Page 169 - DCOM106_COMPANY_LAW

Company Law

Notes
Example: The shareholders of X Co. Ltd. sought to remove a director at a meeting. The
concerned director alleged that this could not be done as no special notice was given to pass a
resolution to remove him. As such he was deprived of his right to make a representation. The
shareholders’ contention that the sending of the special notice and the right of the director to
make a representation were only a formality was not tenable. [Queen Kuries and Loans (P) Ltd.
v. Sheena Jose, (1993) 76 Comp. Cas 821 Ker]. The contention of the director was held to be
correct.

Example: If in the above example, one shareholder holding ten equity shares of 10 each
fully paid up had given a special notice for the removal of the director, but did not state any
reasons for the removal. Even in such a case, the director cannot be removed, as the disclosure of
the ground for removal is a matter of substance and not of form because the director concerned
is entitled to make a representation in writing against his removal. How can he make the
representation, if he does not know the reasons of his removal.
10.10.2 Removal by the Central Government

The provisions of s. 203 and s. 204 prohibit certain persons from acting or being appointed as
directors, and provide for their removal only if they were convicted for offences involving
moral turpitude. In all those cases, conviction or finding of guilt by the court is the prerequisite
for bringing about vacation of office. Strict proof of guilt in a criminal case is essential and very
often such persons may go scot-free in spite of malpractices. The findings of the CLB will enable
the Central Government to take quick action against persons involved in cases of fraud, etc. For
this purpose, s.388B to 388E have been inserted in the Act.
Under s.388B, the Central Government has the power to make a reference to the CLB against any
managerial personnel. The power can be exercised where, in the opinion of the Central
Government, there are circumstances suggesting:
1. At the personal level, that any person concerned in the conduct and management of the
affairs of a company is or has been guilty of fraud, misfeasance, persistent negligence of
default in carrying out his obligations and functions under the law, or breach of trust in
connection therewith; or
2. At the company level. that the business of the company is not or has not been conducted
and managed by such person in accordance with sound business principles or prudent
commercial practices; or
3. At the industry level, that the business of the company is or has been conducted or managed
by such person in a manner which is likely to cause or has in fact caused, serious injury or
damage to the interest of trade, industry or business to which such company pertains; or
4. At the community level, that the business of the company is or has been conducted and
managed by such person with an intent to defraud its creditors, members, or any other
person or otherwise for a fraudulent or unlawful purpose or in a manner prejudicial to
public interest.
The reference may be made by stating a case against the person aforesaid, with a request that, the
CLB may inquire into the case, record finding as to whether or not such person is a fit and proper
person to hold the office of director or any other office connected with the conduct and management
of any company.
The statement of the case by the Central Government should be in the form of an application
presented to the CLB and the person against whom such case is stated and referred should be

164 LOVELY PROFESSIONAL UNIVERSITY