Powers of Central Government to Remove Managerial Personnel on the Recommendation of CLB :
The powers of the Company Law Board to remove a director of a company are contained in Sections 388B to 388E of Companies Act, 1956.
(1) Reference of cases to the C.L.B.: The Central Government may state a case against any of the managerial personnel of a company and refer the case to the Company Law Board with a request that the Company Law Board may inquire into the case and record a finding whether or not he is fit and proper person to hold the office of director or any other office connected with the conduct and management of the company. The Central Government may exercise this power where in its opinion there are circumstances suggesting:
(i) that any person concerned in the conduct and management of the affairs of a company is or has been in connection there with guilty of fraud, misfeasance, persistent negligence or default in carrying out his obligations and functions under the law, or
(ii) that the business of a company is not or has not been conducted and managed by such person in accordance with sound business principles or prudent commercial practices; or
(iii) that a company is or has been conducted and managed by such person in a manner which is likely to cause, or has caused, serious injury or damage to the interest of the trade, industry or business to which such company pertains; or
(iv) that the business of a company is or has been conducted and managed by such person with intent to defraud its creditors, members or any other person or otherwise for a fraudulent or unlawful purpose or in a manner prejudicial to public interest [Section 388B(1)].
Every case under sub-section (1) shall be stated in the form of an application which shall be presented to the Company Law Board or such officer thereof as it may appoint in this behalf [Section 338B(2)].
The person against whom a case is referred to the Company Law Board under this section shall be joined as a respondent to the application [Section 388B(3)]. The application made to the C.L.B. must contain a concise statement of the circumstances and material as the Central Government may consider necessary for the purpose of the enquiry, and be signed and verified in the manner laid down in the Civil Procedure Code, 1908 for the signature and verification of a plaint in a suit by the Central Government [Section 388B(4)].
(2) Interim order by C.L.B.: The Company Law Board may, on the application of the Central Government, or on its own motion, by an interim order direct that the respondent shall not discharge any of the duties of his office until further orders of the Company Law Board; and appoint a suitable person in place of the respondent [Section 388C(1)]. Such appointee shall be deemed to be a public servant within the meaning of Section 21 of the Indian Penal Code [Section 388C(2)].
(3) Decision of the C.L.B.: At the conclusion of the hearing of the case the Company Law Board must record its findings (Section 388D). If the finding of the Company Law Board is against the respondent the Central Government, by order, shall remove him from office [Section 388E(1)]. The person against whom order of removal from office is made must not hold the office of a director or any other office connected with the conduct and management of affairs of the company for a period of 5 years from the date of the order of removal. The Central Government may, with the previous concurrence of the Company Law Board, remit or relax this period of 5 years [Section 388E(3)]. On the removal of a person from office in the above manner, no compensation in any circumstance whatever is payable to him for the loss or termination of office [Section 388E(4)]. The company may, with the previous approval of the Government, appoint another person to the office in place of the person removed [Section 388E(5)].