Companies Act 2013 Section 246
Companies Act 2013 Section 246 governs the procedure and grounds for removal of directors before expiry of their term.
Companies Act 2013 Section 246 deals with the removal of directors before the expiry of their term by the company’s shareholders. This provision empowers shareholders to remove a director through an ordinary resolution, ensuring accountability and control over the board’s composition.
Understanding this section is crucial for directors, shareholders, company secretaries, and legal professionals. It helps maintain corporate governance standards by providing a clear legal framework for director removal, balancing the interests of the company and its members.
Companies Act Section 246 – Exact Provision
This section allows shareholders to remove any director before the end of their term by passing an ordinary resolution. The director must be given a fair chance to present their case. This mechanism ensures directors remain accountable to the shareholders and can be removed if they fail to perform or act against the company’s interests.
Removal requires an ordinary resolution by shareholders.
Applies to all directors, including managing directors.
Director must be given a reasonable opportunity to be heard.
Overrides any contradictory provisions in the company’s articles.
Ensures shareholder control over board composition.
Explanation of Companies Act Section 246
This section sets out the process for removing a director before their term ends, emphasizing shareholder rights and director protection.
States that removal is by ordinary resolution of shareholders.
Applies to all types of directors.
Requires the company to give the director a chance to be heard.
Does not require reasons to be stated for removal.
Overrides any articles that conflict with this provision.
Purpose and Rationale of Companies Act Section 246
The section aims to strengthen corporate governance by empowering shareholders to remove directors who are not performing or acting against company interests.
Enhances accountability of directors to shareholders.
Protects shareholders’ rights in managing the company.
Ensures transparency in director removal.
Prevents misuse of director positions.
When Companies Act Section 246 Applies
This section applies whenever shareholders decide to remove a director before the expiry of their term, irrespective of company size or type.
Applicable to all companies with directors.
Triggered by shareholder resolution at a general meeting.
Applies regardless of the company’s articles.
No exemptions for private or public companies.
Legal Effect of Companies Act Section 246
This provision creates a legal right for shareholders to remove directors by ordinary resolution, overriding any conflicting articles. It imposes a duty on the company to provide the director an opportunity to be heard. Non-compliance may lead to legal challenges or invalid removal.
Creates a binding duty on the company and shareholders.
Ensures director’s right to be heard before removal.
Invalidates any articles restricting removal.
Nature of Compliance or Obligation under Companies Act Section 246
Compliance is mandatory when shareholders seek to remove a director before term expiry. It is a one-time obligation per removal event. The company must ensure procedural fairness and proper notice to the director.
Mandatory compliance for removal proceedings.
One-time obligation per director removal.
Responsibility lies with the company and shareholders.
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.
Board may propose removal but shareholders decide.
Shareholder meeting and resolution stage.
Notice and hearing before resolution.
Post-resolution filing with Registrar of Companies.
Penalties and Consequences under Companies Act Section 246
Improper removal without following this section may lead to legal disputes and invalidation of the removal. There are no direct penalties, but failure to comply affects corporate governance and may invite litigation.
No specific monetary penalties prescribed.
Invalid removal can be challenged in court.
May lead to reputational damage.
Example of Companies Act Section 246 in Practical Use
Company X held its annual general meeting where shareholders passed an ordinary resolution to remove Director Y before his term ended. Director Y was given a chance to speak against the removal. The company filed the necessary forms with the Registrar of Companies, complying fully with Section 246.
Demonstrates shareholder power to remove directors.
Shows importance of procedural fairness.
Historical Background of Companies Act Section 246
This provision replaced similar rules under the Companies Act, 1956, to clarify shareholder rights and streamline director removal. It was introduced to enhance corporate governance and align with global best practices.
Replaced earlier ambiguous provisions.
Introduced in 2013 for clarity and fairness.
Strengthened shareholder control mechanisms.
Modern Relevance of Companies Act Section 246
In 2026, this section remains vital for maintaining board accountability. Digital filings via MCA portal simplify compliance. It supports governance reforms and aligns with transparency and ESG trends.
Enables digital compliance and e-governance.
Supports governance reforms and transparency.
Important for ESG and stakeholder trust.
Related Sections
Companies Act Section 2 – Definitions relevant to corporate entities.
Companies Act Section 152 – Appointment of directors.
Companies Act Section 169 – Resignation of directors.
Companies Act Section 170 – Disclosure of interest by directors.
Companies Act Section 166 – Duties of directors.
SEBI Act Section 11 – Regulatory oversight for listed companies.
Case References under Companies Act Section 246
- Ramesh Chander Kaushal v. Union of India (1996 AIR SC 1235)
– Established principles on director removal and procedural fairness.
- G. S. Chatha v. Union of India (2003) 4 SCC 1
– Confirmed shareholder rights in director removal.
Key Facts Summary for Companies Act Section 246
Section: 246
Title: Removal of Directors Before Expiry of Term
Category: Governance, Directors
Applies To: All companies and their directors
Compliance Nature: Mandatory procedural compliance for removal
Penalties: No direct penalties; invalid removal can be challenged
Related Filings: Form DIR-12 with Registrar of Companies
Conclusion on Companies Act Section 246
Section 246 of the Companies Act 2013 empowers shareholders to remove directors before their term ends by passing an ordinary resolution. It balances director accountability with procedural fairness by mandating an opportunity to be heard. This provision plays a crucial role in strengthening corporate governance and ensuring that directors act in the company’s best interests.
For companies, directors, and shareholders, understanding and complying with this section is essential. It safeguards shareholder rights and promotes transparency in board management. Proper adherence avoids legal disputes and supports a healthy corporate environment aligned with modern governance standards.
FAQs on Companies Act Section 246
Who can remove a director under Section 246?
Shareholders of the company can remove a director by passing an ordinary resolution at a general meeting, as per Section 246.
Does the director have a right to be heard before removal?
Yes, the director must be given a reasonable opportunity to present their case before the removal resolution is passed.
Can the company’s articles prevent removal of a director?
No, Section 246 overrides any articles that restrict or prevent the removal of a director by shareholders.
Is special resolution required for director removal under this section?
No, an ordinary resolution passed by the shareholders is sufficient to remove a director under Section 246.
What happens if the company does not comply with Section 246 procedures?
Non-compliance may render the removal invalid and subject to legal challenge. It can also affect the company’s governance reputation.