Companies Act Section 167 — Vacation of office of director

CHAPTER XI APPOINTMENT AND QUALIFICATIONS OF DIRECTORS

Commercial / Corporate

Summary

Sub-section (1) lists the situations in which a director's office becomes vacant. These include: incurring any of the disqualifications listed in section 164, with a special note that if the disqualification is under sub-section (2) of section 164, the office becomes vacant in all companies except the one that is in default; being absent from all Board meetings held during a twelve-month period, whether or not the director sought leave of absence; acting against the provisions of section 184 regarding contracts or arrangements where the director has a direct or indirect interest; failing to disclose such an interest in a contract or arrangement as required by section 184; being disqualified by a court or Tribunal order; being convicted by a court of any offence and sentenced to imprisonment for at least six months; being removed under the provisions of this Act; and, if the director was appointed because of holding an office or employment in a holding, subsidiary, or associate company, ceasing to hold that office or employment.

Under the proviso to clauses (e) and (f) of sub-section (1), the office does not become vacant immediately in cases of court or Tribunal disqualification orders or convictions. The office remains for thirty days from the date of conviction or disqualification order. If an appeal or petition is filed within those thirty days, the office continues until seven days after that appeal or petition is disposed of. If a further appeal or petition is filed within those seven days, the office continues until that further appeal or petition is disposed of.

Sub-section (2) states that if a person continues to function as a director while knowing that the office has become vacant due to any disqualification listed in sub-section (1), that person is punishable with a fine of not less than one lakh rupees and up to five lakh rupees.

Sub-section (3) provides that if all directors of a company vacate their offices under any disqualification in sub-section (1), the promoter, or if there is no promoter, the Central Government, must appoint the required number of directors. These appointed directors hold office until the company appoints directors in a general meeting.

Sub-section (4) allows a private company to include in its articles any additional grounds for the vacation of a director's office, beyond those specified in sub-section (1).

Official Text

(1) The office of a director shall become vacant in case—

(a) he incurs any of the disqualifications specified in section 164: 1[Provided that where he incurs disqualification under sub-section (2) of section 164, the office of the director shall become vacant in all the companies, other than the company which is in default under that sub-section];

(b) he 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;

(c) he acts in contravention of the provisions of section 184 relating to entering into contracts or arrangements in which he is directly or indirectly interested;

(d) he fails to disclose his interest in any contract or arrangement in which he is directly or indirectly interested, in contravention of the provisions of section 184;

(e) he becomes disqualified by an order of a court or the Tribunal;

(f) he is convicted by a court of any offence, whether involving moral turpitude or otherwise and sentenced in respect thereof to imprisonment for not less than six months: 2[Provided that the office shall not be vacated by the director in case of orders referred to in clauses

(e) and (f)—

(i) for thirty days from the date of conviction or order of disqualification;

(ii) where an appeal or petition is preferred within thirty days as aforesaid against the conviction resulting in sentence or order, until expiry of seven days from the date on which such appeal or petition is disposed of; or

(iii) where any further appeal or petition is preferred against order or sentence within seven days, until such further appeal or petition is disposed of.]

(g) he is removed in pursuance of the provisions of this Act;

(h) he, having been appointed a director by 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.

(2) If a person, functions as a director even when he knows that the office of director held by him has become vacant on account of any of the disqualifications specified in sub-section (1), he shall be punishable 1*** with fine which shall not be less than one lakh rupees but which may extend to 2[five lakh rupees].

(3) Where all the directors of a company vacate their offices under any of the disqualifications specified in sub-section (1), the promoter or, in his absence, the Central Government shall appoint the required number of directors who shall hold office till the directors are appointed by the company in the general meeting.

(4) A private company may, by its articles, provide any other ground for the vacation of the office of a director in addition to those specified in sub-section (1).