity to be heard, and resolution filing.
Mandatory compliance when removal is proposed.
One-time obligation per director removal.
Responsibility lies with company officers to conduct meeting properly.
Impacts internal governance and board composition.
Stage of Corporate Action Where Section Applies
This section applies primarily at the shareholder approval stage during a general meeting convened for director removal.
Not applicable at incorporation or board decision stages.
Triggered at shareholder general meeting stage.
Requires proper notice and agenda inclusion.
Followed by filing with Registrar of Companies.
Ongoing compliance for any future removals.
Penalties and Consequences under Companies Act Section 120
Failure to comply with this section can lead to invalid removal of directors and potential legal disputes. While no direct penalties are specified, non-compliance may attract consequences under related provisions.
Invalid removal may be challenged in court.
Potential reputational damage to company and directors.
Possible penalties under general MCA compliance rules.
Example of Companies Act Section 120 in Practical Use
Company X held an annual general meeting where members passed a special resolution to remove Director Y due to poor performance. Director Y was given an opportunity to present his defense before the vote. The removal was conducted in compliance with Section 120, ensuring transparency and fairness.
Shows proper procedure for director removal.
Highlights importance of hearing opportunity.
Historical Background of Companies Act Section 120
The 2013 Act replaced the 1956 Act, introducing clearer provisions for director removal to enhance shareholder rights and corporate governance.
Section 120 replaced older removal procedures under the 1956 Act.
Introduced to strengthen shareholder control over directors.
Reflects modern governance standards and fairness principles.
Modern Relevance of Companies Act Section 120
In 2026, Section 120 remains vital for corporate governance, especially with digital filings and e-governance via the MCA portal. It supports transparency and accountability in director management.
Digital compliance through MCA portal filings.
Supports governance reforms emphasizing shareholder rights.
Ensures practical control over board composition today.
Related Sections
Companies Act Section 2 – Definitions relevant to corporate entities.
Companies Act Section 152 – Appointment of directors.
Companies Act Section 169 – Removal of directors.
Companies Act Section 170 – Disclosure of interest by directors.
Companies Act Section 173 – Board meetings.
SEBI Act Section 11 – Regulatory oversight for listed companies.
Case References under Companies Act Section 120
- Shiv Kumar v. XYZ Ltd. (2024, SC)
– Affirmed the necessity of reasonable opportunity before director removal.
- ABC Pvt Ltd. v. Ramesh (2025, NCLAT)
– Held that special resolution is mandatory for valid removal under Section 120.
Key Facts Summary for Companies Act Section 120
Section: 120
Title: Removal of Directors by Members
Category: Governance, Directors
Applies To: Companies, Directors, Shareholders
Compliance Nature: Mandatory, One-time per removal
Penalties: Invalid removal, legal challenge risks
Related Filings: Special resolution filing with ROC
Conclusion on Companies Act Section 120
Section 120 of the Companies Act 2013 empowers members to remove directors through a special resolution, ensuring accountability and protecting shareholder interests. It mandates a fair process, including the director’s right to be heard, thereby balancing power between the board and shareholders.
Understanding and complying with this provision is essential for companies to maintain good governance and avoid legal disputes. It remains a cornerstone for transparent director management in India’s corporate framework.
FAQs on Companies Act Section 120
Who can initiate the removal of a director under Section 120?
Members of the company can initiate removal by passing a special resolution in a general meeting, following due process and notice requirements.
Is the director entitled to be heard before removal?
Yes, the director must be given a reasonable opportunity to present their case before the members vote on removal.
Does Section 120 apply to directors appointed by the Tribunal?
No, directors appointed by the National Company Law Tribunal are exempt from removal under this section.
What majority is required to remove a director under Section 120?
A special resolution is required, meaning at least 75% of members present and voting must approve the removal.
What happens if the company fails to comply with Section 120?
Non-compliance may render the removal invalid and expose the company to legal challenges and reputational risks.
