2015 (6) TMI 613 - Board - Companies Law

Absence from three consecutive Board meetings with out obtaining leave of absence - Automatic cessation under section 283(1)(g) of the Companies Act 1956 - Cessation of right to inspect the books of account - Held that - Board Meetings dated 16.8.2012 and 19.1.2013 there is no quarrel since the Petitioners have themselves produced copy of notice of such board meetings with the petition and P-2 did not attend either of the two meetings. However so far as the Board meeting allegedly held on 13.10.2012 the notice dated 5.10.2012 does arouse suspicion and smacks of manipulation. The format of notice for Board meeting dated 16.8.2012 and 19.1.2013 is identical but the notice for Board meeting dated 13.10.2012 is in a completely different format. Notice for Board meeting dated 16.8.2012 and 19-1-2013 is sent to all Directors named in the notice while the notice dated 5.10.2012 for the Board meeting dated 13.10.2012 is addressed only to P-2 in the form of a letter. Besides, such notice is not on the letter head of the company as compared to the notice dated 8.8.2012 and 10.1.2013. The Company being a closely held company and in the peculiar circumstances of the case it can be presumed that leave of absence was normally granted without oral or written request from a director. Reliance is placed on S. Ajit Singh case 2001 (8) TMI 1372 - COMPANY LAW BOARD NEW DELHI . Admittedly the company is a closely held company in which mutual trust prevailed between the parties up to a certain point of time and the parties resided together at Dhuri. Therefore in the peculiar facts and circumstances of the case can be safety held that there is an implied leave of absence granted to a Director who abstained from a meeting of the Board of Directors. This is further corroborated not only by the fact that the company continued sending notices of further Board Meetings after 19.1.2013 to P-2 but also granted leave of absence as prayed by P-2 on 18.4.2013. - Decided in favour of appellant.

Summary

Issues involved:
- Interpretation of section 283(1)(g) of the Companies Act 1956 regarding the vacation of office by a Director for absenteeism from consecutive Board Meetings without obtaining leave of absence.
- Examination of evidence and circumstances to determine if the Director ceased to be a Director under section 283(1)(g) and the right to inspect company records.
- Analysis of the legal obligations of the company in sending notices for Board Meetings and the implications of absence without leave of a Director.

Issue 1: Interpretation of section 283(1)(g) of the Companies Act 1956:
The judgment focused on whether the Director, referred to as P-2, automatically ceased to be a Director under section 283(1)(g) of the Companies Act 1956 due to absenteeism from three consecutive Board Meetings without obtaining leave of absence. The provision requires proof of absenteeism and proper notice of the meetings to the Director. The judgment highlighted the necessity of serving notices for all consecutive Board Meetings to substantiate the vacation of office by a Director under this provision.

Issue 2: Examination of evidence and circumstances:
The judgment analyzed the evidence presented regarding the Director's absenteeism from Board Meetings and the validity of notices served. It scrutinized the format and delivery of notices for the alleged Board Meetings, raising suspicions of manipulation and lack of adherence to legal requirements. The judgment emphasized the importance of reliable and unimpeachable evidence to establish the cessation of the Director's office by operation of law.

Issue 3: Legal obligations of the company in sending notices and implications of Director's absence:
The judgment delved into the practices of a closely held company where formal notices for Board Meetings were not mandatory due to mutual trust among parties. It discussed the implications of absenteeism without leave of a Director in such a company setting. The judgment considered the circumstances surrounding the alleged absenteeism of the Director, including the subsequent granting of leave of absence, to determine the Director's status and right to inspect company records.
The judgment concluded that the Director did not automatically cease to be a Director under section 283(1)(g) of the Companies Act 1956. The Respondents failed to provide sufficient evidence to substantiate the Director's absenteeism from three consecutive Board Meetings without obtaining leave of absence. The judgment highlighted discrepancies in the notices served and raised doubts about the validity of the alleged Board Meeting. It emphasized the importance of reliable evidence and proper adherence to legal requirements in determining the cessation of a Director's office. The judgment allowed for further proceedings regarding the Director's right to inspect company records based on misconduct or breach of fiduciary duty, while affirming the Director's continued status as a Director in the company.