Articles of Association

(a) The Articles of Association of a company have fixed the maximum strength of the Board as 12 directors. At present the Board has 9 directors of whom 6 are liable to retire by rotation and 3 not liable to retire by rotation. The Board wishes to appoint 3 additional directors. Can they appoint as desired?
(b)The managing director of a company is convicted of an offence involving moral turpitude. He prefers an appeal against conviction. Can he continue as managing director pending disposal of the appeal? Can the appellate court remove the disqualification or stay the same pending the disposal of the appeal?
(e) A, one of the shareholders of the company, filed a civil suit in a court for
removal of drectors B, C and E. Is the suit maintainable?
6As per Section 260, Board can appoint additional directors provided the Articles
give power to the Board to appoint such directors, and provided the number of directors and additional directors shall not exceed the maximum strength fixed by the Articles. In the instant case, after the appointment of 3 additional directors, the total strength of the Board will go up to within the maximum fixed by the Articles. Hence, Board can appoint the additional directors.
(b) The managing director cannot continue as such, as he is disqualified to act as managing director, pursuant to Section 267 of the Companies Act, 1956. The purpose of Section 267 is to ensure that the management and affairs of the company and its control is not in the hands of a person who has been found by a competent Court to be guilty of an offence involving moral turpitude. Section 267 enacts that any person who has suffered a conviction by a Court of an offence involving moral turpitude shall not be appointd or employed or continue in employment or appointment by any company as its managing or whole-time director. Thus, the provisions are stringent. Under Criminal Procedure Code (CrPC), an appeal against the order of conviction may either be dismissed summarily or heard by an Appellate Court. However, order of conviction does not on the mere filing of an appeal disappear and it is difficult to hold that Section 267 of the Companies Act must be read to apply only to final order of conviction as such interpretation may defeat the veJ:¥ object and purpose for which it came to be enacted. In view of the above,court will
not be inclined to stay the operation of Section 267 pending disposal of appeal;
(c)The Civil Court has no jurisdiction to entertain the suit for removal of directors of a limited company as it relates to the internal management of the company which is govemed by the Companies Act. In Ketan Indllstries PrivateUd. vs.Manjll RavindmPrasad Ketan, one of the two issues before one High Court was the same as appeared here. The
Court held that the shareholder has a right to remove directors under Section 284 ge Companies Act, which provides a machinery for enforcement of the right anWvil
Court has no jurisdiction to entertain a suit for removal of directors.
(d) If the Articles empower directors to appoint additional directors, Board” can appoint
J additional directors under Section 260 of the Companies Act. In the absence of any
provision in the Articles requiring that additional directors be appointed only at a meeting of the Board, additional directors can be appointed by circular resolution. But the power should be exercised bona-.fide and in the interests of the company and not for extraneous considerations like strengthening of the majority.
and employee of ABC Ltd., was appointed as an alternate director. In the meantime, the original director returned and wanted to attend the Board meeting.
Advise. In terms of Section 313 of the Act, an alternate Director can act on behalf of the original Director during the latter’s absence for a period of not less than three months from the State in which the meetings of the company are held.
Alternate director has to vacate office when the original Director returns to the State in which meetings of the Board are ordinarily held. Thus, the original director only can attend the Board meeting. Even if the alternate director so desires, he cannot attend the Board meeting.
How will you deal with the following:
(i)Contribution of Rs. 5 lakhs to Prime Minister’s relief fund. (ii) A company wants to appoint X as managing director, who is also a managing
director of another company.