Why Director Disputes Land In CLB
Shareholders cannot run daily business. So they elect Board. In closely held companies, directorship is result of mutual understanding. But when relationship sours, first battleground is Board. We see cases where appointment is made without following procedure. Form 32 is uploaded claiming someone retired voluntarily. This forces minority to approach CLB under 397/398. CLB first tries settlement. If not possible, it passes regulatory orders under 402 to protect company.
Scope Of Directors Duties: Agent, Trustee And Fiduciary
SC in Dale & Carrington 2004 made position clear. Directors are not owners. They are agents with limited authority from Board. They are trustees for shareholders. Fiduciary duty means utmost good faith, full disclosure, care and skill. They must act within MOA/AOA. Any act beyond authority is voidable. But this duty is to company, not to individual shareholder. So isolated grievance of one shareholder does not automatically mean breach of duty.
Limits To Judicial Interference In Board Decisions
Kerala HC in Cochin Malabar 2003 cautioned against judicial overreach.
Board is entrusted with management by general body. Court cannot adjudicate commercial judgment. Thousands of shareholders have different views. Their remedy is AGM or CLB if oppression is there. Company court should not become appellate authority over Board. Even error in judgment is not oppression. If court interferes in every decision, company will be stuck in litigation. Rule is: interfere only when there is illegality, fraud, or oppression.
Section 284 And Removal Despite Articles
Many family companies name "permanent director" in Articles. That creates false sense of security. Delhi HC in Tarlok Chand 1983 settled law. s.284 overrides Articles. Any director can be removed by ordinary resolution. s.9 makes Act supreme. Right to nominate successor after death also does not save tenure. But due process is mandatory. Notice of proposed resolution and meeting must be given. Without notice, removal is invalid. So technical compliance matters, even though power exists.
Constant Infighting As Ground For 397/398
Oppression and mismanagement need not be one big act. Continuous Board fights can itself be mismanagement.
Delhi HC in Chander Krishan Gupta 1984 held: Section 398 covers both positive acts and inaction causing prejudice. When directors who are also shareholders fight constantly, business suffers and losses happen. That is sufficient for CLB to act. CLB’s mandate is wide. It can regulate affairs, restrain removal, appoint directors, or order buy-out. It may overlook procedural defects if substance warrants, or enforce strict compliance if needed. End goal is company’s survival.
Conclusion
Section 397 398 director removal clb jurisdiction balances 3 things. Directors have fiduciary duties per Dale Carrington but enjoy commercial discretion per Cochin Malabar. Shareholders have power to remove under s.284 even permanent director per Tarlok Chand, but must follow procedure. When constant infighting paralyzes company, CLB gets jurisdiction under 397/398 per Chander Krishan Gupta. CLB is not there to run business, but to ensure Board functions fairly. This framework protects both majority rights and minority interests in closely held companies.
