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Unit 10: Management of Company

joined as a respondent to the application. The application should contain a concise statement of Notes
such circumstances and materials as the Central Government may consider necessary for purpose
of inquiry to be made by the CLB. The application must be signed and verified in the same
manner as a complaint in a suit by the Central Government under the Code of Civil Procedure.
Thereafter, the CLB will hear the case against the respondent. At any stage of the proceedings,
the CLB may allow the Central Government to alter or amend the application in such a manner
and on such terms as may be just and all such alterations and amendments shall be made as may
be necessary for the purpose of determining the real question in the inquiry (s.388B).
If during the pendency of the case the CLB finds it necessary, in the interest of the members or
creditors of the company, it may, either on the application of the Central Government or of its
own motion, direct that the respondent shall not discharge any of the duties of his office until
further orders and appoint in his place another suitable person to discharge the duties of the
respondent. This person, who is temporarily appointed to discharge the duties in place of the
respondent will be regarded as a public servant within the meaning of s.21 of the Indian Penal
Code (s.388C).
At the conclusion of the hearing of the case, the CLB shall record its findings, stating therein
specifically as to whether or not respondent 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
(s.388-D).
On the basis of the aforesaid findings, the Central Government may, by order, notwithstanding
any other provisions contained in the Act, remove the delinquent respondent from his office
(s.388E(1)).
An order under s.388E must not be passed against any person unless he has been given a
reasonable opportunity to show cause against the order. However, no matter can be raised by
such a person before the Central Government, which has already been decided by the CLB
(s.388E(2) and proviso thereto).
After the delinquent person has been, by order, removed, he shall neither hold any office for a
period of 5 years from the date of the order of removal nor will he be paid any compensation for
loss of office as a result of removal. The time-limit may, however, be relaxed by the Central
Government with the previous concurrence of the CLB, and the Central Government may
accordingly permit such person to hold the office of a director or any other office connected with
the conduct and management of the affairs of the company even before the expiry of the period
of 5 years. On the removal of the person, the company may, with previous approval of the
Central Government, appoint another person to that office in accordance with the provisions of
the Act.

10.10.3 Removal by Company Law Board

Section 402(b) empowers the CLB to remove some managerial personnel when an application to
it is made for prevention of oppression and mismanagement under Ss. 397 and 398. Under this
section, if the CLB finds that, the relief ought to be granted, it may terminate, set aside or modify
any agreement between the company and the managing director or any other director or the
manager. When appointment of a managerial personnel is so terminated or set aside, he can
neither sue the company for damages or compensation for the loss of office, nor can he be
appointed, except with the leave of the CLB, in any managerial capacity in the company for a
period of 5 years from the date of the order terminating or setting aside his contract with the
company. Also the removed director shall not be entitled to claim any compensation from the
company for loss of his office.

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