Whether retiring directors cease to hold office on and from date of annual general meeting - Companies Law - Letter No. 9/1/58‑PR,

Circular : Letter No. 9/1/58 ‑ PR, dated 30 ‑ 9 ‑ 1958. Subject:- Whether retiring directors cease to hold office on and from date of annual general meeting The articles of association of a company provided, inter alia that at the first ordinary general meeting of the company, the whole of the directors, excepting ex officio directors, shall retire from office, and at the ordinary general meeting in every year, one-third of the directors (other than the ex officio directors), for the time being, or if their number is not three or a multiple of three, then the number nearest to one‑third, shall retire from office . With reference to the foregoing provision in the articles, a question arose for consideration as to whether persons, whose period of office is liable to determination by retirement of directors rotation, cease to hold office after the date on or before which the annual general meeting of the company is required to be held, whether or not the meeting is actually held. The issue was decided in the affirmative by the Madras High Court in A. Ananthalakshmi Ammal v. Indian Traders Investments Ltd. [1952] 22 Comp. Cas. 324, to which a reference is invited. The Department has considered whether the ruling of the Court in the aforesaid case, which was given when the Indian Companies Act, 1913 was in force, would hold good even now, having regard to the provisions of section 256(1) read with section 225(2) of the Companies Act, 1956. Though the language used in the latter mentioned sections is slightly different from that contained in regulation 78 of Table A of Schedule I to the Companies Act, 1913, so as to permit of a different interpretation, the Department is of the view that under section 256, it cannot be contended that all the directors due to retire at the general meeting will continue in office till such general meeting is held even if the date of such meeting goes beyond the time‑limit set under section 166(1). If this interpretation is allowed to stand, directors could brave the consequences of not holding the general meeting within the prescribed time and continue in office indefinitely. The risk of not having the reappointment done in proper time at the general meeting in the case of rotational directors is the main sanction for their ensuring regularity of annual general meetings. It is considered that, if the matter were to be litigated, the courts would, in applying section 256 also, follow the wholesome principle laid down in the above‑mentioned case. In any case of infringement of section 166, where the directors due to retire or to be reappointed actually continue in office beyond the date on which the meeting is due to be held, the invalidity of such continuance in office should be questioned in terms of the above said decision.