Case Law Details

Case Name : Sanjay Suryaprakash Mehta Vs SKG Consultants & Engg. (P.) Ltd. (Company Law Board, Mumbai)
Appeal Number : C.A. No. 213 of 2011
Date of Judgement/Order : 28/02/2012
Related Assessment Year :

Company Law Board, Mumbai Bench

Sanjay Suryaprakash Mehta

versus

SKG Consultants & Engg. (P.) Ltd.

C.A. No. 213 of 2011

C.P. No. 33 of 2011

FEBRUARY 28, 2012

ORDER

Kanthi Narahari, Judicial Member

The present application is filed by the petitioner praying this Bench to restrain the respondents from contending that the applicant ceased to have been a director of the company under section 283(g) of the Companies Act, 1956, the advocate for the petitioner submitted that the respondents claimed to have convened the meeting of the board of directors on June 9, 2011 and September 29, 2011, though no notice of meeting of June 9, 2011, was ever given to the applicant. The alleged notice dated September 26, 2011, stated to have been sent to the applicant by courier is delivered in the afternoon of September 29, 2011. The applicant was aghast to receive a letter dated October 3, 2011, purportedly signed by respondent No. 2 as a managing director of the company, inter alia, recording that :

“Last but not the least, the company/board of directors has taken notice that, as stubborn under the spell of some unfortunate illusions, you have been caring little to recognise the board of directors along with the newly appointed managing director as such after your formal removal from the office of the managing director. Subsequently, you have been continuously absenting yourself from three consecutive board meetings held on March 31, 2011, June 9, 2011 and September 29, 2011, respectively without any application/intimation for leave of absence in spite of the fact that you had been well informed of them with proper prior written notices. You are aware that such action of a director amounts to vacating the office of the director, SKG Consultants and Engg. P. Ltd., under section 283(g) of the Companies Act, 1956, with effect from September 29, 2011, please note that, now, starting with the event, you would be liable to be punishable under section 283(2A) of the Companies Act, 1956, if you still continue to claim to be functioning as managing director/director.”

2. It is submitted that this Bench by an order dated April 21, 2011, directed the respondents to maintain status quo as regards the shareholding pattern and directors as on April 21, 2011. Secondly, the purported resolution is under challenge and the matter is subjudice as regards the validity of board meeting dated March 31, 2011 and thirdly, there was no notice of any board meeting dated June 9, 2011 and without admitting that there was any valid service of the board meeting dated September 29, 2011 and the ex facie, the notice dated September 26, 2011, is not bona fide and merely fabricated with an intention to illegally oust the applicant as a director of the company. The applicant submits that the purported contentions of the respondents that the applicant has ceased to be the director of the company is mala fide and illegal and amounts to an interference in the jurisdiction of the Company Law Board by pre-judging the issue.

3. The respondents filed the reply and submitted that there is evidence that the board of directors of the company did really hold its meetings on June 9, 2011 and September 29, 2011, respectively for both of which the petitioner has been informed well in advance. Equally it is only with intention of misleading the Company Law Board that the applicant is asserting that no notice of meeting scheduled to be held on June 9, 2011, was ever given to him. Actually notice of this board of directors’ meeting has been delivered to him on June 7, 2011, against which his letter dated June 7, 2011, has been received by the company on June 7, 2011, itself. Similarly the notice dated September 26, 2011, for the board of directors’ meeting scheduled to be held on September 29, 2011, was actually delivered to the applicant on September 27, 2011 and not on September 29, 2011, as falsely claimed by the applicant. This fact must be underlined that the respondents have been strictly maintaining the status quo as required by the hon’ble Company Law Board with regards to the shareholding pattern and the board of directors as on April 21, 2011. The hon’ble Bombay High Court also, on December 16, 2011, while hearing the appeal of the petitioner challenging the rejection order of his petition for modification of the interim order of status quo as on April 21, 2011, has held that “at this tentative and prima facie stage, the Company Law Board has also directed the parties that they should after the board meeting, not take any decision which would alter the shareholding pattern or the composition of the directors. That is not being done and that is not even the grievance of the appellant”. Except maintaining the share pattern and board of directors as on April 21, 2011, the said status quo order of the hon’ble Company Law Board has stayed no part of the minutes of board of directors’ meeting held on March 31, 2011. Naturally the validity of remaining part of it is not questionable till the final order is passed by the Company Law Board. By passing the status quo order on April 21, 2011, the hon’ble Company Law Board has not bestowed on the petitioner immunity from the provisions of the Companies Act, 1956, the articles of association of the company and other relevant provisions of the Act, related to his fiduciary duties and liabilities as he presumes to have been and neither the Company Law Board has empowered him to act in defiance of the resolutions passed by the board of directors and in denial of supervision/superintendence, control and direction of it. There are two sections in the Companies Act, 1956, which are relevant to exclusion of a director of a company from the management of any company :

Section 283, Vacation of office by directors and section 284, Removal of directors :

“283. Vacation of office by directors.-(1) The office of a director shall become vacant if- . . .

(g) he absents himself from three consecutive 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 ;”

4. The prayer of the petitioner for restraining the respondents from taking any action like oppression under section 283(1)(g) for which it has no authority, does not carry any meaning at all, so it must be rejected. Accordingly, since the petitioner has himself vacated the office of the director under section 283(1)(g) of the Companies Act, 1956, the vacation is ipso facto (automatic) and the respondents have no role or contribution in it. The board of directors by addressing the letter to the petitioner, among other things, has simply drawn the attention of the petitioner towards this event. It is quite appropriate and reasonable in the interest and benefit of the company. The respondents are trying their best to keep the affairs of the company running smoothly which, as per content of the order dated December 16, 2011, of the hon’ble Bombay High Court has been admitted by the petitioner also in court of his appeal before the hon’ble Bombay High Court. But, the petitioner is openly doing just the opposite.

5. Heard counsel appearing for the parties. The stand of the respondents is that the petitioner was continuously absenting himself for three board meetings consecutively, i.e., on March 31, 2011, June 9, 2011 and December 29, 2011, without any application/intimation for leave of absence in spite of the fact that the petitioner was well informed about the meetings with proper notices. In view of the absence the petitioner deemed to be vacated the office of the director of the company under section 283(1)(g) of the Companies Act with effect from September 29, 2011. It is important to see that whether the petitioner absented himself for the three board meetings consecutively. The petitioner contended that for the board meeting dated March 31, 2011, he received the notice but he requested the company to postpone the meeting vide his letter dated March 25, 2011, in view of the reason that he has to attend the court with regard to a case instituted by the company against Mission Construction Co. P. Ltd. In this regard the provision of law is relevant to be looked into. The vacation of office by the director falls under section 283(1)(g) of the Act which says that :

“283. (1) The office of a director shall become vacant if-. . .

(g) he absents himself from three consecutive 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 ;”

6. It is a fact that the company holds three board meetings consecutively on March 31, 2011, June 9, 2011 and September 29, 2011. It is also a fact that the petitioner has challenged the validity of the board meeting dated March 31, 2011. Even otherwise, the petitioner has requested the company to postpone the meeting dated March 31, 2011 to April 2, 2011, at 11.00 a.m. The respondents did not deny the receipt of the request letter from the petitioner. There is no response from the respondents to that letter. The contention of the respondents is that the petitioner has not obtained the leave of absence from the board. The letter of the petitioner dated March 25, 2011, seeking postponement of the board meeting dated March 31, 2011 to April 2, 2011, is a request and must have been treated as leave of absence. Not treating the said letter as leave of absence and not responding to the said letter is a negligence on the part of the respondents. Treating the petitioner as vacating the office of director is completely against the principles of natural justice. The respondents should not treat that the petitioner did not obtain leave of absence. Moreover, I am not deciding the validity of the board meeting dated March 31, 2011, in this application. In view of the reasons I hereby restrain the respondents from holding that the applicant vacated the office of director of the company with effect from September 29, 2011, until further orders. Hence, the applicant is deemed not to have vacated the office under section 283(1)(g) of the Companies Act. The application is posted along with the main petition.

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