2007 (7) TMI 404 - HC - Companies Law

Removal of Directors - Whether the removal of the plaintiff from the directorship of defendant No. 1 company is illegal, as alleged in the plaint? - Held that - It is not in dispute that the plaintiff is a rotational director. Article 112(h) provides that both UPSIDC and the co-promoters shall have the right to remove or withdraw their nominees from the board of directors and further have a right to provide substitutes thereof. It is in furtherance of this power that the co-promoters have exercised their rights in the present case and sought to withdraw the plaintiff as a director nominated by them. Thus of the considered view that the co-promoters were well within their rights to have issued the letter dated 11-6-1993, whereby they sought to withdraw the nomination of the plaintiff as director of the co-promoters. Such nomination is not in the realm of nomination by the Central Government under section 408 of the said Act but the exception to section 284 of the said Act would also arise where articles provide to the contrary. The present case is one where there is such provision in the articles. Thus the discussion resulting in the decision taken on 29-6-1993, whereby the plaintiff was removed from the board of directors cannot be faulted. The issue is answered against the plaintiff.

Summary

Issues Involved:
1. Whether the removal of the plaintiff from the directorship of defendant No. 1 company is illegal.
2. If issue No. 1 is proved in the affirmative, to what relief, if any, is the plaintiff entitled?

Issue-wise Detailed Analysis:

1. Whether the removal of the plaintiff from the directorship of defendant No. 1 company is illegal:

The plaintiff, an erstwhile director of defendant No. 1, sought a declaration and permanent injunction against his removal as a director. He claimed that his removal by the co-promoters was ultra vires and contrary to the provisions of section 284 of the Companies Act, 1956, which mandates that a director can only be removed by an ordinary resolution passed in a shareholders' meeting following a special notice given fourteen days in advance.

The defendants argued that the plaintiff was merely a nominee of the co-promoters and could be removed without adhering to section 284, as per the agreements with UPSIDC and the company's articles of association. They contended that the articles allowed the co-promoters to withdraw their nominees from the board of directors.

The court examined the articles of association, specifically article 112, which allowed the co-promoters to remove their nominees from the board. It was determined that the plaintiff, as a rotational director nominated by the co-promoters, could be removed by them without the need for a shareholders' meeting. The court referenced a Division Bench judgment of the Allahabad High Court in A.K. Home Chaudhary v. National Textile Corporation (U.P.) Ltd., which stated that section 284 does not prohibit the removal of a director in accordance with the articles of association.

The court concluded that the co-promoters were within their rights to withdraw the plaintiff's nomination as a director, and the removal was valid as per the articles of association. Therefore, the plaintiff's removal was not illegal.

2. If issue No. 1 is proved in the affirmative, to what relief, if any, is the plaintiff entitled:

Since issue No. 1 was decided against the plaintiff, there was no question of any relief or consequential benefit. The court noted that almost fourteen years had passed since the institution of the suit, and in any case, the plaintiff would have retired by rotation in August 1994. Consequently, the issue was answered accordingly.

Relief:

The suit of the plaintiff was dismissed. The court did not grant costs to the defendants as they provided no assistance for the final adjudication of the matter.