Vacation of office by Directors and Leave of Absence

[csarengarajan]

Vacation of office by Directors:

 

subsection (1) of Section 283  provides  vacation of  office by directors and the office of director vacant  shall become vacant under the following circumstances

 

a)  fails obtain qualification shares  within the time specified  in sub section (1) of Section 270 and if any requirement as per articles of association of the company

 

b)  he is found to be  unsound mind  by a court of competent jurisdicition

 

c)  he applies to be adjudicated an insolvent

 

d)  he is adjudged  as insolvent

 

e)   he is convicted by a court  of any court involving  moral turpitude  and sentenced thereof  to imprisonment for not less than six months

 

f)  fails to pay  any call in respect of shares of the company

 

g)  absents  himself  from  three consequentive  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

 

h) he acts in contravention of section 295 of the companies act to obtain loan

 

i)  he acts in contravention of section 299 of the companies act

 

j) he becomes  disqualified  by an order  of Court  under Section 203 of the companies act

 

l)  having been appointed  a director  by virtue of his holding  any office or other employment in the company he ceases to hold such office or other employment in the company

 

k)  he is removed  in pursuance of section 284

 

Vaction under sub clause (g) of sub section (1)  of Section 283 of the companies act 1956

 

In Ganapathy Mudaliar (S.T.)  v Pandurangan (S G) 1999 Comp case 919 (CLB)  (1999)  in this case that if notices  of Board meetings are not sent  to the address  of a director  where he was residing and the director could not attend  the meetings, the removal ( consequent vacation office under section 283 )  is invalid  and also amount to oppression.

 

In Senthamarai Munusamay (mrs) v Microparticle Engineers Pvt Ltd (2001) 105 comp case 526 CLB (2000)  , the CLB suggested that  where any member  of the Board  denies receipt of notice of Board meetings which was sent by certificate of posting. it will be prudent  for the company  to have the notice  sent by registered post with acknowledgment due.

 

 

In recent case  Ketki Reserach Institute  of Medical Sciences Ltd  vr  Dr.Ashok P Arbat (2008) 144  Comp case 663 Bom, the petitioner filed an appeal under section 397 and 398 of the companies act, 1956 that he  was illegally removed from the post Chairman cum managing director  of the company.  The Company law board heard both sides and found that  there was neither  proof of service  of notice  at the registered address nor acknowledgment of receipt of notice to the petitioner for attending the board meeting. In the absence  proper service of notice to the director to attend Board meetings and  his absence  could not be said to be voluntary and such person cannot  incur  any disqualification under Section 283 (1)  (g) of the Companies Act.,1956

 

The company preferred an appeal to the High court against CLB order and after hearing both sides, the High court also  gave its judgment in favour of founder Director that neither proof of service of notice nor acknowledgement of receipt of notice by the company. The company unable to prove its position that proper notice was served to the petitioner. In view of the above, the  removal of director is illegal and he will reinstated with immediate effect

 

Conclusion:  To convene a Board meeting, there should be proper notice to be served to the Directors where they are residing and proper acknowledgment to be obtained.  This will avoid  for various issues.  Notices to be served in accordance with Sub section (1) of Section 286 is essential . 

 

If the articles of association of the company prescribes  the manner of sending  the notice or in any other manner, it should be strictly adhered in order to avoid conflict.

 

 

Regards

 

[bhargavi k]

Dear members,

 

After going thru the above judgement, I have a query.

 

As per the judgement by the High Court, the conclusion drawn is - "To convene a Board meeting, there should be proper notice to be served to the Directors where they are residing and proper acknowledgment to be obtained.  This will avoid  for various issues.  Notices to be served in accordance with Sub section (1) of Section 286 is essential ."

 

Considering this, can we also conclude that the Board Meetings held  were void and all decisions taken and resolutions passed at such meetings are invalid and shall not hold good?

 

Further if such meetings are considered invalid, would it not amount to non compliance of Section 285. 

 

Members views invited.

 

--
Regards
Bhargavi
 

[csarengarajan]

Dear members

 

In this case it has been informed that the founder director continuously not attended  three board meetings and that is why he has removed under section 283 (1) (g)  of the Companies Act, 1956. It has been proved that he has not received proper notice . We need to analysis consequence of non serving of notice to director. It will also affect the proceedings of the board meetings.

 

In one case  Prabhu dayal chitlangia vs  Trinity  Combine Associates Pvt Ltd  (2000)  99 comp case  " it is well settled  that notice  of a Board meeting  must be given  to all the directors, otherwise proceedings of the meeting and the resolutions passed  threat may be declared  invalid by the court of law, when challenged on the ground  of absence  or inadequacy of the notice. Exclusion of a director  from the board meeting by not giving him notice of the meeting may constitute an act of oppression of minority, particularly in the case of private company  which is run on the partnership principles.

 

We need to debate on the issue. The various court judgments are there.

 

Membes view solicited.

 

regards