Introduction

Directors are the person appointed to look after the company’s affairs. They are appointed as per the provisions of the companies act, 2013. Companies Act, 2013 also provides that in certain situations a director has to vacate the office. Section 167 talks about the vacation of Directors.

What are cases where a director has to vacate his Office?

As per section 167, in the following cases, a director has to vacate his office:-

1. He incurs any of the disqualification specified in section 164. Section 164 provides various grounds for disqualification of Directors, if any of the grounds mentioned in 164 is attracted; he/she has to vacate his /her office. It is also 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.
2. 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.
3. 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;
4. 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;
5. He becomes disqualified by an order of a court or the Tribunal;
6. 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:

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 removedin 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 officeor other employment in that company.

What is the punishment if a director doesn’t vacate the office?

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 with a fine which shall not be less than one lakh rupees to five lakhs but which may extend to 4[five lakh rupees].

What will happen if all the Directors vacate the Office?

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.

Can a private limited company provide additional Grounds for vacation?

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

Conclusion

If a ground of vacation is attracted he should vacate the company. If a director does not vacate the office, he will be liable to pay a fine under section 167.