LEGAL PRINCIPLE: COMPANY LAW – Removal of Directors – Distinction between Removal as Director and Termination of Underlying Contract of Employment
PRINCIPLE STATEMENT
Removal from the office of director is distinct from termination of underlying employment contracts; director removal requires calling a general meeting and passing an ordinary resolution, while termination of employment as an officer (e.g., Special Assistant to Managing Director) can be effected by notice or payment in lieu of notice as per employment terms.
RATIO DECIDENDI (SOURCE)
"With regard to the removal of the appellant as Executive Director, it is Exhibit 12 that states that his appointment in that capacity was terminated with effect from 16th September, 1983... With respect, therefore, the Court of Appeal was in serious error when it held that the Appointment of the Appellant was lawfully terminated at will on his being offered 3 months' salary in lieu of notice. It is his appointment as Special Assistant to the Managing Director that requires and can be lawfully effected by such notice or payment in lieu of notice. Removal from the office of director in the absence of a provision in the Articles of Association or contract demands a different procedure which involves the calling of a general meeting and the passing of an ordinary resolution removing the appellant."
EXPLANATION / SCOPE
Directors often hold dual roles: (1) directorship (office under company law); and (2) employment position (managing director, executive officer). These are distinct legal relationships. Directorship is a corporate office governed by Companies Act and Articles of Association—removal requires shareholder resolution at general meeting. Employment is governed by employment contract—termination follows contractual terms (notice, payment in lieu). Terminating employment doesn’t automatically remove directorship; removing directorship doesn’t automatically terminate employment. Each requires separate procedures. A company cannot remove a director by simply giving employment termination notice and paying salary in lieu—proper corporate procedures must be followed. This protects directors from improper removal and ensures shareholder control over board composition.