Removal of a Director from the Board of a Private Limited Company

Judgement of SC in applies to section 169 of CA, 2013 which contains the words “reasonable opportunity”. In the matter of Jai Kumar Arya and Ors vs Chhaya Devi and Ors {[2017]144SCL584(Delhi)}, Delhi High Court has held that the law laid down by the Supreme Court in LIC of India vs Escorts albeit in the context of section 284 of CA, 1956 applies equally section 169 of CA, 2013. Reasonable opportunity is to be granted prior to removal of director concerned as given in section 169(1) and 169(3) of CA, 2013 however there is no obligation to disclose reasons. [relevant paras 72 to 73.11- Jai Kumar Arya Supra] In the present case, a specific letter was sent to the Petitioner and explanatory statement specifically referred that an opportunity is being afforded to the Petitioner. And the Petitioner was very well aware of the reasons due to sequence of event that unfolded over the past several years and petitioner has nowhere stated that reasons were not known to him. In the case of LIC of India it was observed by the Hon’ble Supreme Court that ….the plaintiff objecting to this meeting and considering it illegal abstained from attending it and therefore made no answer or defence to or required no proof of the charges made against them. The adoption of this course was unfortunate, but does not afford any grounds for the interference of this court. [Para 100 last para at page 59 of LIC of India vs Escorts (Supra)]

The views expressed by Kerela High Court in Queen Kuries & Loans (P) Ltd vs Sheena Jose and Ors dated 05.08.1992 [relied by the Petitioner’s counsel] is bad in law in view of Judgement of SC in LIC of India (supra) as further held in the Judgement of Div. Bench of Delhi High Court in Jai Kumar Arya Supra at paras 74 to 74.5 page 47.

At para 74.3 of Jai Kumar Arya Supra it is observed by the Hon’ble Delhi High Court in that “In the absence of any specific statutory prescription to that effect, however, it is not open to the person affected by the action to contend that opportunity granted ought to be given at this stage or that.” Therefore, so far as reasons were known to the Petitioner well in advance, and the Petitioner has been served with notice, explanatory statement, special notice and letter inviting his representations on 25.05.2018, the Petitioner instead of coming forward to give his explanation to the same cannot contend that such reasons ought to be mentioned in detail in one document or other. Such an objection w.r.t. absence of reasons in one document/notice or other by itself cannot be ground for oppression and mismanagement and do not provide any justifiable ground for making a winding up order so far as ultimately the Petitioner had been made aware of the reasons well in advance and nevertheless the main reasons in brief are mentioned in the special notice.

Re: Judgements of NCLT and NCLAT in Ambika Foods Pvt Ltd relied by the petitioner with respect to requirement of Board Meeting for removal of Director u/s 169 of CA, 2013.

No analysis of section 169 of CA, 2013 was undertaken while upholding the requirement of Board Meeting for removal of director whereas entire reliance has been placed on section 169 of CA, 1956 (which is section 100 of CA, 2013) in the Judgements of NCLT and NCLAT in Ambika Foods P Ltd (relied by the petitioner) [Para 81 of NCLT Judgement dated 17.05.2017/para 31 of NCLAT Judgement 02.04.2018 in Ambika Foods] Further the provisions of Rule 23 of Companies (Management and Administration) Rules, 2016 have also not been discussed in the said Judgements. It is humbly submitted that the said Judgements do have the force of precedents.

Section 169 and Section 115 of CA, 2013 govern the aspect of removal of director by Special Notice. Section 169 is a special provision and over-rides section 100 of CA 2013. There is no reference to requirement of holding any Board Meeting in section 169 of CA, 2013 which is only required in case EOGM is exclusively called under section 100 of the CA 2013. In the present case, the Special Notice at the end specifies that EOGM be called pursuant to section 169 of CA 2013. In Jai Kumar Arya Supra at para 16, the Hon’ble Delhi High court has while discussing the provisions of section 100 of CA, 2013 stated in para 18 that ….“Unlike the Scheme in Section 169, therefore, an EGM is necessarily required to be called by Board of Directors of Company… thereby clearly indicating that such board meeting is not required under section 169 of CA 2013. Further as per section 169 of CA 2013 the Shareholders are not required to depend upon the board of directors for removal of a member of the board.