' This is an application under section 290 read with sections 178, 185, 187 and 188 of the Companies Ordinance, 1984 (hereinafter called the Ordinance) calling in question their expulsion as Directors of respondent No,1 company at the hands of other Directors, namely, respondents Nos 2 to 5 at a meeting of the Board of Directors held on 28-6-1989.
2. The applicants are said to be elected as Directors of respondent No,1 company which is a public limited company. The elections were held on 17-6-1989 pursuant to the order of the Court in J.M. 25 of 1985. Respondents Nos. 2 to 5 are the other directors said to have been elected at the meeting and defendant No,6 is the Secretary of respondent No,1 company. The said applicants represent 20% of the issued, subscribed and paid up capital of respondent No,1 company which is in the sum of Rs,40,00,000 divided into four lacs ordinary shares of Rs,10 each.
3.In response to invitation made by the Official Assignee, the applicants excessed their intention in writing to offer themselves as candidates at the said election of Directors of the Company. Soon after they got elected as Directors, the applicants, sent a letter, dated 18-6-1989 to the company for recording their proper addresses and calling upon it to hold meeting of the Board of Directors and also to appoint Chief Executive. Further, on 22-6-1989 the applicants sent a Idtter to respondent No.1 company to arrange for obtaining from them on Form 27 or 28 or any other document their signatures if that be necessary for submission to the Registrar of the Company under section 184 of the Ordinance. It is, however, contended by them that section 184 applies only to appointed/nominated Directors and not to the elected Directors and the said letter was sent by them by way of abundant caution. The letter reads as follows: "Secy 22-6-1989 ' Kotri Textile Mills Ltd.
' Shaheed-e-Millat RE:-COMPLIANCE OF THE COMPANIES ' Road, KYC. ORDINANCE 1984 ' Dear Sir, ' Please arrange to obtain the signatures of the undersigned on the relative form 27 representing list of persons consenting to act ac Director under section 184 of the Companies Ordinance 1984 and ensure its timely submission at the office of the authorities concerned.
' The signatures on the relative form may be obtained from this office on any working day during the office hours.
Yours faithfully Sd/- DIRECTOR."
' It, however, transpired vide letter, dated 3-7-1989 sent by the respondents that a meeting of the Board of Directors was held on 28-6-1989, whereas the respondents Nos.2 to 5 had passed a resolution disqualifying the applicants to hold the office of Director as they had failed to give their consent in writing to act as Directors under the provisions of section 184 of the Ordinance. It is contended that no notice of this meeting of the Board of Directors was given to the applicants, by the respondents. The contents of this letter are as follows: "NTM/Sec/1989/317 Dated 3rd July, 1989 REGISTERED/A.D.
' Dear Sir, ' Please refer to your letters, dated 18th June, 1989 and 22nd June, 1989 both received on 1st of July, 1989.
' We will like to inform you that consequent upon a Resolution passed in the Board's Meeting held on 28th June, 1989, you have ceased to be a Director in the Company.
' The relevant Resolution passed in the meeting is reproduced here in below:-- "RESOLVED that Messrs Muhammad Anwar, Muhammad Mukhtar and Muhammad Khurram may be disqualified to hold the office of the Director of the Company since they have failed to comply with the provisions of section 184(1) of the Companies Ordinance, 1984."
' In view of the fact that you stand disqualified and cease to hold office of Director of the Company, the question of addressing you any notice as Director does not arise. The change of address has since been noted in the record as separately intimated vide our Letter No.KTM/Sec./1989/316, dated 3rd July, 1989.
' Thanking you, Yours faithfully, for Kotri Textile Mills Ltd.
Secretary"
' It will be worthwhile to reproduce section 184 of the Ordinance as under:--"184. Consent to act as Director to be filed with ' Registrar:
(1) No person shall he appointed or nominated a, Director or Chief Executive of a company or represent as holding such office, nor shall any person describe or name any other person, as a Director or Chief Executive of any Company, unless such person or such other person has given his consent in writing to such appointment or nomination and that consent has been filed by the Company with the Registrar before such appointment or nomination or being described or named as a Director or proposed Director or Chief Executive or proposed Chief Executive of the Company, as the case may be.
(2) Within seven days of the issue of incorporation of a Company, the subscribers to the memorandum of association shall file with the Registrar a list of persons who have consented to act as Directors of the company along with their consent to do so.
(3) This section shall not apply to a private company, not being a private company which is a subsidiary of a public company."
' The applicants allege that their ouster is ex facie malicious, mala fide, fraudulent, in excess of authority and without jurisdiction. Besides, section 184 under which respondents 2 to 5 purport to have taken action is not applicable to elected Directors.
4. Learned counsel for the applicants, Mr. I.H. Zaidi, contended before me that the Ordinance envisages three kinds of Directors, namely, appointed Directors, nominated Directors and elected Directors. The first Directors of the company are the appointed Directors under section 176 of the Ordinance. Nominated Directors are made by creditors under section 182 and elected Directors are those elected in a manner prescribed under section 178 of the Ordinance. That being so, it was urged by him, that section 184 of the Ordinance envisages only two classes of Directors, namely, those who are appointed or nominated and makes no reference to those who are elected. The said three classes of Directors are clearly designated under the Ordinance and distinction has been made between them. Further, it was contended by him that section 185 of the Ordinance permits rectification of any defect found in any act of a Director and hence even if no consent in writing as required under section 184 of the Ordinance has been filed, the same can be filed subsequently and the defect can be ratified. Section 185 of the Ordinance reads as under:-- "185. Validity of acts of directors: ' No act of a director, or of a meeting of directors attended by him, shall be invalid merely on the ground of any defect subsequently discovered in his appointment to such office: ' Provided that, as soon as any such defect has come to notice, the director shall not exercise the right of his office till the defect has been rectified."
' It was next contended by him that there is nothing in the Ordinance where under a director shall ipso facto cease to be a director disqualifying himself to the office or whereby other directors are empowered to expel him. Reference was made by him to section 181 dealing with removal of director and section 187 dealing with ineligibility of certain persons to become directors, Both these sections are reproduced as follows: "181. Removal of director ' A company may by resolution in general meeting remove a director appointed under section 176 or section 180 or elected in the manner provided for in section 178: ' Provided that a resolution for removing a director shall not be deemed to have been passed unless the number of votes cast in favour of such a resolution is not less than--
(i) the minimum number of votes that were cast for the election of a director at the immediately preceding election of directors, if the resolution relates to removal of a director elected jia the manner provided in subsection (5) of section 178; or
(ii) the total number of votes for the time being computed in the manner laid down in subsection
(5) of section 178 divided by the number of directors for the time being, if the resolution relates to removal of a director appointed under section 176 or section 180.
187. Ineligibility of certain persons to become directors: ' No person shall be appointed as a director of company if he--(a) is a minor;
(b) is of unsound mind,
(c) has applied to be adjudicated as an insolvent and his application is pending;
(d) is an undercharged insolvent;
(e) has been convicted by a Court of law for an offence involving moral turpitude;
(f) has been debarred from holding such office under any provision of this Ordinance;
(g) has betrayed lack of fiduciary behavior and a declaration to this effect has been made by the Court under section 217 at any time during the preceding five years;
(h) is not a member; Provided that clause (h) shall not apply in the case of--
(i) a person representing the Government or an institution or authority which is a member;
(ii) a whole-time director who is an employee of the company;
(iii) a chief executive; or
(iv) a person representing a creditor.
' It was thus urged by the learned counsel for the applicants that under section 181 of the Ordinance only a general body is empowered to remove a director subject however to conditions laid down therein. Section 187 on the face of it is inapplicable to the facts of this case. Lastly, it was contended by him that no show-cause notice was served upon the applicants before the so-called resolution was passed.
4. Respondents have denied the various allegations made by the applicants and have contended that the letter dated 22-6-1989 addressed by the applicants to the company was received by them on 1-7-1989. It was averred that the contents of the letter clearly indicate that the applicants were aware of the requirements of section 184 of the Ordinance but purposely they took no steps for compliance of the requirement therein.
5. Mr. Khalid Anwar, learned counsel for the respondents urged before me that section 184 of the Ordinance speaks of persons who "shall be appointed or nominated as Director or Chief Executive" without any reference to "the persons elected as Directors". Reference then was made to Item 430 of third Schedule to the Companies Ordinance, 1984, showing that in column 6 thereof the date of appointment of a Director is to be given. Similarly, in Form XII of Companies Rules, 1941 reference was made to the date of appointment of a director. It was thus contended by him that the expression "persons appointed as Directors" appearing in section 184 is exhaustive and includes persons elected as directors as well. No distinction has been made between these two kinds of directors in the Ordinance except where it is evident from the face of the text. In support of his contention learned counsel for the respondent relied upon. M. Ramchandra Bail v. M.R. Kanniah reported in AIR 1960 Mad. 410 wherein it was held as follows: ' The word "appointment" in the context of the Companies Act is used in the sense of election.
Instances of such usage of the term are found in the provisions relating to the election of auditors in sections 224 and 255 of the Act (Companies Act, 1913)
I am in full agreement with Mr. Khalid Anwar, learned counsel for the respondent, and hold that the words "persons appointed as Directors" used in section 184 of the Companies Ordinance, 1984 include" persons elected as Directors "and hence section 184 of the Ordinance is applicable to the applicants who are elected as Directors of respondent No, 1-company.
' Next it was contended by Mr. Khalid Anwar, counsel for the respondents, that the provisions of section 184 of the Ordinance are mandatory and the word "shall" used in the section is clearly indicative of mandatory character requiring persons elected as Directors as well to file their consent in writing. That being not done, the applicants stood disqualified as Directors under law.
When asked as to what shall be the consequences of non-compliance of section 184 of the Ordinance, the learned counsel for the respondents drew my attention to section 186 of the Ordinance which reads as under:- "186. Penalties.
' Whoever knowingly and wilfully contravenes or fails to comply with any of the provisions of sections 174 to 185 or is a party to the contravention of the said provisions shall be liable to a fine which may extend to ten thousand rupees and may also be debarred by the authority which imposes the fine from becoming or continuing a director of the company for a period not exceeding three years,"
6. A bare reading of section 186 of the Companies Ordinance which is penal and vindicatory clearly shows that provisions of section 184 are mandatory in nature and the word "shall" used therein is not a mere precatory word but of command, section 184(1) envisages two stages. Firstly, it is imperative for Directors appointed or nominated to file consent to act as directors, Secondly, it is obligatory upon the company that their consent be filed by the Company "with the registrar before such appointment or nomination or being described or named as a director or proposed director or chief executive or proposed chief executive of the company, as the case may be". Besides the doctrine of indoor management aims at efficacious and smooth running of the affairs of the company by necessary implication also casts upon those at the helm of administration a duty to call upon the directors appointed, elected or nominated to file their consent in writing in case no such consent is forthcoming. The bad faith of the respondent 2 to 5 is evident from the fact that no show cause was given by them before the said so-called decision was made by them against the applicants at the Board's meeting held on 28-6-1989. In doing so, the respondents 2 to 5 overlooked the provisions of section 185 of the Ordinance which purport to rectify any act of a director on the ground of defect subsequently discovered in his appointment to his office.
7. The language of section 186 of the Ordinance is unambiguous and empowers the Corporate Law Authority only to impose penalties including debarring the directors from becoming or continuing as director if they have failed to file their consent in writing as envisaged under section 184 of the Ordinance. There is nothing in the Companies Ordinance, 1984 which empowers any number of directors of the company to expel, disqualify or debar their co-directors in any given situation. As a result of above discussion I hold that the Resolution of the "Board of Directors" dated 28-6-1989 whereby the respondents 2 to 5 had disqualified the applicants to hold the office of director is ultra-wires of the Companies Ordinance, 1984, without lawful authority and of no legal effect. The applicants, therefore, are declared duly elected directors of the respondent No, 1-company. The respondents are directed to call a meeting for appointment of the Chief Executive of the respondent No,1-company after giving due notice to the applicants. By my short order dated 7-9- 1989, I had also held that the applicants were at liberty to participate at the annual general meeting of respondent No,1-company on 9-9-1989 in capacity of Directors and shareholders, The application is allowed as above with costs against the respondents 2 to 5.
' C.M.A. 1843/89 and C.M.A. 3101/89 also stand disposed of in view of order dated 7-9-1989 and this order.