Introduction

The Ministry of Corporate Affairs has issued the Companies (Removal of Difficulties) Order, 2018 (hereinafter referred to as the “Order”) which makes amendment in the provision for re-appointment of independent director. The Order makes amendment in section 169 of the Companies Act, 2013 and states that an independent director who has been re-appointed can be removed by the company only after passing a special resolution and providing the independent director reasonable opportunity of being heard.

Need for amendment in provision of re-appointment of independent director

The situation before passing of the Order was that an independent director who has been re-appointed could be removed by passing of ordinary resolution and not special resolution. However, may issues were raised by stakeholders with respect to this provision namely-

  • Difficulty in proper monitoring and implementation of corporate governance requirements in companies.
  • Since an independent director is re-appointed for a second term by way of special resolution, therefore such independent director should be removed by way of special resolution and ordinary resolution.

Therefore, to ensure better corporate governance in companies and to balance the powers of the board of directors of a company, the Order has been issued to provide for removal of re-appointed independent directors by way of special resolution.