TMI Blog2022 (5) TMI 537X X X X Extracts X X X X X X X X Extracts X X X X ..... he Companies Act, 2013 - HELD THAT:- A reading of provision of Section 169 makes it clear that to remove a director from the Company, the Company has to comply with the procedure prescribed under Section 169 of the Companies Act, 2013. As per Section 169(2), a special notice is required to remove a Director or to appoint somebody in place of a Director so removed, at a meeting at which he is removed. The Company shall forthwith send a copy thereof to the Director concerned, and the Director shall be entitled to be heard on the resolution at the meeting - the act of the shareholders in the matter of appointing or removing the directors of the company from the Board cannot be a subject matter of judicial scrutiny, since the right to appoint or remove directors is supreme as a part of the corporate democracy. Whether the removal of the Petitioners from the Directorship is oppressive or prejudicial to attract Section 241-242 of the Companies Act? - HELD THAT:- It is seen from the records that the removal of the Petitioner from the Directorship of the Respondent Company was done following all the mandatory requirements in accordance with law. There are no oppression and mismanagem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company, being 44.33% and 5.75% fully paid-up equity shares with a face value of Rs. 10 per share. The 1st Petitioner is the Chairman and Director of the 1st Respondent Company and the 2nd Petitioner is a director of the company. The authorized share capital of 1st Respondent Company is Rs.30 Lakhs (Thirty Lakhs) consisting of 3 Lakhs (Three Lakhs) equity shares of Rs.10 (Rupees Ten) only each. The 1st Respondent Company was incorporated in 2012 having CIN U51229KL2012PTC031106. The 1st Petitioner s DIN Number is 01626317 and the 2nd Petitioner s DIN Number is 07905507 respectively. The 1st Petitioner has been a member of the Board of the 1st Respondent Company since 11.12.2014 and the 2nd Petitioner is a member of the Board since 09.08.2017. 4. It is stated that the Petitioners along with the 2nd Respondent and their respective spouses were the sole members of the Board of the 1st Respondent Company. The Petitioners have been holding 51% of the shares in the company. The Petitioners and the 2nd and 3rd Respondents have been business partners for more than a decade and the Petitioners had full faith and trust in the 2nd and 3rd Respondents. In January 2021, some papers were for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the said notice, is seen that the 2nd respondent proposed to remove the Petitioners under Section 169(2) but no reason for the same is mentioned anywhere therein thus making the notice and resolution mentioned therein non-est in the eye of law. Further, no resolution was passed by the 1st respondent board resolving to remove the Petitioners. 6. It is stated that the Petitioners sent legal notices in response to the EOGM notice to the Respondent Company as well as to the 2nd and 3rd Respondents on 04.03.2021. In the notice sent to the respondent company, the Petitioners have strongly objected to the proposed resolution of removal of the Petitioners as directors of the company and requested them to keep in abeyance the EOGM proposed to be held on 18.03.2021 as it did not conform to Section 169(2) of the Companies Act, 2013. 7. It is stated that in the legal notice dated 06/03/2021 addressed to the Managing Director of the Respondent company (2nd respondent) the Petitioners have strongly objected to the resolution for removal of the petitioners as directors of the board of the company as it was illegal and was being done to take over the company illegally using coercive tact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Due procedure has not been followed in the present case in order to buy shares. It is further stated that for the transfer of shares there should have been a valuation done by a registered valuer and no valuation has been done till now to the knowledge of Petitioners. 11. It is stated that the Company Secretary has issued a certificate of DIR-12 MGT-14 without verifying the authenticity of the documents and based on the information given by the Respondents. The Petitioners have further stated that management informed him about the transfer of 150250 equity shares on 29th January 2021. Since the removal of directors and transfer of shares are distinct and separate acts, which have no bearing on one another. It is further stated that the acts done by the Respondents behind the Petitioners is an act of oppression and mismanagement and the 2nd and 3rd Respondents are acting against the interests of the 1st respondent company as well as against the Petitioners who are members of the 1st Respondent company. Submission by the Respondents 1 to 3. 12. The Respondent Nos. 1 to 3 have filed the reply statement and stated that as per Section 244 of the Companies Act, 2013, in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nship by transferring the shares held by the 1st Petitioner in the name of 2nd Respondent and the shares held by the 2nd Petitioner in the name of 3rd Respondent. Hence, the burden of loan repayment, including satisfaction of charges, was shifted to the shoulders of the 2nd and 3rd Respondents. It is also stated that the property of the 2nd Respondent is given as collateral security for the aforementioned loan of Rs. 90 Lakhs availed by the 1 st Respondent company. It is further stated that the Petitioners initially filed their resignation from the Board of the 1st Respondent company on 19.01.2021. Subsequently, the Petitioners affixed their signatures on the Share Transfer Deed (SH-4) dated 29.01.2021 at Thrissur, Kerala in the office of the Statutory Auditor of the 1st Respondent company. It is also stated that the Petitioners have not disputed the Share Transfer Deed (Form SH-4) in the Legal Notice dated 18.02.2021 or at any time till the filing of the present Company Petition. 15. It is further stated that the Share Transfer Deed in Form SH-4 was duly recorded in the minutes of the Board of the 1st Respondent company held on 29.01.2021. Subsequently, a separate letter conse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from Directorship by a Special Resolution in compliance with the provisions of Section 169 of the Companies Act, 2013. FINDINGS 19. We have heard Smt. Rema Smrithy V.K., the learned counsel for the Petitioners and Shri. Nebil Nizar the learned counsel for the Respondents 1 to 3 and perused the entire case records/documents. We did not get the opportunity to hear the 4th Respondent as he has not appeared and contested. We have also gone through the evidence on record. To arrive at a decision on the matter, we have framed the following issues: - i. Whether the Petitioners are eligible to maintain this Petition under Section 241-242? ii. Whether the removal of the Petitioners from the Directorship is illegal? iii. Whether the removal of the Petitioners from the Directorship is oppressive or prejudicial to attract Section 241-242 of the Companies Act? 20. Issue number (i):- In order to answer this issue, we have gone through the affidavit submitted by the 1st Petitioner. It is seen from the records that the 1st Petitioner was holding 44.33% fully paid-up share in the 1st Respondent Company and he has filed the affidavit on behalf of the 2nd Petitioner who wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e meeting is sent (whether before or after receipt of the representation by the company), and if a copy of the representation is not sent as aforesaid due to insufficient time or for the company s default, the director may without prejudice to his right to be heard orally require that the representation shall be read out at the meeting: Provided that a copy of the representation need not be sent out and the representation need not be read out at the meeting if, on the application either of the company or of any other person who claims to be aggrieved, the Tribunal is satisfied that the rights conferred by this sub-section are being abused to secure needless publicity for defamatory matter; and the Tribunal may order the company s costs on the application to be paid in whole or in part by the director notwithstanding that he is not a party to it. 22. A reading of the above provision makes it clear that to remove a director from the Company, the Company has to comply with the procedure prescribed under Section 169 of the Companies Act, 2013. As per Section 169(2), a special notice is required to remove a Director or to appoint somebody in place of a Director so removed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the manner of removal of a person from Directorship. Therefore, the accolades received by CPM from the Nomination and Remuneration Committee or the Board of Directors on 29.6.2016, cannot advance his case. 16.31 As we have pointed out above, the validity of and justification for the removal of a person can never be the primary focus of a Tribunal under Section 242 unless the same is in furtherance of a conduct oppressive or prejudicial to some of the members. In fact, the post of Executive Chairman is not statutorily recognised or regulated, though the post of a Director is. At the cost of repetition, it should be pointed out that CPM was removed only from the post of (or designation as) Executive Chairman and not from the post of Director till the Company Petition was filed. But CPM himself invited trouble, by declaring an all-out war, which led to his removal from Directorship 16.47 But it must be remembered that the origin of just and equitable clause is to be traced to the Law of Partnership which has developed, according to the House of Lords, the conceptions of probity, good faith and mutual confidence . Having said that, Ebrahimi pointed out that the reference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dismissed under Industrial Law seeking reinstatement by Labour or Industrial Tribunal; and (c) terminated in breach of a mandatory obligation imposed by statute by a statutory body. The Court observed: 17. On a consideration of the authorities mentioned above, it is, therefore, clear that a contract of personal service cannot ordinarily be specifically enforced and a court normally would not give a declaration that the contract subsists and the employee, even after having been removed from service can be deemed to be in service against the will and consent of the employer. This rule, however, is subject to three well recognised exceptions - (i) where a public servant is sought to be removed from service in contravention of the provisions of Article 311 of the Constitution of India; (ii) where a worker is sought to be reinstated on being dismissed under the Industrial Law; and (iii) where a statutory body acts in breach or violation of the mandatory provisions of the statute. 17.20 The position in law that a contract of personal services cannot be enforced by Court is a long-standing principle of law and cannot be displaced by the existence of any implied power, though ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dance with law or was not justified on facts, the Tribunal cannot grant a relief under Section 242 unless the removal was oppressive or prejudicial. 27. It is seen from the records that the removal of the Petitioner from the Directorship of the Respondent Company was done following all the mandatory requirements in accordance with law. We could not find any oppression and mismanagement in the Company, while doing so. Moreover, the contention of the petitioners regarding the share transfer cannot be accepted as they have affixed their signatures on the Share Transfer Deed (SH4) on 29.01.2021 at Trichur before the Statutory Auditor of the 1st Respondent Company which was not refuted by the Petitioners. 28. To sum up, after analysing the issues framed, we are of the considered opinion that one of the crucial rights which Companies Act, 2013 gives to the shareholders is the right to remove the Directors of the Company, if they are not acting in consonance with the Articles of Association of the Company, but only utilizing their powers for their benefits. Therefore, the said removal of the Petitioners from the Directorship is not an illegal act done against the Petitioners and the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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