Court's power to form Board of Directors of a compnay.

Tees Mart Inc. 

vs.

Bangladesh Industrial Finance Company Limited and Ors

Date of judgment-  17.12.2020

Case number- Company Matter No. 32 of 2020

Keywords- Financial institution, maladministration, minority shareholders, financial thugs

Relevant laws- S.233 of Company Act 1994 

Facts- 

The case involves Tees Mart Inc. a company holding 10% shares of Bangladesh Industrial Finance Company Limited (BIFC) who filed a petition under Section 233 of the Companies Act, 1994 asking the High Court (HC) to issue orders to remove the BIFC's current board of directors as they were acting against the rules and deleterious towards the interest of the petitioner. Additionally, it asked the HC for orders to choose an independent auditor to determine the entire amount of money that PK Haider, being the director of BIFC and his associates, being the beneficiaries, had misappropriated from the BIFC during the previous years, 2015-2020. 

Upon preliminary hearing, the court granted two interim orders,  retrained the present Board of Directors’ activity and gave direction to the Governor of Bangladesh Bank to deal with the petitioner's legal notice.

In the course of hearing the court skimmed through all the affidavits and found that there were unlawful activities with a motive of looting the depositor’s money. Respondents put a lot of allegations against each other. In dealing with these, the court found that there was no valid Board of Director. Advocates professed that the court has the power to pass ancillary, consequential and supplemental orders and directions when dealing with s 233 of the Companies Act hence application of S. 85(3) of the Companies Act can be relevant here.

The court observed that the provisions of Section 85(3) of the Companies Act empowers this Court to suo motu call, hold and conduct any meeting (i.e. Board Meeting, Statutory Meeting, Extraordinary Meeting, Annual General Meeting) on the ground of impracticability of application of the provisions of any law or any of the provisions of the Articles of Association and, in passing an Order under Section 85(3) of the Companies Act, this Court has been vested with the further power to "give such ancillary or consequential Direction as it (this Court) thinks expedient". This Court found it impossible to carry out Court's  Orders/Direction under Section 85(3) , without having a Board of Directors of a company in place.  The court found that this Court is well equipped with ample authority (i) to form a Board of Directors for any company, (ii) to appoint necessary number of shareholder- directors, (iii) to appoint Independent director/s and (iv) appoint a Chairman for the Board, out of the shareholder-directors or Independent directors, as per the exigencies of a particular company.

The court found that in any event, the issue of the petitioner's standing, now, didn’t appear to be a vital aspect of this case following revelation of the 'impracticability' in calling, holding and conducting the meetings of the BIFC, for, it had now became this Court's suo motu duty by virtue of the power vested in it by Section 85(3) of the Companies Act to deal with the issues of this case and, therefore, this Court is competent enough to dispose of the present case, without presence of any petitioner. 

Judgment- 

The Court is always loath to interfere in the internal business of any company unless it appears to this Court that non-interference by this Court would cause serious harm and loss to the company. In this case, in the backdrop of non-existence of a Board of Directors of the BIFC, it has now been a statutory duty for this Court to form a Board of Directors for the time being to call, hold and conduct all kinds of the meetings of the BIFC and, further, since the contending/antagonistic groups of Directors are blaming each other on the issue of embezzlement of the BIFC's funds, there must be a special audit for  the company by a reputed audit firm who is affiliated with big-4 audit firms. Judge Moyeenul Islam Chowdhury, a retired justice of the Supreme Court, was appointed as the company's independent director and chairman. He will chair the board meetings and annual general meetings.The new appointed chairman had the power to call, conduct and hold Board meetings of the company at his earliest convenience upon consultation with the advocates of the parties and all the members of the board. The court further appointed Nurul Faruk Hasan and Co. Chartered Accountants, affiliated with 'Deloittee Toiuche Tohmatsu Limited to figure out the assets, liabilities, and balance of the BIFC, the amount of the personal investments of the sponsor-shareholders, the mode of the investment by the sponsor shareholders, whether investment was made in cash or otherwise and what was the mode of investment by three foreign shareholders including Tees Mart Inc. of the USA.