Directors Role And Shareholder Control In Companies
Company is a separate juristic person. But it acts through Board of Directors. Shareholders elect directors and ultimate control rests with them in General Meeting.
In Public Limited Companies, directors have huge responsibility due to public interest. In closely held companies, appointment depends more on understanding between groups. Many companies run like proprietorship. Still, directors exercise all day-to-day powers. That is why every group wants "their people" on Board. When trust breaks, fight starts with appointment and removal of directors. Sometimes forms are uploaded with MCA claiming voluntary retirement when it never happened.
Legal Position Of Directors: Fiduciary Duty And Authority
Supreme Court in Dale & Carrington Invt. P Ltd Vs P.K. Prathapan, 2004 7 SCALE 584 explained this well. A company acts through Board. Individual director has no power unless Board authorizes. Directors are agents and trustees. They act in fiduciary capacity.
Duty is to act with utmost good faith, care, skill and diligence for benefit of company. They must disclose material facts to shareholders. Powers are limited by MOA and AOA. Acting beyond authority is illegal and can be questioned. But this does not mean court will sit as Board and take business decisions. Commercial Judgment Rule: Courts Will Not Interfere
Kerala HC in Cochin Malabar Estates Vs P.V. Abdul Khader, 2003 114 Comp Cas 777 laid down important principle.
Court starts with presumption that directors act in best interest of company. Judges are ill-equipped to make business judgments. Court cannot substitute its wisdom for Board's commercial decision.
Even commercial misjudgment is not oppression. If directors act prejudicial to minority, remedy is under Companies Act. Shareholder cannot run to company court for every error. That will lead to endless litigation and paralyze company. Court is not a correctional court for all errors. Majority rule and Board decision must be respected unless there is illegality or oppression.
Removal Of Directors Including Permanent Director
Section 284 gives power to shareholders to remove director by ordinary resolution in GM. This applies to all companies. Delhi HC in Tarlok Chand Khanna Vs Raj Kumar Kapoor, 1983 54 Comp Cas 12 dealt with "permanent director" named in Articles. Court held: Even life director can be removed under s.284. Articles cannot override statute. s.9 says Act prevails over Articles. Exceptions are only Govt nominee and directors appointed before 1.4.1952. But removal must follow procedure. Valid notice of meeting and resolution is must. If notice not given to director sought to be removed, removal is bad in law. So procedural compliance is critical.
When Does Director Dispute Become 397/398 Matter
Constant infighting itself gives jurisdiction to CLB.
Delhi HC in Chander Krishan Gupta Vs Pannalal Girdhari Lal Pvt Ltd, 1984 55 Comp Cas 702 said: Section 398 applies when management does positive act causing prejudice. It also applies when no action is taken and that causes prejudice. Constant fight among directors who are also shareholders had adverse effect and company incurred losses. That justifies 398 order.
CLB’s object is to put an end to matters and regulate affairs. It may even appoint director against majority wish if needed. It may ignore procedural irregularity or stress technicality depending on facts. Because real power lies with directors, shareholder dispute will always trace back to Board action or inaction.
Conclusion
Directors responsibility removal dispute 397 398 clb shows directors hold fiduciary position and must act for company benefit as per Dale Carrington. Shareholders can remove any director including permanent director under s.284, but with proper procedure as per Tarlok Chand. However, courts will not interfere in commercial judgment as held in Cochin Malabar. Constant infighting that harms company gives CLB jurisdiction under 397/398 as per Chander Krishan Gupta. CLB may pass wide orders including appointment of directors to regulate affairs. The focus is on protecting company and minority, not on deciding every Board dispute.
