Re: Legal Opinion regarding operation of Bank Account A/C Company 1.
We refer to your letter dated October 11, 2007 on the above subject.
On perusal of your letter, it appears that Bank 1 has received a copy of a letter addressed to Registrar of Joint Stock Companies and Firms (RJSC) from Mr. x, a director of Company 1 (the Company), a customer of the Bank. The letter states that a board meeting was held on 2nd August, 2007 and resolutions were passed in that meeting without having necessary quorum. Mr. x alleged violation of Article 122 and 125 of Articles of Association of the Company and requested RJSC to take necessary measures. It appears from the copy of the minutes of the board meeting that a resolution was passed delegating the signing authority, for conducting banking transactions, to two directors in addition to the existing signatories.
After receiving the letter, the Bank suspended transaction of the related account of the Company and sent a letter requesting the C.E.O. of the Company to clarify the matter with a legal opinion. Mr. y, C.E.O. of the Company vide his letter dated ___________ requested the Bank to resume the operation of the relevant account and enclosed a legal opinion of a lawyer.
In these circumstances, you have requested us to provide our legal opinion as per Memorandum and Article of Association of the Company regarding the validity of the meeting and whether the bank can permit the new authorised signatories to operate the account.
It appears that the concerned meeting was held in the presence of three directors.
Article 122 of Article of Association of the Company provides inter alia “five directors present in person shall be the quorum for the meeting of the Board of Directors.”
Article 125 of Article of Association of the Company provides “A meeting of the Directors at which a quorum be present shall be competent to exercise all or any of the authorities powers and discretion by or under the Articles of the company”. Therefore as the meeting was held without having quorum, the said meeting was incompetent to exercise the authorities, power and discretion by or under the Article of the Company.
According to Article 169 of Article of Association of the Company, bank account of the Company shall be operated by the person or persons who is/ are authorised by the Board of Directors. Therefore, although the Board of Directors has the power to delegate the signing authority to operate bank accounts, for the lack of quorum any decision taken on the said meeting of directors shall be held invalid.
In the legal opinion obtained by the Company, the lawyer was of the opinion that the three directors acted within their power while they approved the nomination of the two alternate directors in pursuance to the power given by Article 121 of the Article of Association and under Regulation 90 of Schedule I of the Company’s Act 1994. When the approval was granted, at that moment the two alternate Directors were admitted to the meeting and the quorum required under Article 122 was fulfilled and all business transacted by them were in compliance with the Article of the Company. The lawyer further stated that if there arises any confusion regarding the legality of the appointment of alternative Directors, according to Regulation 95 of Schedule I of the Company’s Act 1994, in such cases any or all actions will be valid as if every such person had been duly appointed and qualified to be a Director.
Article 121 of the Article of Association provides inter alia “a director during an absence of not less than three months from the place in which meetings of the directors are ordinarily held, may with the approval of the Directors, appoint any person to be an alternate director during such absence…” Regulation 90 of Schedule I of the Company’s Act 1994 provides “The continuing directors may act notwithstanding any vacancy in their body, but, if and so long as their number is reduced below the number fixed by or pursuant to the regulations of the company as the necessary quorum of directors, after may act for the purpose of increasing the number of directors, to that number, or of summoning a general meeting of the company, but for no other purpose.”
Therefore if there is vacancy in the body of directors and the number of directors decreased to the number required to form quorum then the directors can act only for the purpose of increasing the number of directors, to that number, or of summoning a general meeting of the company. In the present scenario it appears that there are some directors absent due to the fact that they are outside the country, but this does not amount to vacancy to their office and thus the number of the directors was not less than five (which is the required quorum). Therefore the three directors present at that meeting did not have the authority to act under the Regulation 90 of Schedule I. Though the Directors can give approval to alternate directors, to give such approval they need to have quorum first, in the absence of quorum, the approval for the alternate directors was itself invalid. Thus addition of the two alternate directors cannot fulfill the requirement of quorum.
Furthermore since the two alternate directors were not present in the said meeting there is no question of application of Regulation 95 of Schedule I.
Therefore it is our opinion that for the lack of quorum the decisions taken in said meeting are invalid and the Bank should not permit the new signatories to operate the account.
If you have any further inquiries please do not hesitate to contact us.
For: “The Lawyers & Jurists”