Cases on
Removal of
Directors
Tarlok Chand Khanna v. Raj Kumar Kapoor & Ors. (1983)
• Tarlok Chand was removed by a resolution in a general meeting from the
board of directors. The petitioner promoted a company that consisted of
family members as members and shareholders. In 1965, when the
petitioner, who held the majority shareholding, fell ill, the respondent, who
belonged to the other group, took over the company’s management.
• Subsequently, some more shares were transferred to the majority
shareholders, and the petitioner was removed from the Board of Directors
of the company. Thereupon, the petitioner filed the petition on the
grounds of oppression and mismanagement of the company and for other
allied reliefs. He challenged this by arguing that the proper notice was not
circulated to the shareholders regarding his removal. Other company
petitions were also filed for various reliefs by members of each of the
groups.
• Issues in the case- Whether or not prior notice is to be given
to the director before his removal, and whether or not Article
8 of the article of association of the company was invoked?
• The court held that the removal of a director of the
company must comply with the provisions of the
Companies Act, 2013, and his removal was not valid
due to the irregularities in the procedure. The purpose
of Section 169 is to eliminate arrangements or
contracts under which the directors were removed by
extraordinary resolutions or were irremovable. In this
case, it was said that any restrictions on the power of removal
would be void.
• Bhankerpur Simbhaoli Beverages (P) Ltd. v. Sarabjit
Singh & Ors (1995)
• The facts of the case were such that the appellant challenged
his removal, stating that the proper procedure was not
followed. The court found that the resolution passed was not
in compliance with the company’s article of association, and
proper notice to the shareholders was not sent.
• Issues in the case- Whether or not compliance with the
articles of association regarding the removal is necessary?
• The court held in favour of the appellant and observed that
his removal was invalid. It also emphasised adhering to
procedures mentioned in the Companies Act, 2013 and
highlighted the requirements for fairness and transparency in
corporate affairs.
• Any resolution without the opportunity to make a
representation would be null and void. It is a denial of
opportunity to the director if he has not received the letter
prior to his removal. Section 169(4) provides that there is no
need to read aloud at the meeting or circulate the
representation where, on application to the tribunal, it is
satisfied that the rights under this section are abused for
arising publicity to a defamatory matter.
• Satyam Scandal
• Kingfisher Airlines and Vijay Mallya Case
• https://betteringresults.in/criminal-liability-of-directors-in-india-unveiling-the-legal-labyrinth/#:~:text=Criminal%20Liability%20Under%20the%20Indian,en
gaging%20in%20unfair%20business%20practices
• N.I. Act, Directors Not Liable For Dishonour Of Cheque Issued
By Company After Their Resignation : Supreme Court (15 Feb
2024)
https://www.livelaw.in/supreme-court/ni-act-directors-not-liable-for-dishnor-of-cheque-issued-by-company-after-their-resignation-supreme-co
urt-249627
• Percival v. Wright (1902)- Directors are not in a fiduciary position to
each individual shareholders when they buy or sell shares from or to him.
• Regal (Hastings) Limited v. Gulliver (1942)- A Director who acquires
property while in office will be liable to account for his profit upon
resale if the plaintiff company establishes two things: first- that what the
directors did was so related to the affairs of the company that it can
properly be said to have been done in the course of their management
and in utilisation of their opportunities and special knowledge as directors
and secondly- that what they did resulted in profit to themselves.
• Burland v. Earle (1903)- when a director is not under any direction to
purchase the property for the company, but purchases some property on
his own account which is subsequently sold to the company at a profit,
the director is not liable to repay the profit.
