Removal of directors_part-2

Right to remove Director is a legal right of Members

As per section 284 of the Companies Act, 1956, right of a shareholder to remove director in the general meeting through Ordinary Resolution is a Legal right. This Legal right cannot be damaged or taken away by MOA, AOA or any other document or agreement.

SOME IMPORTANT JUDGEMENTS WITH RESPECT TO SECTION 284

No need to give reason for removal of director

1. LIC of India v Escorts Ltd.

As per a milestone judgement given in LIC of India v Escorts Ltd. (1986) it was held that it is not necessary to give reasons in explanatory statement for removal of a director as desired by section 173(2). Reason behind this judgement given by the court was that the company is acting on the basis of a special notice given by the shareholder u/s 284 and it is not a resolution proposed by the company.

Only one member is enough to give special notice for removal

2. Karnataka Bank Ltd. v A.B. Datar

It was held by the High Court in Karnataka Bank Ltd. v A.B. Datar (1994) that under section 284 is an independent provision and special notice u/s 284 can be given by a single member irrespective of the number of shares and voting rights he holds.

Removal of director by the Central Government

Under section 388B to 388E, the CLB/Tribunal (power delegated to them) is empowered to remove a director after an enquiry.

Removal of director by CLB/Tribunal

Regarding oppression and mismanagement under section 397/398 the CLB/Tribunal has the power to reconstitute the Board of a company by removal of director.

1. After receiving Special Notice (not less than 14 days in advance of the desired meeting) from the member to remove director u/s 225, It is duty of the company to give immediate notice of the resolution to its members.

2. If is not possible for the company to give notice to all the members, company should publish the same notice advertisement in the newspaper having an appropriate circulation not less than 7 days before the meeting.

3. Due intimation must be given to the director regarding the removal notice. Right of such director to be heard on the resolution should be taken care of.

4. As per section 225(4), director also possess the right to make a representation in writing against his removal and request the company to notify it to the company's members.

5. If the representation could not be sent to the members because it was received too late or because of company’s default in sending it, the company must read out the representation at the general meeting.

6. Now it is duty of the company to hold a General Meeting to discuss the matters and pass a ordinary resolution to remove the director.

7. File form-32with the ROC within 30 days of passing the resolution.

Please treat Section 284 is an independent section…….

There are few decisions of Indian courts regarding compliance of section 188 as procedural section with section 284. But based on contrary decisions here I would like to say that Section 284 is an independent provision providing for removal of directors and it is available to any shareholder to remove a director in meetings called by the company and there is nothing to insist on compliance with the provisions in section 188(2) to call a meeting to move a resolution.

Thus, where on receiving notice for general meeting two shareholders gave separate notice to company intending to move resolution under section 284 for removal of some of the directors, and the company gave notice to shareholders of the notice through advertisement in newspaper, it was held that compliance of sec-tion 188 was not necessary. [Karnataka Bank Ltd. v A.B. Datar (1994).

Sincerely hope that the above short Article would clear all your doubts regarding removal of director.

Best Regards

Ankur Garg

February 2012-Month of New CCI’ites !!!