Section 167: Vacation of office of director
This section outlines the circumstances under which a director's office becomes vacant and the consequences of continuing to act as a director despite being disqualified.
Penalty
(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].
The section, clause by clause
What the section says
In plain terms
(1)The office of a director shall become vacant in case—
The office of a director becomes vacant if they incur certain disqualifications, absents themselves from all board meetings for 12 months, act in contravention of contract provisions, fail to disclose interests, become disqualified by court or tribunal order, are convicted and sentenced to at least 6 months imprisonment, are removed, or cease to hold a required office or employment.
(1)(a)he incurs any of the disqualifications specified in section 164:
proviso1[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];
(1)(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;
(1)(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;
(1)(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;
(1)(e)he becomes disqualified by an order of a court or the Tribunal;
(1)(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:
proviso2[Provided that the office shall not be vacated by the director in case of orders referred to in clauses (e) and (f)—
(1)(f)(i)for thirty days from the date of conviction or order of disqualification;
(1)(f)(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
(1)(f)(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.]
(1)(g)he is removed in pursuance of the provisions of this Act;
(1)(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].
A person who functions as a director despite knowing their office is vacant due to disqualification is punishable with a fine of not less than 1 lakh rupees but not more than 5 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.
If all directors of a company vacate their offices due to disqualification, the promoter or Central Government must appoint new directors to hold office until the company appoints new directors in a 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).
A private company can specify additional grounds for a director's office to become vacant in its articles, beyond those already specified.
The right-hand column is written from the section text, not quoted from it, and it has no legal force. Where the two differ, the left-hand column is the law.
Amendment notes
- 1. The proviso ins. by Act 1 of 2018, s. 54 (w.e.f. 7-5-2018).
- 2. The proviso subs. by Act 1 of 2018, s. 54 (w.e.f. 7-5-2018).
- 1. The words “with imprisonment for a term which may extend to one year or” omitted by Act 29 of 2020, s. 34 (w.e.f. 21-12- 2020).
- 2. Subs. by s. 34, ibid., for “five lakh rupees, or with both” (w.e.f. 21-12-2020).
- 3. Subs. by Act 1 of 2018, s. 55, for “director shall also forward” (w.e.f. 7-5-2018).
- 4. The proviso ins. by Notification No. S.O. 768(E), dated 21st February, 2018 (w.e.f. 21-2-2018).
- 5. Subs. by ibid., for “Provided that”(w.e.f. 21-2-2018).
This section refers to
Referred to by
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Reproduced from the official India Code print for reference. Check the current text on India Code before you rely on it, and read the section alongside its Rules. Nothing here is legal advice.