Sunday, October 17, 2010

REMOVAL OF DIRECTOR UNDER SECTION 283 (1) (G) –PRECAUTIONS TO BE TAKEN:


REMOVAL OF DIRECTOR UNDER SECTION 283 (1) (G) –PRECAUTIONS TO BE TAKEN:

A director can be said to be ceased to be a director under Section 283 (1)(g) of the Companies Act, 1956 for not attending the three consecutive Board Meetings without obtaining leave of absence.

However, this section should not be abused to take revenge on a director by removing him without his consent. This section will be helpful where the director is not traceable, or in a jail or against whom a criminal proceedings is taken or could not be reached for long time.

One should take note the following precautions before removal of a director under this section:

1.Certified copies of minutes can be attached to the Form 32. However in order to avoid future disputes in this matter it is better to have the evidence of dispatch of notice for the meetings to the said Director, confirming due procedure followed as per the Act and as per the AOA.

2. Optionally, one can also attach Board Resolution in this regard and attendance sheet of these meetings and/or minutes sheet copies of these meetings.

You can also refer the decision made by D.S.Dhillion Vs.M/s Honeyrex Products Pvt. Ltd -CP No.60/2000 wherein CLB has asked to apply to a civil court for redressal of grievances by the affected director under the above section.
Generally, a director on the company’s board could be removed by shareholders at an annual or extraordinary general meeting.

If a board meeting notice is served on the other member, he is bound to attend the board meeting. If he fails to attend the meeting, then he may lose the directorship for not attending three consecutive board meetings without leave of absence. Under section 283(1)(g) the office of a Director shall vacate if 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; 

When a director holds 99% of the share , he is the powerful director and he can remove the 1% holding non-consenting director for smooth running of the business.

However, much care and diligence have to be shown if one uses the proviso of this section. Otherwise, it will end in unnecessary legal battle between the parties.

PROOF FOR SERVICE OF NOTICE IS THE MAIN CRITERIA

Marble City Hospital and Research Center P Ltd v SARABJEET Singh Mokha [2010] 155 CAS 13 (MP) decided on 17-7-2009.

In this case , Madya Pradesh High Court held that services of notices by post and in person not established. Minutes of the meeting in statutory form not produced. Company failed to discharge its onus regarding of services notice. CLB refused to accept the certificate of posting as proof of service of notice on the footing that collateral evidences like dispatch register, register showing payment of postage stamps, accounts books etc were not produced. Hence, CLB held that removal of director under section 284 (1) (g) was not valid. CLB decision was appealed in the High Court by the appellant. High Court held that mere filing of postal certificates would not corroborate service of notice. There should be adequate proof for posting of letter, affixation of stamps etc. High Court also cited the Madhusoodhanam M.S v  Kerala Kamudi P Ltd [2003] where it was held that presumption could be drawn to hold that postal certificate were the proof for dispatching the notices to the respondent. Evidence should be legal, cogent and admissible one. Further, the affidavit filed by the employee of the company to demonstrate personal services of notices lacked specific particulars and details. Even in cases where the respondent was involved in some criminal cases or was absconding or on the grounds that he was not available to civil society, proper service of notice to the respondent should be made by the company.

Hence, If you want to remove a director under section 284 (1) (g), you have to take all precautionary measures as enumerated in the above case.

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