ASF Rahman and another (Appellants)
AM Agha Yousuf and others (Respondents)
Latifur Rahman CJ
Bimalendu Bikash Roy Choudhury J
A M Mahmudur Rahman J
Kazi Ebadul Hoque J
March 15, 2000.
The Companies Act, 1994 (XVIII of 1994), Section 91(1) (b)
Articles of Association of IFIC Bank, Article 114
Rafique-ul Huq, Senior Advocate (KZ Alam, Advocate with him) instructed by Mvi Md. Wahidullah, Advocate-on-Record — For the Appellants.
Khandker Mahbubuddin Ahmed, Senior Advocate, instructed by Md. Nawab Ali, Advocate- on-Record — For Respondent No.1
Not represented — Respondent Nos. 2 and 3.
Civil Appeal No. 115 of 1999.
(From the judgment and order dated 25-08-1999 passed by the High Court Division Dhaka in Matter No. 108 of 1997).
Latifur Rahman CJ.- I agree with the final judgment of this Court that the appeal should be dismissed.
Bimalendu Bikash Roy Chowdhury J.- I have gone through the Judgment of my learned brother Kazi Ebadul Hoque J. I agree with his conclusion that the appeal should be dismissed. But I differ from the reasoning given by him therefore. The import of Article 114 of the Articles of Association appears to me to be these. No person other than a retiring director or a nominee director shall be eligible for election to the office of the director at any General Meeting unless he is recommended by the directors. This will not apply if a member has left at the office a notice in writing under his hand or under the hand of such agent signifying his assent to his candidature at least 7 clear days before the meeting. The purpose of this provision appears to be that if a general member wants to be elected as director but fails to give the requisite notice he will need recommendation of the directors for his eligibility for election.
3. I am unable to agree that the word recommendation’ occurring in the Article connotes mere scrutiny without any authority to choose. I take the simple dictionary meaning of the word ‘recommendation’. I mean speaking favourably of a person for the purpose of election.
4. Yet I hold that the appeal must fail because the appellants have no locus standi to maintain the appeal not being themselves aggrieved by the election.
AM Mahmudur Rahman J.- I agree with the view of my learned brother Justice BB Roy Choudhury.
Kazi Ebadul Hoque J.- This appeal by leave is from judgment and order dated 25-8-1999 passed by the Company Judge of the High Court Division in Matter No. 106 of 1997 disposing of the objection raise by the respondent AM Agha Yusuf against report filed by the Chairman of the Annual General Meeting of the International Finance Investment and Commerce Bank Limited (IFIC Bank) so far as it relates to the election of directors of the said Bank.
7. Syed Ishtiaq Ahmed, a Senior Advocate of this Court, was appointed Chairman to preside over the Annual General Meeting of the said Bank for the year 1997 and to submit his report by order dated 16-3-1999 passed in the said matter. The said meeting was held on 5th July 1999 presided over by the said Chairman and the said Chairman submitted his report on 4-8-1999.
8. In the said Annual General Meeting four retiring directors of the Said Bank namely, 1 Mr. ASF Rahman, 2. Mr. Salman F Rahman (the appellants), 3. Mr. AM Agha Yusuf, (respondent No. 1) and Mr. Saiful Islam representing class ‘A’ shares retired and offered themselves to be re-elected directors of the said Bank for the next term. Sponsor shareholder Mr. Asaduzzaman (Folio No. 0029) nominated Mr. A Matin Khan as another candidate for the office of director of the said Bank representing class ‘A’ shares.
9. Respondent No. 1 sent a letter to the Chairman of the Annual General Meeting on 5-7-1999 stating that “right up to 257th Board Meeting of the Bank held on 1st July, 1999, no proposal for nomination of any director has been received by the Directors” and further stating that” there is no scope for putting up a candidate for the directorship at the time just before the meeting.” But the Chairman overruled the objection raised by the respondent No. 1 in the said letter and proceeded to the election of directors of the said Bank. Five shareholders having demanded a poll election was held by the person appointed by the Chairman as Election Commissioner. After the election and counting of votes Chairman announced the result declaring the appellants, Mr. Saiful Islam and Mr. A Mafia Khan as directors of the said Bank. Chairman thereafter submitted his report on 4-4-1999 to the company Judge about the Annual General Meeting of the said Bank incorporating the result of the election,
10. Respondent No. 1 thereafter submitted a written objection before the Company Judge against the report of the Chairman so far as it relates to the election of directors illegally overruling, his objection on the ground that there has been violation of the provisions of Article 114 of the Articles of Association of the said Bank Company in accepting the nomination of Mr. A Matin Khan as he had not left any notice in writing under his own hand signifying his assent to his candidature for the office of director at the office of the Bank nomination by any shareholder nor his name was recommended by the directors for such election.
11. Appellants filed an affidavit-in-opposition controverting the statements made in the said written objection and supporting the report of the Chairman. The Chairman also filed a supplementary affidavit stating that the nomination of Mr. A Matin Khan marked Annexure ‘X’ was not inadvertently annexed with the report.
12. Learned Company Judge after considering the materials on record, hearing the Chairman and learned Advocates of the parties by the impugned judgment and order disposed of the objection and declared the four retiring directors elected as directors of the said Bank.
Learned Company Judge found as follows:
“In the instant case I do not find from the record that the letter of nomination in favour of Mr. A Matin Khan vide Annexure-‘X’ to the supplementary affidavit was at all placed before the directors nor there was any recommendation by the directors before the AGM was held on 5th July, 1999. No paper has been filed to show that the said nomination letter was at all submitted to the directors at any time before AGM. In this view of the matter, I find that the election of Mr. A Matin Khan was not held in due compliance of Article 114 of the Articles of Association of the bank and, as such, the report of the Chairman Mr. Ishtiaq Ahmed with regard to the election of Mr. A Matin Khan is rejected.”
13. Appellants, the two re-elected directors, obtained leave to appeal to consider the submission that the Company Judge completely misunderstood and misinterpreted Article 114 of the Articles of Association of the Bank and thereby committed Illegality in declaring a defeated candidate as duly elected candidate If this interpretation is accepted, then no outsider can ever be eligible to be elected as Director of the Bank in spite of having duly qualified shares unless the Board of Directors recommends his case, which goes against the concept of company law as well as principle of franchise.
14. Following submissions of the Caveator were allowed to be considered:
“The petitioners cannot be said to be aggrieved by the impugned decision of the learned Company Judge. Neither the Bank nor Mr. A Matin Khan has preferred any petition for leave to appeal from the impugned judgment. The present petitioners have, therefore, no locus standi. That a harmonious interpretation of Article 114 is that, the candidate for election to the office of Directors or his authorised agent shall leave at the office of the Bank at least 7 clear days before the meeting a notice in writing under his hand or under the hand of such agent signifying assent to his candidature for the office of Director and that such nomination needs to be considered by the Board of Directors to determine the eligibility of the candidate and/or his agent and also to make arrangements for holding a vote. This is what is meant by “recommendation by the Directors. The “recommendation is not an obstacle but a means to facilitate the election. The letter of nomination of Mr. A Matin Khan never reached the Board of Directors which held its last meeting only three days before the Annual General Meeting. The learned Company Judge, therefore, rightly came to the conclusion that the election of Mr. A Matin Khan was illegal.”
15. Learned Advocate for the appellants submits that if recommendation of the Board of Directors is considered to be a condition precedent to the valid nomination of a candidate for election of a director in case of a person other than a retiring director in pursuance of Article 114 of the Articles of Association of the Bank then no outsider could be able to be elected as director. So, the provision of Article 114 is in direct conflict with the provisions of clause (b) of subsection (1) of section 91 of the Companies Act 1994 and, as such, interpretation of Article 114 as given by the learned Company Judge cannot be sustained. He further submits that the appellants as holders of substantial shares of the Bank has right to see that election of a candidate supported by overwhelming majority of shareholders is upheld and, as such, they contested the objection filed by the respondent No. 1 by filing affidavit-in-opposition before the Company Judge and so they have locus standi to file and maintain the appeal.
16. Learned Advocate for the respondent No. 1 submits that the nomination of a candidate for election must be processed through the Board of Directors which has been authorised under the said Article 114 to scrutinise the same and place the same in the Annual General Meeting with its report for consideration of the shareholders and that does not mean that Board Of Directors would exclude such nomination. He, therefore, submits that there is no real conflict between Article 114 and section 91(1) (b) of the Act. He also submits that Mr. A Matin Khan having not felt aggrieved by the impugned judgment and order the appellants as shareholders have no locus standi to challenge the same.
17. Article 114 of the Articles of Association of the said Bank is as follows:
“No person, not being a retiring Director, shall, unless recommended by the Directors for election, be eligible for election to the office of Director at any General Meeting, unless he or his authorised agent has at least 7 clear days before the meeting, left at the office a notice in writing under his hand or under the hand of such agent signifying assent to his candidature for the office of director, Provided however, this Article shall not apply to nominee Directors.”
18. From the above provision it appears that no person except a nominee director or a retiring director shall be eligible for election to the office of the director unless he or his authorised agent leaves in the office of the Bank a notice in writing under his hand or under the hand of his agent signifying assent to his candidature for the office of director and unless he is recommended by the directors.
19. In the instant case it appears from Annexure ‘X’ to the supplementary affidavit submitted by the Chairman on 25-8-1999 that shareholder Mr. Asaduzzaman bearing folio No. 000029 nominated Mr. A Matin Khan for election to the office of director of the said bank by a letter addressed to the Secretary of the said Bank purported to have been written on 24-6-1999 and at the bottom of the said letter Mr. A Matin Khan made the endorsement “I agree” and put his signature under the said endorsement. So, no notice as required under Article 114 was left in the office of the bank by Mr. A Matin Khan under his own hand signifying his assent to his candidature to the office of the director Admittedly aforesaid letter Annexure X was not placed before the Board of Directors of the said Bank If it is conceded that the said letter Annexure X is substantial compliance of the requirement of notice under Article 114 the next question is, whether there is any necessity of placing before the Board of Directors for recommendation.
20. Clause (b) of sub-section (1) of section 91 of the Companies Act, 1994 provides that directors of the company shall be elected by the members of the company from amongst themselves in a General Meeting. According to the appellants, if recommendation by the Board of Directors under Article 114 is a must for being a candidate for the office of the director and if the Board of Directors do not recommend the name of any candidate then the mandate of the aforesaid provision would be flouted and the provision of the said Article 114 if it comes in conflict with the aforesaid provision of the said Act the same cannot stand. Learned Advocate for the appellant pointed out that in the Articles of Association of almost all the Banks relevant article is in the same language as in Article 114 of IFIC Bank. Why then Banks incorporated articles similar to Article 114 providing for recommendation of the Board of Directors for eligibility of candidature of a person other than a nominee or retiring director for the office of the director if it is in direct conflict with the said provision of the said Act? It appears to us that such provision has been consciously made to avoid complications in the Annual General Meeting of the Bank in respect of election of directors of the Bank. If the candidature of a person for the office of director is not scrutinised by the Board of Directors before the Annual General Meeting then candidates with defection candidatures would also come to contest in the election and much time would be spent in finding out such defects and taking decision over the same and thus complications would be created in Annual General Meeting which has to dispose of important agenda in the meeting. If the Board of Directors scrutinise the candidatures of such candidates then it would be possible for the Board to find out defect or infirmity in the same, if any, before the Annual General Meeting and would be able to report the same to be considered in the said Meeting. That is why there is the other requirement to submit the candidature in the office of the Bank at least 7 days before the Annual General Meeting.
The power of the Board of Directors in the said Article 114 to recommend does not mean power to reject any such candidature. No such power to reject such candidature has been specifically given to the Board of Directors in the said Article or any other Article. So, under the garb of recommendation Board of Directors cannot reject the candidature of any person for the election to the office of the director of the Bank. In our considered view, the word “recommended” means power of the Board to point out defects, if any, in the candidature of a person for the office of director for consideration in the Annual General Meeting to avoid complications in such meeting and not the power to reject any candidature on the ground of defect real or fanciful. It is for the Annual General Meeting to consider defect, if any, in the candidature of a person and to take a decision over the same and not for Board of Directors to do so. So, we find no merit in the contention of the learned Advocate for the appellants that Article 114 does not contemplate recommendation of the candidature of a candidate for the office of director of the Bank by the Board of Directors.
21. Letter of nomination dated 24-6-1999 Annexure ‘X’ might have been given to the secretary but the same was not submitted in the office of the Bank. Had it been so submitted then the same would have been placed before the court with the report of the Chairman and would not have been placed before the court subsequently as an Annexure to the supplementary affidavit dated 25-8-1999 specially when respondent No. 1 raised objection regarding candidature of any person at the time just before the Annual General Meeting. Moreover, no notice in writing either in the own hand of the candidate Mr. A Matin Khan nor in the hand of his authorised agent signifying assent to his candidature for the office of director was left at the office of the bank except the letter of nomination Annexure ‘X’ left with the secretary. In any view of the matter candidature of Mr. A Matin Khan was not in conformity with the requirement tithe said Article 114 as regards filing of the same in the office of the Bank in writing in the hand of the candidate or his agent. Even if it is conceded that no recommendation of the Board of Directors was necessary there was no valid nomination of Mr. A Matin Khan for his election as director. We, therefore, find no illegality in the impugned judgment to interfere with the same.
22. It appears that the appellants filed an affidavit-in-opposition before the Company Judge to contest the written objection filed by respondent No. 1 against the report submitted by the Chairman relating to election of directors. Mr. A Matin Khan whose election was rejected by the learned Company Judge by the impugned judgment has not preferred any appeal against the same. But the two elected directors who filed the said affidavit-in opposition preferred the appeal. They are not directly affected by the impugned judgment but it appears that they are indirectly affected by the rejection of election of Mr. A Matin Khan who appears to belong to their group holding majority shares. Otherwise they would not have filed affidavit-in-opposition before the Company Judge against the written objection of the respondent No. 1 A voter cannot prefer an appeal against setting aside of the election of a successful candidate in an election. But that analogy will not hold good in respect of the election of directors of a company including a Bank Company. In the facts and circumstances of the case appellants representing majority shares having contested the written objection filed by the respondent No. 1 challenging election of Mr. A Matin Khan before the Company Judge have locus standi to file this appeal. So we find no merit in the objection raised by the learned Advocate of the respondent No. 1 regarding locus standi of the appellants.
In the result, the appeal is dismissed without any order as to cost.
Source: 52 DLR (AD) (2000) 127