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Question on company law

Background:

XYZ Private Limited has two directors in the board. Director A and Director B. One CEO C. It has two members (subscribers of shares), they are CEO C and Director A who hold 97% and 3% of shares respectively. As you must have noticed Director B is a non-shareholding director.

The question:

Now the company (i.e., CEO C – 97% shareholder) wants to sack the director B because of anti-company activities. How do we do it?

Question/s & Constraints:

Scenario1: An EGOM should be called for this purpose. Per Companies Act Sec: 100(2)(a), member should requisition the board for the EGOM. Now we shall assume that one of the two directors (B) is an adverse party hence will not respond, hence the Board of Directors will not respond positively or at least one will respond negatively or will simply ignore the requisition.

As per 100(4) if the board does not respond within 21 days the members shall call the EGOM and conduct it and pass the necessary resolutions including the one to sack one director as if it is conducted by directors themselves.

But we don’t want to wait for that 21 days. Hence, can we just skip the 100(4) and move straight away to 100(5) that says members can conduct the EGOM and attend to the business as if it is a board meeting? The language of the statute is linear, ie., only if 100(4) does not elicit a response from the board, then move to 100(5). In any case, we will not be able to meet the conditions of Sec: 103 on Quorum as at any time we will have only one director, even if hypothetically we are assuming that director B is agreeing for the board meeting. Since, board exists at the pleasure of members (majority shareholders) not vice versa can’t we just move to 100(5)?

Scenario 2: If we must follow the procedure of Sec: 169 on removal of directors, can one director send the special notice to the other? I think cannot? Because even for that we must call the board, and we know for sure that one director will not turn up and there will be a problem with quorum all the time.

In the above-mentioned situation/s are we forced to wait for that 21 days, (which we don’t intend to) as we must sequentially follow 100(4) and then move to 100(5)? Can’t we just move to 100(5)? Because we already know the result of the action i.e., requisitioning the board for EGOM which is no response from one of the director. If a notice can just be issued under Sec: 169 for removal, which I think we cannot without calling the EGOM which is again not possible as we must wait for 21 days? Please suggest.

 



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