Nahid Sarwar vs The Registrar, Joint Stock Companies and Firms, Dhaka (RJSC) and another
Citation: Company Matter No. 266 of 2021
Jurisdiction : Bangladesh
Petitioner: Nahid Sarwar
Respondents: The Registrar, Joint Stock Companies and Firms, Dhaka (RJSC) and another
Facts :
The petitioner Nahid Sarwar was the Managing Director of “Cityscape International Ltd”. It is a private limited company incorporated on 26 August 2009 under the Companies Act, 1994. The petition was filed before the High Court Division under Sections 81(2), 85(3), and 396 of the said Act seeking directions relating to the internal governance and statutory compliance of the company. The company was engaged in real estate and land development. It originally had two shareholders and directors. These were the petitioner Nahid Sarwar himself and his mother, Mrs. Khaleda Sarwar. The company had been functioning normally in compliance with legal requirements. This included holding of Annual General Meetings. The last AGM of the company was duly held on 22 January 2017. The structure of the company, however, underwent a significant change following the death of Mrs. Khaleda Sarwar on 16 November 2017. Upon her death her shares devolved upon her legal heirs. These were Nahid Sarwar, Sehly Sarwar, and Pavel Sahid Sarwar. However, the transmission of her total shares remained incomplete which created uncertainty in the composition of shareholders and directors. This situation led to a breakdown in the effective corporate structure. Therefore, resulting in difficulties in maintaining proper governance and decision making within the company. At the same time, no Annual General Meetings (AGM) were held for the years 2018 to 2021 and the company became exposed to “statutory default” under the Companies Act, 1994.
As a result of these circumstances, the petitioner contended that it became impracticable to convene board meetings and general meetings in accordance with the Articles of Association and provisions of the Companies Act. The internal governance of the company was severely disrupted due to the unresolved share transmission and resulting quorum and management issues. In these circumstances, the petitioner approached the Court seeking condonation of delay in holding the AGMs for 2018–2021, the permission to hold such delayed meetings, the exoneration from statutory penalties and appropriate directions that might enable the sole continuing director to convene board meetings for the purpose of reconstituting the board and completing the transmission of shares in favour of the legal heirs of the deceased shareholder.
Issues :
1. Whether a ‘sole Director’ can call and hold a Board Meeting.
2. Under what circumstances the invocation of the provisions of Section 85(3) of the Companies Act is appropriate.
3. What is the status of an act of Parliament in relation to any Regulation under Schedule I of the Companies Act, 1994.
4. Whether the Regulations contained in Schedule I of the Companies Act are mandatory and binding on companies.
5. Whether a non-member can be appointed as a director and whether directors must be appointed from among members of the company under Section 91.
6. What steps may be taken by the board when the number of directors is reduced to a single director due to resignation or death of other directors, and no quorum exists.
Arguments :
Arguments of Petitioner :
It was contended that the delay and failure to hold AGMs were not the result of any wilful default or negligence, but arose due to circumstances beyond the petitioner’s control, particularly the death of a shareholder which created structural and quorum-related obstacles. The petitioner argued that the company had always intended to comply with its statutory obligations, and therefore penal consequences under Section 82 should not be imposed. It was further submitted that under Regulation 90 of Schedule I of the Companies Act, the powers of a sole director are extremely limited, being confined mainly to increasing the number of directors or calling a general meeting, which in practice rendered effective internal governance impossible. The advocate of the petitioner also mentioned difficulties regarding acceptance of filings and resolutions made by a sole director to Registrar of Joint Stock Companies (RJSC). This thereby makes compliance practically unworkable without judicial assistance. Accordingly, it was argued that Section 85(3) of the Act empowers the Court to intervene where necessary to regularize company management, direct the holding of meetings and issue ancillary orders required for the proper functioning of the company.
Arguments of Respondents:
On the other hand, the respondents submitted that the affairs of a company must be strictly governed by the provisions of the Companies Act and its Articles of Association, furthermore corporate governance requirements cannot be relaxed merely due to administrative inconvenience. It was argued that a sole director cannot function as a full board where statutory quorum requirements are not satisfied and that under Regulation 90 of Schedule I, the powers of a continuing director are strictly limited to increasing the number of directors or calling a general meeting. It was emphasized any appointment of directors must comply with Section 91 of the Act, which requires that directors be elected from among the members and that only eligible persons can be appointed in accordance with law. The respondents further contended that judicial intervention under Section 85(3) is an exceptional remedy, which can only be invoked where it is genuinely impracticable to call, hold, or conduct meetings through the normal legal mechanisms. Therefore, it was argued that corporate governance rules should not be bypassed unless strict statutory necessity is clearly demonstrated.
Decisions :
Having heard the deliberations, the Court engaged in a detailed interpretation of the Companies Act, 1994, particularly in relation to board functionality, quorum requirements, and the supervisory jurisdiction of the Court under Section 85(3). The court decided upon the following:
- In spite of any vacancy occurring in the Directors’ body, if remaining Directors can fulfill the quorum, the continuing Directors may carry on all types of works and businesses necessary for the company. But where there are not sufficient Directors to fulfill a quorum, the remaining Director or Directors may act only for two purposes as per regulation 90, schedule I, namely,
(i) to increase the number of Directors and
(ii) to call a general meeting. - Section 85(3) of the Company Act is applicable when it is impracticable for the company to call, hold and conduct any types of meeting, or to carry out two out of these three acts for any types of meeting, or to carry out any single act out of these three acts for any types of meeting. Once a petitioner moved the Court by invoking Section 85(3) of the Companies Act, the Court, upon being satisfied of the abovementioned conditions, becomes empowered to pass necessary orders and directions. These orders are not only binding upon the company but also upon the RJSC, BSEC, Bangladesh Bank, Financial Regulation Council and all other State Functionaries and statutory bodies of the country.
- The status of an Act of Parliament is superior to that of a Regulation in the hierarchy of laws of our country. For, usually in the last part of an Act of Parliament, the Legislature sets out a provision empowering the concerned Ministry or statutory body to make necessary Regulations. However, when any Regulation is directly drafted and enacted by the Parliament itself by annexing it as a Schedule to the Act, it becomes an integral component of the said Act and, consequently, the status and force of the said Regulations are as good as those of an Act of Parliament.
- Unless any Regulation of Schedule-I to the Companies Act is modified or excluded or the similar particulars are contained in the Articles of Association of a company, the Regulations contained in Schedule-I to the Companies Act will mandatorily apply to the company due to the word ‘shall’ written therein.
- Section 91(1) overrides the provisions of Articles of Association of a company and, therefore, Regulation 90 of Schedule-I to the Companies Act being an Article of the company shall not be applicable, if it is found to be inconsistent with the provisions of Section 91(1) of the Companies Act. Since Clause (b) of Section 91(1) of the Companies Act requires that the Directors of the company shall be elected by the members from among their number in a general meeting, and since Clause (c) of the aforesaid Section says that if there is any casual vacancy it may be filled in by the Directors in a Board Meeting and no general meeting is required, but in that case “the person appointed shall be a person qualified to be a Director under Clause (b)”. In that case, the sole Director may appoint one or more Director/s from among the persons who are members of the company.
- When, due to the death or resignation of any Director, there remains only one Director, but there are other members of the company willing to act as Director, the sole Director will have the option either to use the power conferred by Regulation 90 of Schedule-I of the Companies Act and hold a board meeting for the purpose of increasing the number of Directors, or to invoke Section 85(3) of the Companies Act and approach the Court for appropriate relief; But when, due to the death or resignation of any Director/s, there remains only one Director, coupled with a scenario that there is no other member who may be appointed as a Director of the company, the continuing Director cannot act under Regulation 90 but must approach the Court invoking Section 85(3) of the Companies Act. When the sole Director invokes Section 85(3) of the Companies Act in the scenario above, the Court may direct calling, holding and conducting a single Director’s meeting, and (a) Direct appointing new Directors in the Board meeting from amongst the other members in accordance with Section 91(1)(c) of the Companies Act or Regulation 85 of Schedule-I to the Companies Act or Article 28 of the Articles of Association of the company, or (b) Direct taking resolution regarding calling, holding and conducting a general meeting for the purpose of electing.
Relevant Laws :
- The Companies Act, 1994
- Sections : 5, 18, 81(2), 82, 85(3), 90(1), 90(2), 90(3), 91(1)(a), 91(1)(b), 91(1)(c), 97(1), 396
- Schedule I, Regulation 90
Author :
1. Raiyan Talukder
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