Many people consider the position of power and glory that comes with being made a director. Nevertheless, only a handful of directors understand that according to Indian company law, their position can be taken away from them ipso facto, without any recourse to a formal removal procedure. This is the subject matter of Section 167 of the Companies Act, 2013.
167 is a harsh, merciless and abrupt provision in this regard. It specifies the situations in which the director’s office is considered to be vacant, sometimes unexpectedly and sometimes without a second opportunity. In the event that a director brings about such a situation, the law does not wait for board resolutions or shareholder approval. The director’s office is vacated by operation of law.
Understanding this provision is critical not just for directors, but also for companies that want to stay compliant and avoid governance risks.
What Is Section 167 of the Companies Act, 2013?
Section 167 of the Companies Act, 2013 deals with the vacation of office of directors. In simple terms, it specifies the situations where the office of a director shall become vacant automatically.
In contrast to removal under Section 169, which is a process that requires shareholders & formalities, Section 167 operates immediately. The legislation is very clear in this case, if a director is disqualified or violated in any of the enumerated instances, then the director's position is automatically vacated."
This section exists to ensure that individuals who are unfit, inactive, conflicted, or legally disqualified do not continue to occupy key decision-making roles within a company.
Vacation of Office of Director: Automatic by Law
One of the most important features of Section 167 is that it causes automatic vacation of office. This means:
⦁ No board meeting is required
⦁ No shareholder resolution is needed"
⦁ No separate order is necessary
The moment a director falls under any disqualification mentioned in Section 167, the office stands vacated by default. The company merely records the fact; it does not create it.
This makes compliance extremely sensitive, especially for directors holding positions in multiple companies.
Also Read: The Tax Rule That Decides Rates for Partnership Firms & AOPs
Disqualification Under Section 164 and Section 167
The most common trigger under Section 167 of Companies Act, 2013 is incurring a disqualification under Section 164.
If a director becomes disqualified due to:
⦁ Non-filing of financial statements or annual returns
⦁ Failure to repay deposits, debentures, or declared dividends
⦁ Conviction for certain offences
Then the office of a director shall become vacant in all companies other than the defaulting company, subject to legal interpretation & amendments.
This provision ensures that habitual defaulters cannot continue to sit on boards unchecked.
Absence from Board Meetings for 12 Months
Another critical ground that causes automatic vacation of office is continuous absence.
If a director is absent from all board meetings for a period of twelve months, with or without leave of absence, the office becomes vacant under Section 167.
This provision ensures that directors remain active participants in governance rather than mere name-lenders or symbolic appointments. Passive directorship is not tolerated under the Companies Act.
Contravention of Section 184: Conflict of Interest
Section 167 also applies when a director contravenes Section 184, which deals with disclosure of interest.
If a director:
⦁ Fails to disclose interest in contracts or arrangements
⦁ Participates in meetings despite being interested
⦁ Votes on matters where conflict exists
Then such contravention can result in vacation of office of director. Transparency & integrity are the backbone of corporate governance, & this provision enforces that principle strictly.
Conviction and Imprisonment
A director’s office also becomes vacant if they are:
⦁ Convicted of an offence
⦁ Sentenced to imprisonment for not less than six months
The moment the conviction is effective, Section 167 of the Companies Act, 2013 steps in. The law does not wait for appeals or internal deliberations unless a stay is granted by a competent court.
This ensures that individuals facing serious criminal liability do not continue influencing corporate decisions.
Disqualification by Court or Tribunal
If a director is disqualified by an order of a court or tribunal, their office shall become vacant immediately.
This provision respects judicial authority and ensures that corporate governance aligns with legal accountability. Companies must monitor such orders closely, especially in cases involving insolvency, fraud, or mismanagement.
Why Section 167 Is a Governance Safeguard
The real objective behind Section 167 of Companies Act, 2013 is not punishment but protection.
It protects:
⦁ Shareholders from inactive or disqualified directors
⦁ Companies from regulatory exposure
⦁ The corporate ecosystem from governance abuse
By making vacation of office automatic, the law removes discretion & eliminates delays that could otherwise be exploited.
Practical Compliance for Companies
Companies must:
⦁ Regularly monitor director disqualifications
⦁ Track board meeting attendance
⦁ Ensure proper disclosures under Section 184
⦁ Update statutory registers promptly
⦁ File necessary forms with the Registrar of Companies
Failure to act timely can lead to additional penalties & compliance complications.
Impact on Directors: Why Awareness Is Critical
Many directors lose their position not because of misconduct, but because of lack of awareness. Missing meetings, ignoring disclosures, or assuming appeals will protect them often leads to sudden vacation of office.
Section 167 leaves little room for ignorance. Every director must actively ensure continuous compliance to avoid unintentional exit from office.
Final Thoughts: One Mistake Can End a Directorship
Section 167 of the Companies Act, 2013 is clear, sharp, & uncompromising. It deals squarely with the circumstances under which a director’s office can be vacated & ensures accountability at the highest level of management.
For companies, it is a governance shield. For directors, it is a constant reminder that responsibility comes with consequences.
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