Section 167: when a director’s office becomes vacant

Introduction

Section 167(1) lists eight grounds on which a director’s office becomes vacant. A director who knowingly continues to act after the office has become vacant is punishable with fine of not less than one lakh rupees, which may extend to five lakh rupees. If all directors vacate office, the promoter or, in the promoter’s absence, the Central Government appoints directors. A private company may add grounds in its articles.

Three amendments apply. From 7 May 2018, section 54 of the Companies (Amendment) Act, 2017 added a proviso to clause (a) for section 164(2) disqualifications and replaced the proviso to clause (f). From 21 December 2020, section 34 of the Companies (Amendment) Act, 2020 removed imprisonment from sub-section (2).

Key takeaways

Grounds of vacation

The office becomes vacant if the director: (a) incurs a disqualification in section 164; (b) is absent from all Board meetings held during twelve months, with or without leave; (c) acts in contravention of section 184 on contracts or arrangements in which they are interested; (d) fails to disclose such an interest in contravention of section 184; (e) is disqualified by an order of a court or the Tribunal; (f) is convicted of an offence and sentenced to imprisonment for not less than six months; (g) is removed under the Act; or (h) was appointed because of an office or employment in the holding, subsidiary or associate company and ceases to hold it.

Since 7 May 2018, under the proviso to clause (a), a director who incurs disqualification under section 164(2) vacates office in all companies other than the company in default under that sub-section.

• India Code — consolidated Companies Act, 2013, section 167
• eGazette — MCA notification S.O. 902(E), 26 March 2014 (commencement from 1 April 2014)
• eGazette — Companies (Amendment) Act, 2017 (No. 1 of 2018)
• eGazette — MCA notification S.O. 1833(E), 7 May 2018 (commencement of Act 1 of 2018 provisions)
• eGazette — Companies (Amendment) Act, 2020 (No. 29 of 2020)
• eGazette — MCA notification S.O. 4646(E), 21 December 2020 (commencement of Act 29 of 2020 provisions)

Timing for court orders and convictions

The proviso to clause (f), substituted from 7 May 2018, defers vacation in cases under clauses (e) and (f): for thirty days from the conviction or order; where an appeal or petition is filed within those thirty days, until seven days after it is disposed of; and where a further appeal or petition is filed within seven days, until that is disposed of. The earlier proviso said the office was vacated even if an appeal had been filed.

Acting after vacation

Under sub-section (2), a person who functions as a director knowing the office has become vacant on any of these grounds is punishable with fine of not less than one lakh rupees, which may extend to five lakh rupees. Section 34 of the Companies (Amendment) Act, 2020 (in force from 21 December 2020 under S.O. 4646(E)) removed the alternative of imprisonment for up to one year.

All directors vacating; private company grounds

If all directors vacate office under sub-section (1), the promoter or, in the promoter’s absence, the Central Government appoints the required number of directors, who hold office until the company appoints directors in general meeting. A private company may provide additional grounds of vacation in its articles under sub-section (4).

Practical preparation

Track each director’s attendance over rolling twelve-month periods; monitor section 164 disqualifications and section 184 disclosures; on a conviction or court order, diarise the thirty-day and appeal-linked dates; for a private company, check the articles for extra grounds; update Board records and Registrar filings when an office falls vacant.

Practical checklist

Glossary

Vacation of office

The automatic ending of a director’s office on a ground in section 167.

Company in default

For the clause (a) proviso, the company whose default caused the section 164(2) disqualification.

Frequently asked questions