Whether Shareholders have the right to remove Directors of a company? NCLT explains in light of Companies Act, 2013

National Company Law Tribunal

National Company Law Tribunal, Kochi: Expressing that the management of business affairs in a company is not a sole duty of a Director, the results of a company’s performance is a team of work of Board of Directors, the Coram of Ashok Kumar Borah, Judicial Member and Shyam Babu Gautam, Technical Member, held that, Companies Act gives shareholders the right to remove the Directors of the company.

A company petition was filed under Sections 241 and 242 of the Companies Act, 2013 against respondents.

Background

In the context of EGM notice, the company petition was filed, and the respondents had proposed to convene the EGM for the removal of the petitioner from the directorship.

Respondent Company was formed by a group of 5 friends and the initial subscribers were respondent 3, Mr Hamsa Poothukudiyil and Mr Rajiv Malayil. All three subscribers were holding 333 shares each.

The crux was that the removal of the petitioner from directorship would be oppressive and such removal was only in the context of certain queries raised by the petitioner as also against the legitimate expectation of the petitioner to be part of the management.

Analysis, Law and Decision

  • Whether removal of petitioner from directorship will be oppressive or prejudicial to the interest of the company so as to attract Section 241-242 of the Companies Act?

As per the Supreme Court decision in TATA Consultancy Services Ltd. v. Cyrus Investments (P) Ltd., (2021) 9 SCC 449, it was clearly stated that under Section 242(1) of the Company Act, the Tribunal may, with a view to bringing to an end the matters complained of, make such order as it thinks fit” cannot be interpreted as conferring on the Tribunal any implied power of directing reinstatement of a director or other officer of the company who has been removed from such office and also stated that even in cases where the Tribunal finds that the removal of a Director was not in accordance with law or was not justified on facts, the Tribunal cannot grant relief under Section 242 unless the removal was oppressive or prejudicial.

“…the management of business affairs in a company is not a sole duty of a Director, the results of company’s performance is a team work of Board of Directors.”

Therefore, respondents’ statement regarding the loss of the company, even though the Audited Financial Statements of 2019-2020 had been signed by the petitioner himself, shows the behaviour and nature of the petitioner, to escape from the responsibilities of a director and his fiduciary duties as a Director.

The Commission could not find any oppression and mismanagement in the Company with respect to removal of petitioner from directorship.

“…one of the crucial rights which Companies Act, 2013 gives to the shareholders is the right to remove the Directors of the Company, if they are not acting in consonance with the Articles of Association of the Company, but only utilizing their powers for their benefits.”

Hence petitioner’s removal was not an illegal act.

In view of the above, the company petition was dismissed. [Thaniyulla Parambath Jahafar v. Relax Zone Tourism (P) Ltd., CP/24/KOB/2021, decided on 17-1-2022]


Advocates before the Commission:

For the Petitioner: Shri. Shameem Ahmed, Advocate.

For the Respondents: Smt. Sreepriya Kalarickal, PCS.

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