LEGAL OPINION ON RESTRICTION ON TENURE OF OFFICE OF SPONSOR DIRECTORS OF Bank 1.

Mr. Z

Address….

Dear Sir,

RE: LEGAL OPINION ON RESTRICTION ON TENURE OF OFFICE OF SPONSOR DIRECTORS OF Bank 1.

We refer to your letter dated November 14, 2006 on the above subject.

On perusal of your letter, it appears that the Board of Directors of Bank 1(“the Bank”) comprises 13 Directors and its composition is as follows:

1.      7 Directors are Original Sponsor Directors who have completed more than 6 (six) years in office and who have been continuing in office as per section 15 kaka (2) of the Banking Company Act, 1991.

2.      4 Directors were elected by the public shareholders in the AGM held in 2006 in place of 4 Original Sponsor Directors who had vacated office on completion of 6 years in office as per Section 15 kaka (3) of the Banking Company Act, 1991.

3.      2 Directors were elected by the public shareholders in the AGM held in 2004.

It was on the strength of section 15 kaka (2) of the Banking Company Act, 1991 that the 7 Original Sponsor Director have been continuing as Directors, although they have completed 6 years of stipulated period in November 2005.

Now you require our legal opinion on whether or not these 7 Sponsor Directors would require to quit office in the next AGM to be held sometime in 2007.

Opinion

According to section 15 kaka (1) of the Banking Company Act, 1991 no person other than the chief executive officer, by whatever name called, shall hold the office of director of a banking company for a period exceeding six years in two consecutive terms. Moreover, according to BANK 2 BRPD Circular No.8 dated 26.04.06, taking into consideration the time up to the next AGM, those Directors who have been holding the office of director of a banking company for 6 continuous years or more shall automatically cease to be a Director in the next AGM.

But section 15 kaka (1) of the Banking Company Act, 1991 and BANK 2 BRPD Circular No.8 has to be read subject to the provisions contained in section 15 kaka (2) of the Banking Company Act, 1991 which provides that a sponsor Director shall not lose his right to his office because of the expiry of two terms of the said office provided that it would cause the number of Sponsor Directors to fall below half of the total number of Directors and in such circumstances there will remain no bar in holding the office of director by one director for three consecutive terms.

In the AGM held in 2006, although seven Original Sponsor Directors who have completed more than 6 (six) years in two consecutive terms in office were required to cease their directorship, they have been continuing in office as per section 15 kaka (2) of the Banking Company Act, 1991 for a third consecutive term.

On perusal of Annexure I, it appears that the third term of these seven Sponsor Directors will end on 2009.

But three of the Sponsor Directors, being:

  • Mr. x – Chairman
  • Mr. y – Vice-Chairman
  • Dr. z – Director

are due to retire in 2007 because of retirement by directors rotation according to section 91 (2) of the Companies Act 1994. According to the explanation to section 15 kaka of the Banking Company Act, 1991, for the purpose of this section any partial term of a term shall be deemed to be a full term. As such, in the AGM to be held in 2007 these three retiring by rotation Sponsor Directors will have completed their third consecutive term of their directorship (although they would only have completed 1 year, this partial term will be considered a full term) and as a result they will not be eligible for re-election and cease to be Directors of the Bank. Three new Directors will have to be elected from the shareholders in the 2007 AGM.

Three other Sponsor Directors, being:

  • Mr. A – Vice Chairman
  • Mr. B – Director
  • Mr. C – Director

are due to retire in 2008 because of retirement by directors rotation. As such, in the AGM to be held in 2008 these three retiring by rotation Sponsor Directors will have completed their third consecutive term of their directorship and as a result cease to be Directors of the Bank. Three new Directors will have to be elected from among the shareholders in the 2008 AGM.

The last Sponsor Director, MR. D, Director is due to retire in 2009 due to retirement by directors rotation and as a result he will be the only Sponsor Director who will be able to complete his full term of his third term. One new Director will have to be elected from the shareholders in the 2009 AGM.

But before implementation of our advice please seek clarification from Bangladesh Bank.

Should you have any further query, do not hesitate to revert to us.

Thanking you.

Yours faithfully,

………………….

For: “The Lawyers & Jurists”

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