Stalemate in management

Dear Mr. Harji,

Constant infighting provides jurisdiction to CLB under section 397/398. If the directors keep on fighting, then, the interests of the shareholders or the Company will be at stake. When the disputes become irreconcilable, the litigation comes to Court and the aggrieved director or his group can either approach a Civil Court, Company Court on just and equitable clause or can even approach the Company Law Board under section 397/398 of the Companies Act, 1956. If the director or his group is qualified under section 399 of the Act, normally the Company Court may feel that the issues are to be settled by the Company Law Board under section 397/398 of the Companies Act, 1956. There should be oppression and mismanagement by a group of shareholders against other for approaching the CLB under section 397/398 of the Companies Act, 1956. But, the constant infighting too provides jurisdiction to the CLB to look into the disputes if a petition is filed. Dealing with the issue of constant infighting, the Delhi High Court in Chander Krishan Gupta vs Pannalal Girdhari Lal Pvt. Ltd. And Ors, 1984 55 Comp Cas 702 Delhi, 1982 (3) DRJ 295, was pleased to observe that: “(10) Section 398 has two facts. The first is that positive acts are done by the management which results in prejudice being caused to the company. Secondly section 398 may be attracted even where no action at all is taken by the management and such non action results in prejudice being caused to the company. The management of the company has miserably failed in protecting the Company's records and this failure results in prejudice being caused to the company. Moreover, the constant fight amongst the directors who were also the shareholders of the company had certainly adverse effect on the conduct of the company's business with the result that the company started incurring losses. To my mind, therefore, this by itself would justify appropriate orders being passed under section 398 of the Act.”

Directors’ dispute resolution would be complicated. When there exist serious disputes between or among directors or their groups, dispute resolution is not easy and its complicated exercise. If the issues of directorship are to be decided by the CLB under section 397/398 of Companies Act, 1956, the CLB may consider plethora of issues while passing appropriate orders and the CLB is normally driven by the object that it should put an end to the matters complained of and regulating the affairs of the Company. CLB may not look into the procedural irregularities at times in view of other facts and may look into the technicalities strictly at times. Despite the prevalent majority rule, the CLB may appoint someone as director even against the wish and will of majority shareholders in the Company. In view of the fact that actual power is exercised by the Directors in any Company, a dispute among shareholders will have an inevitable reference to the action or inaction of the directors of the Company.

So, Mr. Harji, the decision now rests with you. My personal advice to you is to settle the matter amicably.

Regards,

Veeral Gandhi

There are two steps which are required to be done 

Firstly call Board meeting and appoint Additional Director so that accounts can be finalised and other business operations can be done properly.

Secondly, she (director who is not attending BM) can be removed as director of the company under section 283 (1)(g) of the Companies Act, 1956 if she absents herself from three consecutive meetings of the Board of directors, or from all meetings of the Board for a continuous period of three months, whichever is longer, without obtaining leave of absence from the Board, she can be removed as director of the Company.

 Proper notice of Board Meerting is required to be given to all the directors. 

Dear Madam, Please appreciate that there is only one director besides the unco-operative director. So, how can an additional director be appointed or a Proper Notice could be sent  -  by one director ?

I, Agree with the view of Mr. Sharma, appointment cannot be done in Board Meeting as quoram is not present but for appointing new Director, Shareholder can make requisition under section 169 of Companies Act, 1956. As your Director is holding 55% share, he can make requisition to Company for calling EGM as Shareholder of the Company.

As mentioned in Section  169(6) If the Board does not, within twenty-one days from the date of the deposit of a valid requisition in regard to any matters, proceed duly to call a meeting for the consideration of those matters on a day not later than forty-five days from the date of the deposit of the requisition, the meeting may be called  by the requisitionists themselves.

In EGM Director can be appointed.

But Madam, please appreciate that there are only 2 shareholders, out of which 1 is the dissident female director. The only shareholder remaining is the male director. How can the decision be made by the single shareholder in the EGM, who is himself a director ?

So Madam, In the light of this situation, the first reply to this post is the most correct way out of the situation.

Dear Mr. Sharma 

As mentioned in Section 169 (4) The number of members entitled to requisition a meeting in regard to any matter shall be, not less than one-tenth of such of the paid-up capital of the company. It has nothing to do with Number of shareholders.

Secondly a person as Director and Shreholder both have distinct identity. He can make requision as member of the Company. Votes are counted on the basis of number of shares not on basis of number of shareholders even 1 person holding 75% shares in a Company can pass SR in case of Shareholders Meeting.
 

Dear Learned Members,

In this case even Genearal Meeting can not be held, due to quorum.

Originally posted by : CS Ankur Srivastava
	Dear Learned Members,   In this case even Genearal Meeting can not be held, due to quorum.

Exactly, Smritiji, even in case of an EGM called by requisition by members, Quorum is very much required like in the case of an AGM.

In such case only one possible solution is there.

Regulation 75 of Table A will apply.

"In case the number of director reduce below the quorum fixed by the Act for a meeting of the Board, the Continuing Directors or Director shall act for the purpose of increasing hte number of directors to that fixed quorum, or of summoning a general meeting of hte Company, but for no other purpose."

The only director shall call the meeting to order and appoint an additional director only for the purpose of quorum then after act accordingly.

Originally posted by : CS Ankur Srivastava
	In such case only one possible solution is there.   Regulation 75 of Table A will apply.   "In case the number of director reduce below the quorum fixed by the Act for a meeting of the Board, the Continuing Directors or Director shall act for the purpose of increasing hte number of directors to that fixed quorum, or of summoning a general meeting of hte Company, but for no other purpose."   The only director shall call the meeting to order and appoint an additional director only for the purpose of quorum then after act accordingly.

Sir, even increasing the number of directors to make up the quorum in a board meeting in order to decide for a general meeting, is not the ultimate solution to solve the crises. After all, when the general meeting is finally called, the quorum again will be not there, as the lady member will not be there to take the decision, leaving the general meeting with just 1 male member. Hence, the first reply of this post is the only possible way out of the crises.

Any way, Reg 75 of Table A is applicable only in case of vacancy caused by death, resignation or insolvency and not to absence of dissident director in the meeting.

Dear Sharma ji,

When additional director has been appointed by the Board the quorum will be there in Board Meeting and the accordingly every act can be done...

New directors may be appointed, she can be removed from the Board of directos under section 283, the director can transfer his shares to his relative and make him shareholder.

But Sir, as per Sec 284(1), a director can be removed only in a general meeting by passing an ordinary resolution by members. For passing any resolution in such a meeting, a requsite quorum should be there. Further, the lady member referred to in the query is very uncooperative. She would not even transfer her shares to the male member. So, in my opinion, the first reply (indicating legal proceedings against the diffident member)  is the only possible way out.