2022 (1) TMI 463 - Tri - Companies Law

Seeking removal from the Director Board of Kerala Chamber of Commerce and Industry - seeking direction for continuation as Director even after knowing the office of director held by them is vacant - validity of resignation of director - supersession of Board of Directors of the R1 Company by the NCLT appointed Chairman - HELD THAT - If the office of any Director appointed by the Company in General Meeting is vacated before his term of office expires in the normal course, the resulting vacancy may, in default of and subject to any regulations in the Articles of the company, be filled by the Board of Directors at a meeting of the Board which shall be subsequently approved by members in the immediate next General Meeting. Any person so appointed shall hold office only up to the date up to which the Director in whose place he is appointed would have held office if it had not been vacated - As per Section 149(1) of Companies Act, 2013, every company shall have a Board of Directors consisting of individuals as directors and shall have a minimum number of three directors in the case of a public company. However, there may be instances where the company during the course of business fails to meet the statutory limit. This also shall amount to casual vacancy in the office of director. There are no records showing that the office of Director who was appointed by an AGM is vacated either due to unforeseen reasons or due to any reasons by which the company fails to meet the statutory obligation. It is clear that the appointment of 4 Additional Directors in the Board Meeting dated 13.12.2017 was beyond the powers of the Board as provided in the Articles of Association of the Company and hence it is to be declared as ultra vires and illegal. Clause 51 of the Articles give power to the Board only to fill casual vacancies in the Board. Therefore, the appointment of these four Additional Directors under the pretext to fill casual vacancies as caretakers is against the cardinal principle of corporate law in as much as there were no casual vacancies at all on the date of appointment - in the letter of resignation it should be clearly mentioned the date from which the resignation takes effect. Otherwise the date of receipt of letter will be considered as date of resignation. The Companies Act, 2013 through Section 168 clearly lays down requirement for resignation, by virtue of Section 6 of the Companies Act, 2013, which provides that the provisions of the Act, 2013 shall override MOA and AOA, any provisions of AOA to the extent that it is repugnant to provisions of the Act would become void. The applicants have also made out a case that R10 is disqualified under Section 167 of the Companies Act, 2013. From the records, it is seen that the Registrar of Companies initiated an inquiry against the Company and the said inquiry report is pending with the Ministry of Corporate Affairs for approval. As no concrete evidence is produced with this application to prove the above aspect, we cannot consider the allegation in the present IA and that will be dealt with, when the main Company Petition is taken up for hearing, provided the report is produced before this Tribunal. Application disposed off.

Issues Involved:
1. Validity of the appointment of certain directors.
2. Resignation and continuation of a director.
3. Alleged disqualification of directors due to statutory non-compliance.
4. Allegations of mismanagement and oppression.
5. Conduct of Annual General Meetings (AGMs).

Detailed Analysis:

1. Validity of the Appointment of Certain Directors:
The applicants challenged the appointment of six directors (R7, R8, R9, R4, R12, R13) by the Board of Directors in meetings dated 13-12-2017 and 06-02-2019, claiming these appointments were in violation of Article 5 of the Company's Articles of Association and Section 161 of the Companies Act, 2013. The Tribunal found that the Articles of Association only allowed the Board to fill casual vacancies, which were not present at the time of these appointments. Therefore, the appointments were declared ultra vires and illegal, and the directors were ordered to be removed from the Board with immediate effect.

2. Resignation and Continuation of a Director:
The applicants contended that R11 had resigned on 26-06-2018 but continued to act as a director. The Tribunal noted that under Section 168 of the Companies Act, 2013, a director's resignation takes effect upon receipt by the company. The Tribunal found that R11's resignation was effective from 26-06-2018, and her continuation as a director was void ab initio. Therefore, she was ordered to be removed from the Board with immediate effect.

3. Alleged Disqualification of Directors Due to Statutory Non-Compliance:
The applicants alleged that R10 and other directors were disqualified under Sections 167 and 283(1)(h) of the Companies Act, 1956, due to non-compliance with statutory requirements. The Tribunal noted that the Registrar of Companies (ROC) had initiated an inquiry against R10, and the report was pending approval. Therefore, the Tribunal deferred the decision on R10's disqualification until the main Company Petition is heard. However, the Tribunal found that R4 and R15 had violated Section 295 of the Companies Act, 1956, by giving advances without prior approval of the Central Government. Consequently, they were ordered to vacate their offices and their Director Identification Numbers (DINs) were to be blocked.

4. Allegations of Mismanagement and Oppression:
The applicants claimed that the current management was prejudicial to the company's interests and in violation of various court directions. The Tribunal found that the term of the present Board had expired, and the ROC had refused to extend the AGM. The Tribunal directed the Ministry of Corporate Affairs to conduct an inquiry into the current directors' status and file a report to decide the main Company Petition.

5. Conduct of Annual General Meetings (AGMs):
The Tribunal noted that the last AGM was held on 07-12-2017, and subsequent attempts to conduct AGMs were hindered due to non-cooperation by the Board of Directors. The Tribunal had appointed independent chairpersons to conduct the AGMs, but they resigned due to non-cooperation. The Tribunal deferred the decision on the conduct of AGMs until the main Company Petition is heard.

Order:
i. The appointments of R7, R8, and R9 were declared invalid and they were ordered to be removed from the Board with immediate effect.
ii. The declaration sought against R10 was deferred pending the ROC's report. R4 and R15 were ordered to vacate their offices.
iii. R11's resignation was effective from 26-06-2018, and she was ordered to be removed from the Board.
iv. R4, R5, and R15 were found disqualified under Section 283(1)(h) of the Companies Act, 1956, and their DINs were to be blocked.
v. The Ministry of Corporate Affairs was directed to conduct an inquiry into the current directors and file a report.
vi. The Registry was directed to furnish a copy of the order to the Ministry of Corporate Affairs.

Conclusion:
IA 150/KOB/2020 was allowed to the extent specified above, with detailed orders for the removal and disqualification of certain directors and directions for further inquiry by the Ministry of Corporate Affairs.

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