Have you ever wondered if a director could lose their position simply by not showing up for meetings? Under Section 167(1)(b) of the Companies Act, 2013, that’s exactly what can happen! Let’s break it down.
🟠 What Does the Law Say?
Section 167(1)(b) of the Companies Act, 2013, states that a director shall vacate their office if they are absent from all meetings of the Board of Directors for a continuous period of 12 months, with or without seeking leave of absence.
🧠 Key Insight: The 12-month period is counted from the date of the first meeting the director failed to attend, not from the last meeting they attended.
🟠 Example for Clarity:
- A director last attended a Board meeting on 1st January 2023.
- The next Board meeting was on 15th March 2023, but the director did not attend.
- The director missed all subsequent meetings on 30th June 2023, 15th September 2023, and 15th December 2023.
Result:
- The 12-month countdown starts from 15th March 2023 (the first meeting the director failed to attend).
- If the director remains absent up to 15th March 2024, they automatically vacate their office.
🟠 Consequences of Non-Compliance:
- Automatic Vacation of Office: The director ceases to hold office without any need for Board resolution or shareholder approval.
- Impact on Quorum & Decision-Making: Persistent absenteeism can disrupt Board functioning and decision-making capacity.
- Statutory Filings: The company must file Form DIR-12 with the Registrar of Companies (ROC) to report the vacancy.
🟠 Best Practices for Companies:
- Attendance Monitoring: Track directors’ attendance to catch long absences early.
- Leave of Absence Policies: Encourage directors to formally request leave of absence when needed.
- Regular Reminders: Send timely reminders to directors about upcoming meetings and their attendance obligations.
- Board Evaluations: Conduct periodic reviews to assess directors’ participation and engagement levels.
🟠 Why This Rule Matters:
This provision ensures directors remain actively involved in company management and discourages passive directorship. It strengthens Board accountability and promotes sound corporate governance.