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Ankur Garg (Company Secretary and Compliance Officer)     11 February 2012

Removal of directors_part-2

REMOVAL OF DIRECTOR

 

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.

 

 

  KHETAN INDUSTRIES PRIVATE LIMITED VS. MANJU RAVINDRA PRASAD KHETAN

 

In this case it was held by the court that the shareholders have a right to remove the directors under section 284 by passing ordinary resolution and section 284 provides an inbuilt mechanism for the enforcement of the right and civil court has no jurisdiction to entertain the suit for removal of director. 

 

 

 

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

 

  1. 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.

 

Practical procedure for 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.

 

  1. 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.

 

  1. 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.

 

  1. 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.

 

  1. 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.

 

  1. 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.

 

  1. 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 !!!



 22 Replies

Ankur Garg

Ankur Garg (Company Secretary and Compliance Officer)     11 February 2012

The above article is in continuation of my newly started series. For more information and reading the First part kindly check the link below:

 

 

IF AUDITOR REFUSES TO ACCEPT APPOINTMENT-PART-1

 

 

Thanks

Ankur

8 Like

(Guest)

Thankyou Ankur sir, for notes and even judgements, this helps me to get the concept easily.. Thankyou

CS,CA F,Numrologi TusharSampat

CS,CA F,Numrologi TusharSampat (CS CA F Numerologist Astrologer Graphologist Face reader Vastu Expert)     11 February 2012

Thank u sir for sharing ur knowledge wit us......

CS Rajveer Rai, Gurgaon

CS Rajveer Rai, Gurgaon (CS)     11 February 2012

Sir your all posts give new things to learn always...keep it on..sir by mistake you have mentioned notice u/s 225 instead 284 however there is no procedural difference except no. of section.

STUDENT

STUDENT (student)     11 February 2012

Thanks sir,

Really useful for me

Charu Srivastava

Charu Srivastava (Company Secretary)     11 February 2012

Thanks for the article.....

 

Ankur Garg

Ankur Garg (Company Secretary and Compliance Officer)     11 February 2012

Originally posted by : CS Rajveer Rai, Gurgaon

Sir your all posts give new things to learn always...keep it on..sir by mistake you have mentioned notice u/s 225 instead 284 however there is no procedural difference except no. of section.

 

No Rajveer bhai…it is fine.

 

Kindly appreciate we are using the procedure mentioned u/s 225 for removal of director u/s 284. Section 225 talks about the requirement of special notice for removal of director u/s 284.

 

In section 284 there is no procedure given for removal of director. But with the help of various case laws it is now established that for removal of director u/s 284 we have to follow the procedure given in section 225.

 

Same procedure given in section 225 is also applicable for removal of Auditor u/s 224(6).

 

I hope now the picture is clear.

 

Regards

 

4 Like
Hardik Dave

Hardik Dave (IPCC and CS Professional(FINAL) Student)     11 February 2012

Bookmarked. .Realy wonderful and helpful article Ankur sir.smile. Thanku for sharing.
CS Ankur Srivastava

CS Ankur Srivastava (Company Secretary & Compliance Officer)     11 February 2012

Ankur ji,

 

Asusual a very imformative and complete article... Nice sharing...

CS Rajveer Rai, Gurgaon

CS Rajveer Rai, Gurgaon (CS)     11 February 2012

Thank you sir i got it. Learnt one more thing.....Really you are our package of knowledge...keep delivering it.

2 Like
sivaram

sivaram (Asst Mgr-Taxation)     11 February 2012

Ankurji bookmarked

 *RENU SINGH *

*RENU SINGH * (✩ §m!ℓ!ñġ €ม€§ fℓม!ñġ ђ♪gђ✩ )     11 February 2012

thanks a lot Sir. It was a new topic for me. I am little uncertain about somethings in this article......M unable to understand the logic behind that. Plz clarify .... 1. An ordinary resolution to remove director<<<< Normally we take spl resolution in such case na. Then what's the logic behind it. 2. You had reffered case laws with their year....Y ?? Didn't got the logic.. Plz ignore formatting mistakes, I m on cel ....so can't format :(
 *RENU SINGH *

*RENU SINGH * (✩ §m!ℓ!ñġ €ม€§ fℓม!ñġ ђ♪gђ✩ )     11 February 2012

Normally we take spl resolution in such case ...I mean ki where we have to take decision we take majority rule like in reduction of capital(Section 100). so y not special resolution while removing the directors....plz clarify.
Ankur Garg

Ankur Garg (Company Secretary and Compliance Officer)     11 February 2012

In company law a settled position is go ahead with ordinary resolution where special resolution is not asked for. Same is applicable to section 284. Further as far as logic behind O.R. is concerned there is no specific logic and it is just a position fixed by legislature (Law makers). As per my personal thinking – directors are appointed by members. Hence members have all the right to remove them without much obstacles. This is the mail reason and logic behind civil court has no jurisdiction to entertain the suit for removal of director.  

 

Further there is no logic behind mentioning year with case law. Year here means the year in which the decision fixed by court.

 

Regards


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