Mohd. Abdul Wadud Vs. The Heaven Homes Private Ltd. & others [4 LNJ (2015) 330]

Case No: Company Matter No. 16 of 2012

Judge: Md. Rezaul Hasan,

Court: High Court Division,,

Advocate: Dr. M Zahir,Mr. Md. Zakir Hossain,Mr. Md. Jashimuddin Ahmed,Mr. Shah Muhammad Ezaz Rahman,Mr. Mustaque Ahmed Chowdhury,,

Citation: 4 LNJ (2015) 330

Case Year: 2015

Appellant: Mohd. Abdul Wadud

Respondent: The Heaven Homes Private Ltd. & others

Subject: Company Matter,

Delivery Date: 2012-10-14

HIGH COURT DIVISION
(STATUTORY ORIGINAL JURISDICTION)
 
Md. Rezaul Hasan, J.

Judgment on
14.10.2012
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Mr. Mohd. Abdul Wadud
...Petitioner
-Versus-
The Heaven Homes Private Limited represented by its Chairman Mr. Kohd. Abdus Salam and others
. . .Respondents
 
Companies Act (XVIII of 1994)
Section 233
Taking of an action on the allegation of delinquency against the petitioner, does not amount to oppression on minority shareholder merely for the reason that he happens to be a minority shareholder in the company and shall not bring this cause to be considered under section 233 of the Act. . . . (7)

Companies Act (XVIII of 1994)
Section 233
A Member’s interest is not confined only to his individual interest. But shall extend to his ultimate interest as well and in his interest to ensure that the company is being managed and run properly, profitably and in compliance with the provisions of law. Once the complaining share holder is able to show mismanagement of the affairs of the company, resulted either from non-compliance of law or otherwise, a petition under section 233 of the Act is maintainable and the court may pass appropriate order to undo the wrong resulting from non-compliance of the provisions of the Act or of the Articles of Association. Otherwise, the purport and the legislative intent in incorporating section 233, in the Companies Act, will be frustrated. The sprit of section 233 is to be considered to ensure corporate governments as well and to require fairness in managing the affairs of the company by the Board of Directors or majority shareholders. . . . (8)

Companies Act (XVIII of 1994)
Sections 233 and 95
Companies Rules, 2009
Rule 8
Reading section 233 with section 95 of the Act and rule 8 of the company Rules, 2009 this court has jurisdiction to decide about the validity of a meeting held without complying with the provisions of section 95 and to cancel any resolution taken in such a meeting under section 233 as well as for ends of justice. . . .(9)

Companies Act (XVIII of 1994)
Section 95
To receive a notice, is a statutory right of a director, ensured by section 95 of the Act. . . .(10)

Companies Rules, 2009
Rule 8
This court has inherent jurisdiction under rule 8 of the Companies Rules, 2009 to pass appropriate order for ends of justice in a case in which non-compliance of the provision of law comes to its notice. . . . (12)

Companies Act (XVIII of 1994)
Sections 3(1) and 95
Companies Rules, 2009
Rule 8
The word “inherent jurisdiction”, used in rule 8, is of wider connotation then that the word ‘inherent power’. This inherent jurisdiction vested in this court under rule 8 is in addition and supplementary to the statutory jurisdiction vested in this court under sub-section (1) of section 3 of the Act. Reading sub-section (1) of section 3 along with rule 8 of the Companies Rules, 2009. I find no lack of jurisdiction of this court to pass an appropriate order to hold the questioned board meeting unlawful for non-service of the statutory notice, as required to be served as per provisions of diction 95 of the Act, particularly in the absence of a case of waiver or acquiescence. . . . (13)

Companies Act (XVIII of 1994)
Section 95
If the directors are allowed to call a board meeting without serving statutory notice, as required by section 95 of Act, then it is bound to lead to chaos and to collapse the management of the company. So, the law should be interpreted in a manner that will support the purport and intent of enacting the law instead of being frustrated and thereby will help compliance of the provisions of law. . . . (14)
 
Interpretation of Statute
Any interpretation that would lead to giving indulgence to non-compliance should be avoided and abhorred. . . . (14)
 
54 DLR 583, 50 DLR 597, 50 DLR AD 138, 50 DLR 597, 53 DLR 81, 54 DLR 28, 54 DLR 306, 61 DLR AD 82 ref.
 
Mr. Md. Jashimuddin Ahmed, Advocate with
Mr. Md. Zakir Hossain, Advcoate
…. For Informant-appellant.

Dr. M. Zahir Senior Advocate with
Mr. Shah Muhammad Ezaz Rahman, Advocate with
Mr. Mustaque Ahmed Chowdhury, Advocate,
. . .For the  Respondents

Company Matter No. 16 of 2012
 
JUDGMENT

Mr. Justice Md. Rezaul Hasan:
 
This is an application under section 233 of the Companies Act, 1994 (the Act).

Facts leading to filing of this application, in short, are that the petitioner is the Managing Director of the Respondent No.1 Company namely The Heaven Homes Private Limited, certificate of incorporation No. C-71163 (3670)/08, having 500 shares of Tk.1000 each. The petitioner is holding 20% shares in the company, incorporated on 08.05.08 as a private company limited by shares, under the Companies Act, 1994 (the Act) to carry on the business of housing, Real Estate, construction of houses, apartments, commercial centers and to dispose the land, plot, apartments or shops by way of allotment, sale, rent etc; that it was stipulated in Article 29 of the Article of Association of the Respondent No.1 company that the affairs and business of the company shall be managed under the control and supervision of the Managing Director; that the petitioner has been appointed as Managing Director for a period of 5(five) years from the date of incorporation, as stated in Article 32, wherein it also has been mentioned that his remuneration and other allowances shall be determined by the Board of Directors of the company; that Article 30 and 31 of the Articles of Association of the Company contemplates that Respondent No.2 Mr. Mohd. Abdus Salam shall be the first Chairman of the Company for a period of 5(five) years and his responsibility shall be to preside over all the meetings of the Company and Respondent No.3 Mr. Abdul Jabed shall be the Vice Chairman of the Company for a period of 5(five) years, who will discharge the function of the Chairman in his absence; that during 14-15 days in the month of July, 2011 while the petitioner was out of Sylhet, the  Respondent No.2, having taken advantage of his close relation with internal auditor, received the audit reports along with the book of accounts from him without any concurrence of the petitioner and behind his back; when the petitioner approached Respondent No.2 to provide the audit report along with the papers, but the Respondent No.2 showing different reasons delayed to hand over the audit report and books of account of the Company; that Article 38 of the Articles of Association of the Company provides that the entire fund of the Company shall be kept with any Islami Bank determined by the Board of Directors of the Company and the same shall be operated under the joint signatures of the Managing Director with either the Chairman or the Vice Chairman; that the Company opened a bank account with Respondent No.7, Exim Bank Ltd. Sylhet Branch, Al-Hamra Shopping City, Zindabazar, Sylhet, being account No.000313100002098 which was to be operated under the joint signature of the Managing Director with either the Chairman or Vice Chairman; that upon receipt of a hand written board resolution dated 06.10.2011, signed by the Respondent No.2, which was annexed to the petition of Complaint case No.117 of 2011 filed before the Chief Judicial Magistrate Court, Sylhet, it was noticed that the petitioner has been released from the office of Managing Director; that subsequently the petitioner was able to collect a printed version of the Board resolution dated 06.10.11; that the said board meeting has not been convened by the petitioner as Managing Director and that he was not served with any notice of the said meeting, that the resolution mentioned above did not contain the name or signatures of the Directors; that as such it appears that the board resolution of the Respondent No.1, the Heaven Homes Private Limited, dated 06.10.2011, is fake and created collusively by the Respondent Nos.2 and 3; that Article 25(d) of the Article of Association of the Respondent No.1 Company stipulates that if the Chairman, Vice Chairman, Managing Director or Executive Directors are engaged in any activities subversive to the interest of the Company or failed to perform their duty they may be released from their office as per the recommendation of the Board of Directors in an Extra-Ordinary General Meeting, but in the instant case the Respondent Nos. 2 and 3 disregarding the provision of Articles 25(d) removed the petitioner from the office of the Managing Director by an ordinary board resolution which is unlawful and is of no legal effect. Hence this petition.

The Respondent No.2 appeared in this matter and submitted affidavit-in-opposition denying all materials allegations and specifically stated that Article 38 of the Articles of Association of the Company provides that the entire funds of the company shall be kept with any Islami Bank determined by the Board of Directors of the company and the same shall be operated under the joint signature of the Managing Director with either the Chairman or Vice Chairman; besides during the course of hearing the respondent No. 2 submitted a supplementary affidavit filed by the respondent stating at paragraph No.3 that before holding the meeting dated 6.10.2011, whereby the petitioner has released from his office as Managing Directors, he was verbally informed about this meeting; the petitioner submitted an affidavit-in-reply to the affidavit-in-opposition specifically denying at paragraph Nos.4 and 3 that no notice was served on the petitioner before holding of the said meeting dated 16.10.2011 the petitioner was neither verbally informed, nor any notice served upon him.

The learned Advocate Mr. Jashimuddin Ahmed appearing along with the learned Advocate Mr.Md.Zakir Hossain, having placed the petition and other materials on record and particularly drawing my attention to Article 32 of the Articles of Association of the respondent No.1 (the Company), submits that the petitioner is entitled to hold his office as Managing Director for 5 years and that the company being registered on 8.5.2008 the tenure of 5 years will be expired on 7.5.2013. As such the board resolution dated 6.10.2011, whereby the petitioner has been removed, is totally ultravires the power of respondent and the questioned resolution is liable to be cancelled as per provisions of clause a of sub-section (3) of section 233. The learned lawyer, then referring to paragraph No.38, providing for operation of Bank Accounts further that submits the Bank Account to be opened with Islami Bank is to be operated under joint signature of the Managing Director (the petitioner) and the Chairman or Vice Chairman, but adopting this disputed resolution dated 6.10.2011 the respondents have violated the provisions of Article 38 and as such the resolution is liable to be cancelled under the aforesaid provisions of law. He also submits that it has been clearly stated that in paragraph No.10 of the petition that the petitioner has been removed from his office by the board resolution dated 6.10.2011 without serving any notice and the said resolution is liable to be cancelled on that count as well for violation of the specific provision of section 95 of the Companies Act. The learned Advocate for the petitioner finally submits that section 106 of the Companies Act provides for removal of a Director. But in the instant case the petitioner (Managing Director) has been removed by board resolution dated 6.10.2011, which is a clear violation of provisions of section 106 of the Act, hence also the questioned resolution is liable to be cancelled. Accordingly, he has prayed for allowing the petition interms of the prayer made in the application filed under section 233. The learned Advocate for the petitioner has referred to 54 DLR 583(a case under section 233), 50 DLR 597 (a case under section 95), 50 DLR AD 138 (a case under section 95) arose out of 50 DLR 597 and 53 DLR 81 (a case under section 233) in support of his contention.

The learned Counsel Dr. M. Zahir, appearing along with the learned Advocates Mr. Shah Muhammad Ezaz Rahman and Mr. Mustaque Ahmed Chowdhury, on the contrary, submits that a mere reading of the resolution dated 6.10.2011 would show that the petitioner was released (AhÉ¡q¢a) from the office of the Managing Director. As such the submission that he was removed from his office is totally misconceived. The learned Advocate, further referring to Form-XII (particulars of Directors) filed on 15.10.2011 with the Registrar of Joint Stock Companies and Firms, submits that it clearly shows that the petitioner Mr. Md. Abdul Wadud has ceased to be the Managing Director, but he is continuing as a Director since 6.10.2011. Hence, question of following provisions of section 106 of the Act did not arise in this case and the Board of Directors are very much competent to adopt the resolution in question. He next submits that the resolution in question, annexed as annexure-C to the petition, would show that the petitioner was released from his office of the Managing Director because of dishonour of 4 (for us) cheques issued by him in favour of the company, upon his admission in a meeting dated 5.9.2011 that the petitioner has illegally removed Tk.25,18,502/- from the company’s fund and that he has admittedly refunded Tk.2,53000/-, while for repayment the balance amount he has issued 4 cheques with commitment to adjust the said amount by 29.9.2011. But none of the said 4(four) cheques were honored and the company has filed N.I.Act  cases and the Complaint Petitions filed under section 138 of the N.I. Act have also been annexed as Annexure-X-4 to X-11 to the affidavit-in-opposition. As such, there is no case of oppression on the petitioner as minority shareholder. Rather it is a clear case of taking action against the petitioner for committing breach of trust and removal of company’s money and the action taken for this reason should not amount to oppression against the petitioner as a minority shareholder. As such, the learned lawyer continued, that the petition is not at all maintainable under section 233, since there is no question of oppression. Rather the action was taken upon specific allegation of defalcation, admitted by the petitioner and duly proved by the materials on record before this court. The learned lawyer for the petitioner further submits that this petition under section 233 is not maintainable as well for the reason that section 233 of the Act only protects individual right and interest of minority shareholder, but this section is not available to seek protection of the office of Managing Director which is divisible from the petitioner’s capacity as a member. He finally submits that the Respondent No.1 Company is a private company limited by shares and indeed there was no practice in this company, since inception, to issue any notice in writing. Hence the petitioner was verbally informed about this meeting dated 6.10.2011, notwithstanding the fact that in his petition and in his affidavit-in-reply he has denied to have been informed verbally as well as he has denied to have been served with any notice. The learned Advocate then concludes that the question, with reference to section 95 of Act, agitated before this Bench hearing company matter is not possible to be decided by this court inasmuch as no specific jurisdiction has been vested in this court to hear or to decide dispute that has arisen or that may arise for non-compliance of section 95 of the Act, in other words for not issuing any notice upon any Members of the Board of Directors and that if any Director has any allegation of this kind he will have to raise it before the civil court. On this ground, the learned Advocate for the respondent submits that, the instant petition is liable to be dismissed with costs. The learned lawyer for the respondent has referred to 54 DLR 28 (a case under section 233), 54 DLR 306 (a case under section 95 and 61 DLR AD 82 (a case under section 95) in support of his submission.

I have heard the learned Advocate appearing for both sides, the petition filed under section 233, the affidavit-in-opposition, the supplementary affidavit, the affidavit in reply and other materials on record.

As regards the submission that the petitioner has been removed from his office of the Managing Director, in violation of Article 32 and Article 38 read with section 106 of the Act, I find from the questioned resolution dated 6.10.2011 (annexure-C to the petition) that the petitioner was simply released (AhÉ¡q¢a) from the office of the Managing Director. He has not been removed from his office as a Director Office or of Managing Director. ‘Removal’ and ‘release’ are two different acts. Besides, from perusal of Articles 29, 30, 31 and 32, it is apparent that the managing director is to perform his duty subject to the supervision of the board of directors. As such, the board of directors are very much competent to adopt the resolution in question. Alongside, having considered the contents of the said Board resolution alongwith 4(four) Complaint Petitions, it is apparent that the petitioner was released from his office for committing financial misdeeds, but he has been continuing as a director as is evident from Form XII, dated 15.12.2011, (Annexure 15) to the affidavit-in-opposition. So, apparently this is not a case of removal and the decision was taken not from any motive to oppress the petitioner, rather on the basis of an specific allegation and admitted position of defalcation or removal of company’s monies. Hence, in this case the question of oppression does not arise and taking of an action on the allegation of delinquency (supported by the materials on record) against the petitioner, does not amount to oppression on minority shareholder merely for the reason that he happens to be a minority share-holder in the company and shall not bring this cause to be considered under section 233 of the Act.

I have also considered the submission, as advanced by the learned Advocate for the respondent that, section 233 of the Act protects the interest quo member. But, the question whether such interest shall refer only to the direct interest of a member or to ultimate interest to see that the company is being managed properly and as per law was neither agitated nor decided in the aforesaid decisions referred to by the learned advocate for the respondent. A Member’s interest, in my considered opinion, is not confined only to his individual interest. But shall extend to his ultimate interest as well and in his interest to ensure that the company is being managed and run properly, profitably and in compliance with the provisions of law. Once the complaining share holder is able to show mismanagement of the affairs of the company, resulted either from non-compliance of law or otherwise, a petition under section 233 of the Act is maintainable and the court may pass appropriate order to undo the wrong resulting from non-compliance of the provisions of the Act or of the Articles of Association. Otherwise, the purport and the legislative intent in incorporating section 233, in the Companies Act, will be frustrated. The sprit of section 233 is to be considered to ensure corporate governments as well and to require fairness in managing the affairs of the company by the Board of Directors or majority share-holders. However, on the facts of this case, I find 54 DLR 28 is liable to be distinguished for the reasons stated herein before.

Then referring to the, decisions taken in 54 DLR 306 and in 61 DLR (AD) 82, there is no reason to depart from the views taken in those cases that unless the jurisdiction is conferred in this court to decide a lis, this court does not have authority to decide the same. But, I am of the opinion that reading section 233 with section 95 of the Act and rule 8 of the company Rules, 2009 this court has jurisdiction to decide about the validity of a meeting held without complying with the provisions of section 95 and to cancel any resolution taken in such a meeting under section 233 as well as for ends of justice.

Finally, having considered the fact that no notice for calling the meeting dated 6.10.2011 has been issued, I find that this ground has been specifically taken at paragraph 10 of the substantive application, although by a supplementary affidavit the respondent has stated that they have verbally informed the petitioner to attend the meeting the petitioner. However, by filing an affidavit-in-reply the petitioner has denied this statement and again asserted that no notice was served on the petitioner and that there was no practice either to call a board meeting without issuing any formal notice. In my considered view, to receive such a notice, is a statutory right of a director, ensured by section 95 of the Act, that reads as follows: “95 Notice of meetings:- Notice of every meeting of the Board of Directors of a company shall be given in writing to every director for the time being in Bangladesh and at his address in Bangladesh.” Besides, in the instant case the petitioner has not waived his right to receive the notice required to be served upon him as per provision of section 95of the Act.

So far as the question of legality of the board meeting without serving any written notice upon the directors (the petitioner in this case) as required by section 95 of the Act, the petitioner has referred to 50 DLR 597 (Ittefaq Group of Publications Limited and others Vs. Arab Bangladesh Bank Limited and others). It further appears that this matter was ultimately taken to the apex court and the apex court has upheld the decision of the High Court Division, vide the case reported in 50 DLR (AD) 138. In 50 DLR 597 it has been held that “For holding a valid meeting of the board of directors written notice must be given to all the members of the board of directors. If any one is left out the resolution taken in that meeting becomes invalid.” I would respectfully follow this view expressing the correct position of law, while I do not see any reason to depart from the views taken in 50 DLR597. (emphasis added).
This court has inherent jurisdiction under rule 8 of the Companies Rules, 2009 to pass appropriate order for ends of justice in a case in which non-compliance of the provision of law comes to its notice.

The word “inherent jurisdiction”, used in rule 8, is of wider connotation then that the word ‘inherent power’. This inherent jurisdiction vested in this court under rule 8 is in addition and supplementary to the statutory jurisdiction vested in this court under sub-section (1) of section 3 of the Act. Reading sub-section (1) of section 3 alongwith rule 8 of the Companies Rules, 2009. I find no lack of jurisdiction of this court to pass an appropriate order to hold the questioned board meeting unlawful for non-service of the statutory notice, as required to be served as per provisions of diction 95 of the Act, particularly in the absence of a case of waiver or acquiescence.

In my considered view, if the directors are allowed to call a board meeting without serving statutory notice, as required by section 95 of Act, then it is bound to lead to chaos and to collapse the management of the company. So, the law should be interpreted in a manner that will support the purport and intent of enacting the law instead of being frustrated and thereby will help compliance of the provisions of law. Any interpretation that would lead to giving indulgence to non-compliance should be avoided and abhorred. Besides, the law declared in 61 DLR (AD) 82 and 54 DLR 306, concerning section 95 of the Act, declared before the Companies Rule, 2009 has come into effect. As such, the legal significance of Rule 8 of Companies Rules, 2009 was neither agitated nor decided in those cases. Hence those cases are liable to be distinguished on this aspect.
In view of the deliberations recorded herein above, for calling the questioned meeting without serving any notice upon the petitioner, I hold that the concerned resolution is liable to be cancelled for non-compliance of section 95 of the Act.

Accordingly, I find merit in this petition.

In the result the petition is allowed. However the company is at liberty, if so adviced, to proceed according to law in compliance with section 95 of the Act.

However, the acts done by the board consisting of new Managing Director, in the meantime, shall be deemed to be valid inspite of any irregularities in his appointment. 

The direction given at the time of admission of this petition, on 17.1.2012, not to deal with the companies Bank Account No.00313100002098, maintained with Exim Bank Limited (respondent No.7) shall stand vacated.
Costs will be borne by the parties.

Ed.