Question

Under the MBCA, what are the steps that should be taken by a shareholder to remove a director? Your paper should address in detail such issues as authority to act, notice, meeting and voting requirements.

Answer 1

Answer

company is an artificial person created by law, Thus a company is not a natural person and yet it acts as a natural person. As such it cannot act by itself and acts only through some human persons. The persons through whom it acts and by whom the business of the company is conducted are known as directors. The director company are collectively known as the "Board of Directors" or the "Board". The Board of directors entrust the day to day management of the company to a chief executive, who may be managing director or manager by delegating necessary powers. So the chief executive looks after the day to day of the managerial functions of the company, with or without whole time dirctor or directors. As per the companies (Amendment) Act, 2000, the following are the managerial persons of a company.

1. Directors.

2. Whole time Director.

3. Mânaging Director or Manager.

It is to be noted that, a company have one or more whole time directors along with the managing director or manager.

Dis qualification of Directors (Section 274)

1. A person shall not be capable of being appointed as a director of a company ,if

a) he is an undischarged insolvent.

b) he has applied to be adjudicated as an insolvent and his application is pending

c) he has been convicted by a court of any offence involving moral turpitude and sentenced in resepct thereof to imprisonment for not less than six months, and a period of five years has not elapsed from the date of expiry of the sentence;

d) he has not paid any call in respect of shares, of the company held by him, whether alone or jointly with others, and six months have elapsed from the last day fixed for the payment of the call,

e) an order disqualifying him for appoinment as director has been passed by a court in pursuance of section 203 and is in force, unless the leave of the court has been obtained for his appointment in pur suance of that section.

f) such person is already a director of a public company which

* has not filed the annual accounts and annual returns for any continuous three financial years has not filed the annual accounts and annual commencing on and after the first day of April, 1999,or

* has failed to repay its deposit or interest thereon on due date or redeem its debentures on due date or pay dividend and such failure continues for one year or more.

Provided that such person shall not be eligible to be appointed as a director of any other public company for a period of five years from the date on which such public com- pany, in which he is a director, failed to file annual ac- counts and annual return under sub-clause (A) or has failed to repay its deposit or interest or redeem its debentures on due date or pay dividend referred to in clause (B)

2.The Central Government may by notification in the (2) official gazette, remove.

a) the disqualification incurred by any person in virtue of clause - section (1) mentioned above,either generally or in relation to any company or companies specified in the notification; or

b) the disqualification incurred by any person in virtue (a) of clause (c) of sub-section (1) mentioned above.

A private company which is not a subsidiary of a pub- lic company may by its articles, provide that a person shall be disqualified for appointment as a director on any grounds in addition to those specified in sub-scction(1) above.

Removal of Directors

a director of a company may be removed before the expiry of his period,in the following ways.

1. By Shareholders

2. By Central Goverment

3. By the Tribunal

Removal By shareholders-: The shareholder of a company, by pansing an ordinary resolution at their general meeting, remove a director before the expiry of his period of a office. However, the shareholder cannot remove the following type of directors.

* A director appointed by the Central Government under section 408.

* A director of a private company holding office for life on Ist April 1956.

* A director representing special interest e.g, debenture - holders director.

* A director elected by proportional representation under section 265.

The following procedure is required for removal of directors by the shareholders.

Special notice of 14 days is required for a resolution for removal of a director or to appoint another director in his place. On receipt of such a notice, the company shall sont a copy of the same to the members, as well as the director concerned. The director (whether or not he is mem ber of the company) is entitled to be heard on the resolu tion at the general meeting.

On receipt of notice of a resolution to remove a director and the director concerned makes with respect thereto representations in writing to the company (not exceeding a reasonable length) and request their notufication to members of the company. The company must then send a copy of the representation to every member. If a copy of the representation is not sent as aforesaid, because they were received too late or because of the company's default, the company must at the instance of the director concerned read it out at the meeting .The director is also entitled to be heard on the resolutions at the meeting.

The vacancy caused by the removal of a director may to filled at the same meeting. A director so appointed shall hold office until the date up to which hia predecessor would have held office if he had not been removed as aforesaid.The director who is so removed, however, can claim com pensation or damages againat the company.

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