RE: Legal Opinion regarding issue of No Objection Certificate for some changes in Memorandum and Articles of Association of COMPANY 1, a client of Bank 1.
We refer to your letter no. ……………….. dated June 20, 2007 on the above subject.
From perusal of your letter and the provided documents, it appears that, COMPANY 1 (“COMPANY 1”) is a client of Bank 1 (“the Bank”) and is enjoying various credit facilities of different amounts from the Bank.
COMPANY 1 has informed the Bank that the Managing Director of COMPANY 1, Mr. X, resigned from the post of Managing Director on 22.05.2006 and the resignation was approved by the Directors of COMPANY 1 in the Board meeting held on 30.05.2006. In the Extra-ordinary General Meeting of COMPANY 1 held on 22.06.2006 (“EGM”), the shareholders of COMPANY 1 decided to appoint a professional and salaried ex-officio Managing Director who is neither a member nor a director of COMPANY 1 and decided to make some amendments in the Articles of Association of COMPANY 1.
COMPANY 1 vide their letter dated 12 June 2007 has asked the bank to issue a No Objection Certificate (“NOC”) under section 27 KA of the Bank Companies Act 1991 approving the resignation of MR. X from the post of Managing Director of COMPANY 1 and the appointment of the ex-officio Managing Director.
In these circumstances, you have asked our legal opinion as to whether the changes in the Articles of Association of COMPANY 1 shall have any adverse effect on the interest of the Bank.
We have perused the minutes of the EGM. Our comments on the same are given below.
Resolution viii and resolution ix contradicts each other. In resolution viii it is stated that Article 49 of the Articles of Association has been amended as:
“49. With the approval of the Board of Directors the following powers shall be exercised by ex-officio Managing Director”.
Then in resolution ix, one of the powers of ex-officio Managing Director, given in Article 49 (f) of the Articles of Association, has been amended as:
“49. (f) To sign cheques, drafts, certificates and other documents on behalf of the Company with ex-officio Managing Director & any one of two Directors jointly as specified by the Board of Directors from time to time.”
Please note that since Article 49 contains the power of ex-officio managing Director and the same has been stated at the beginning of Article 49, it unnecessary to state “ex-officio Managing Director” in amended Article 49(f). In order to avoid any future confusion, the Bank may ask COMPANY 1 to amend the resolution ix and delete the words “ex-officio Managing Director &” from amended Article 49(f).
Apart from our above comments, the changes made in the Articles of Association of COMPANY 1 by the EGM do not have any adverse effect on the interest of the Bank.
Please note that whether or not the Bank shall provide the NOC, under section 27 KA of the Bank Companies Act 1991 approving the resignation of Mr. Md. Yusuf Hassan from the post of Managing Director of COMPANY 1 and the appointment of the ex-officio Managing Director, during the subsistence of the credit facilities, is a commercial decision to be decided by the Bank. However, in order to decide as to whether the Bank should issue NOC in question, the Bank should consider as to whether by doing so its ability to realise the Loan will be diminished or not.
We also draw your attention to the fact that, according to resolution v of the EGM, Article 40 of the Articles of Association shall be amended to contain a list of 20 Directors of DCL. We have compared this new list of 20 Directors with the list of contained in the Articles of Association. We have found that Mr. Y and Mr. A, who were in the original list, are not in the new list. Moreover, in the new list Mr. B has been included, who was not in the original list. There is a possibility that two directors have resigned and a new director has been elected. If this is the case, then, in accordance with section 27 KA of the Bank Companies Act 1991, COMPANY 1 also needs to seek NOC from the Bank approving this change in the Board of Directors of COMPANY 1, or the change shall not be effective.
Should you have any query, do not hesitate to contact us.
For: “The Lawyers & Jurists”