Page 294 - DMGT407Corporate and Business Laws

Unit 12: Management of Companies

become vacant on account of any of the disqualifications specified in (i) to (xi), he shall be Notes
punishable with fine up to ` 500 for every day during the period he so functions.
8. Removal of Directors. A director may be removed under S.284, or 388B-E.

Removal by shareholders. Section 284 provides that company may by ordinary resolution
passed in general meeting after special notice, remove a director before the expiry of his
term of office. But the following directors cannot be removed by the company in general
meeting: (i) a director appointed by the Central Government under s.408; (ii) a director of
a private company holding office for life on April 1, 1952; (iii) director elected by the
principle of proportional representation under s.265.
On receipt of the special notice, the company must forthwith send a copy thereof to the
director concerned to enable him to make a representation. If he makes a representation in
writing and requests the company to notify it to the members, the company must, unless
it is received by it too late for it to send to the members, state the fact of the representation
in any notice of the resolution given to the members. It should also send a copy of the
representation to every member of the company to whom notice of the meeting is sent. If
the representation is not sent as aforesaid the company must at the instance of the director
concerned read it out at the meeting. The director is also entitled to be heard on the
resolution at the meeting.

The vacancy caused by the removal of a director may be filled at the same meeting and if
so filled, person appointed thereto will only hold office for the residue period of the
removed director. If the vacancy is not filled by the company in general meeting, the
Board of Directors may fill it as if it were a casual vacancy in accordance with s.262, but the
Board cannot appoint the removed director.
Removal by Central Government. The provisions of Ss.203 and 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 finding of the Tribunal will enable the Central Government
to take quick action against persons involved in cases of fraud, etc. For this purpose a
Chapter IV-A and Ss.388B to 388E have been inserted in the Act.

Under s.388B, the Central Government has the power to make a reference to the Company
Law Board against any managerial personnel. The power can be exercised where, in the
opinion of the Central Government, there are circumstance suggesting:
(a) the 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

(b) 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
(c) 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

(d) 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

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