Table of Contents

1
Shahadat Hossain (Md.) Vs. Base Textile Ltd...........................................................1
2.Identification of Issues.......................................................................................... 1
3.Applicable Laws.................................................................................................... 3
4.Judgment (Application of the Facts)......................................................................6
5.Conclusion............................................................................................................ 8
Appendix: Case of Shahadat Hossain (Md.) Vs. Base Textile Ltd.............................9

3 used to receive Taka 50. with objections from the petitioner. 2 used to receive Taka 1 lac each per month and respondent No. During the said board meeting arbitrary decisions. Shahadat Hossain (Md.25. In the meeting of the Board of Directors the remuneration of the respondent No. who are childhood friends.00.000 per month as remuneration. were taken which were detrimental to the interest of the Company and the shareholders. Respondent 2 and 3 had 40%. The petitioner and the respondent No. Base Textile Ltd (2000) 54 DLR (2002) 583 is a Bangladesh Company Law case that declared General meetings void which were held in absence of one of the directors and quorum. After arrival of Petitioner. The following changes were brought in using the powers:  Two Extraordinary General Meetings of the Company were held without providing any  notice. 2.) Vs. but the petitioner’s remuneration was raised to Taka 1. 3 and one Mr.000 from Taka 50. Identification of Issues: Base Textile Ltd. 2 was raised to Taka 2 lac from 1 lac and that of the respondent No. 2 the ceiling for 1 .000. 2. The Company was established by the petitioner and the respondent No. The affairs of the Company were conducted and the powers of the directors were being exercised contrary to the interest of the petitioner as a member of the Company and also to the Company. Petitioner. Over and above the increase of the remuneration of the respondent No. Mainuddin Ahmed were the subscribers to the Memorandum and Articles of Association of the Company.25. Before his departure the respondent No.000 ordinary share of Taka 100 each.000 only from Taka 1 lac. a meeting of the Board of Directors was held. respondents Nos. 2 asked for the signature of the petitioner on blank letterheads against the names of the directors on the plea of using them in case of any urgency in his absence. Also the company was ordered to follow and run its affairs in accordance with Memorandum and Articles of Association of the Company. was incorporated with an authorised capital of Taka 3 crore divided into 3. 3 to Taka 1. Upon return he noticed that during his absence the respondent No. 40% and 20% shares of the company respectively. The petitioner went abroad for few days. The petitioner. 2.) Vs. Also the amendments in Associations of Articles that were made during those general meetings were called as void. 2 has assumed all powers of the Company. Loan was taken from Sonali Bank as a result of which there is a huge outstanding liability to Sonali Bank. Base Textile Ltd Shahadat Hossain (Md.1.

3. Articles 42 in its original form provided that the number of company directors would never be less than 3 and not more than 6. fuel were withdrawn and made unlimited.000 from Taka 50. the 2 . but by amendment of the said Articles it is reduced to two Directors. The meeting also gave respondent No. Article 66 in its original form provided for opening one or more bank accounts both in Bangladesh and abroad in the name of the company. The person thus delegated will remain accountable to the Board. But the amended Article authorised only the Managing Director to open one or more accounts in the name of the company in Bangladesh or outside Bangladesh and to operate all the accounts  signally. Article 64 in its original form provided that Md.000. But. 5 articles were amended during the absence of the petitioner.25. Article 34 provided that the quorum for any General Meeting would  be three shareholders but by amendment it is reduced to two shareholders.A private company is one which. In the said board meeting arbitrary decisions. would be the Finance Director and would continue in that position till otherwise decided. 2 was raised to Taka 2 lac from 1 lac and that of the respondent No. Before amendment. 2 the authority to sanction unlimited loan to himself and any other Director. were taken which were detrimental to the interest of the Company and the shareholders. It also provided that the accounts of the Company would be operated by the Managing Director singly or as per Board decision. Over and above the increase of the remuneration of the respondent No. after returning from abroad. Shahadat Hossain the petitioner. if any. a board meeting was held including the petitioner. according to the amended article. a) restricts the right of the members to transfer their shares. it may  not be less than 2 Directors and more than 6 Directors.25.telephone. In the meeting of the Board of Directors the remuneration of the respondent No. with objections from the petitioner. This Article was amended giving the Board of Directors power to delegate to one or more of the Directors responsibilities temporarily. or debentures of. In Addition. b) limits the number of its members to 50. by its articles. 2 the authority to sanction unlimited loan to himself and any other Director. 2 the ceiling for telephone. The original Article 51 provided that three Directors would form a quorum for any  meeting.000 only from Taka 1 lac. fuel were withdrawn and made unlimited. The meeting also gave respondent  No. and c) prohibits any invitation to the public to subscribe for any shares in. 3 to Taka 1. Applicable Laws Private Company. but the petitioner’s remuneration was raised to Taka 1.

Extraordinary meeting. In this case of public company there is certain limit of remuneration. Schedule 1 (170.Sec. It Is the second most important document in a company. Binding forces of Articles (s22). 2(1) (k). the term member of a company means the subscriber of the memorandum of the company. It is registered with the memo.) Appointment of Directors: Sec. Company shall be appointed directors by the members among their members in general meeting. Scarborough Cliff Hotel Co. Ordinary. Some features of Article are as follows:    Articles cannot exclude or limit the right provided in the Act.91(1)(b) This rule does not apply in private company. formalities of Articles require subscriber who signs the memo must  sign the article as well. Under section 19. 83). a change in articles which influence the Memo is void. Articles of Association contain a network of rules regulating the affairs of the company. Each type of meeting is highlighted below: a)Statutory Meeting : This is applicable for every company limited by shares and every company limited by a guarantee (Sec.company. Article of Association: The Articles of Association is a document which contains rules. regulation and bye-laws regarding the internal management of a company. Managerial Remuneration: This rule does not apply to a private company. 3 . As per the case Hutton vs. It determines the relationship between the company and the outsiders.members are bound to the company by the provisions of articles and company is bound to the members to observe and follow the rules. Articles cannot allow something that is forbidden by law. Member: according to section 41 of the act. Meetings: There are three kinds of meeting: Statutory. c) Number of member sec-5 Not less than 2 nor more than 50 members. Memorandum: The Memorandum of association is a document which contains the fundamental rules regarding the constitution and activities of a company. Alternation of article can be done by special resolution (section 20). 23. Articles   define the rights and liabilities of members.

10. If no such meeting in held. agenda and venue of the meeting therein. These meeting may be called by the directors wither suo moto or on the requisition of not less than one-tenth of the shareholders.b)General/Ordinary Meetings: A general meeting of a company should be held within 18 months from the date of its incorporation and thereafter one at least in every calendar year. The articles may provide such meeting shall be held on a certain date every year. for a period covering eighteen months from the date of incorporation. This meeting may also be called an Annual general Meeting. the company and every director or manager who is a party to the default shall be liable to a fine of TK. The balance sheet and the profit and loss account or the income and expenditure account must be audited by the company auditor and the auditor‟s report must be attached therewith. But as per SEC regulations the AGM is to be held within 6 months from the end of its accounting year.82) The directors of every company must lay before the company in general meeting a balance sheet and profit and loss account or in the case of a company not trading for profit and income and expenditure account for a period covering nine months from the date of the meeting and in the case of the first meeting after incorporation. time. Every company shall hold its first AGM after incorporation within 18 months from the date of incorporation. The period during which the subsequent meeting should be held is 15 months from the previous general meeting. For calling AGM notice to the shareholders is to be given at least 14 days before the AGM mentioning the date. But the period from one AGM to next AGM shall not exceed 15 months. call or direct the calling of such meeting (Sec. If the Directors do 4 . c)Extra Ordinary Meeting: All meeting of the shareholders other than the annual meeting or those provided for in the articles are known as extraordinary general meeting.000 and Tk. b)Extra ordinary general Meeting : As per section 84 the above meeting can be called on requisition from holders of 1/10th members or 1/10 holders of paid up capital. The annual report of the company is to be accompanied. Where the directors fail to call such a meeting so requisitioned within the prescribed time limit 84 (i) it would be called. 81. Procedure for Calling a Meeting: a) Annual General Meeting: As per section 81(1) of the Companies Act 1994 every Company shall hold one Annual General Meeting (AGM) of the Company in every Gregorian calendar year. by the requisitionists themselves (84(3). 250 for each day of default and the Court may on the application of any member of the company.

12) To alter the articles of the company (Sec. But notice must be given of all ordinary resolutions to be proposed at the statutory meeting. Under sections 233 the main function of the Court is not to see whether 5 . The notice must specify the intention to propose the resolution as an extra ordinary resolution (Sec. 5. b) Special resolution: This is passed at one meeting by a three fourths majority of the members present in person or by proxy. To wind up a company voluntarily (Sec. such as passing of accounts. Special resolutions are necessary for the following among other purposes: I. appointing directors and so on. 207) (1). 59) To convert any portion of the capital. Types of Resolution: a)Ordinary resolution: This is passed by a majority of members present at a general meeting. The Agenda of the meeting is to be mentioned in the notice. Unless required by the articles. 87(1). II. IV. 74) To appoint inspectors to investigate the company own affairs (Sec.not cause a meeting to be called within twenty one days from the date of the requisitions being so deposited. Such resolution is necessary when a company is sought to be wound up voluntarily on the ground that it cannot continue its business on account of its liabilities and also for a number of other reasons. To change the name of the company with consent of the Central government (Sec. V. the requisitionists or a majority of them in value may themselves call the meeting but in either case any meeting so called shall be held within 45 days from the date from the deposit of the requisition. 286(2) c) Extra. provided notice for such meeting suecifying the intention to propose the resolution is given at least twenty one days before the date of the meeting. Such a resolution is passed in the ordinary way and deals with ordinary business. III. VII. Safeguard of Minority: Section 233 entitles a member holding not less than 10% of the shares to file. Notice for holding the meeting is to be given at least 21 days before the date of the meeting. an application to the Court for an order for safeguarding his interest and the interest of any other members upon bringing the matter to the notice of the Court that affairs of the Company are conducted or powers of the Directors are exercised in a manner prejudicial to one or more of its members. 20) To reduce the capital (sec. into reserve capital (Sec. no notice of suich resolution needs to be given. VI.ordinary resolution: This is passed by such majority as is required for the passing of a special resolution at a meeting of which 14 days notice has been given. uncalled. 11) To alter the memorandum with leave of the court (Sec.

Also before the petitioner left for abroad. the respondent No. The Managing Director. as no one can be appointed Managing Director for a term exceeding 5 years.fraud is committed but whether the resolutions adopted are unfair to the company and the minority shareholders. There was no Board decision expressing the need for  such amendment of the Article. 4. 2 has already ceased to be the Managing Director of the Company long ago under section 110(2) of the Companies Act of 1994. 2. 2 in his capacity as the  chairman and not as the Managing Director of the Company. the Managing Director. The new Companies Act came into force on 1-1-1995 therefore. the quorum for holding for a meeting was 3 members. The salary of the petitioner was increased in proportion to his contribution to the affairs of the Company. he was not functioning illegally. notices should be provided to all the members. was re-appointed in the last AGM held in 2001. In view of that the supposed 7th AGM is illegal  and held in violation of law and it is no meeting in the eye of law. He never comes to the office and does nothing but collect 6 . However. this point is not relevant because minutes were signed by the respondent No. The respondents have not averred that 6th AGM was held and they have not produced the Notice/Minutes/Return of the 6th AGM. Therefore. The reduction of quorum was done  out of necessity. It is also argued that the respondent No. The amendment of Articles 51 and 34 were necessary because of reduction in the number of members and Directors from four to three. Same Person Acting as the Director and the Chairman: Refer to section 54 of the First Schedule Regulations of the Companies Act. has been holding the office of the Managing Director since the commencement of the Company. which the petitioner never received. However. This is a violation of a member’s right. the tenure of the respondent No. Before a meeting. which was changed to 2 members without the  permission of the petitioner. The respondent No. 2 as the Managing Director of the Company had expired on 31-12-1999 under section 110(2) of the said Act. It is further argued that 6th Annual General Meeting was never held. Judgment (Application of the Facts)  The petitioner claimed that the aforesaid amendments were made to oust the petitioner from the Company. 1994. 2. The Articles of Association were amended without prior approval of the Sonali Bank contrary to the loan agreement.

and not for the interest and benefit of the directors.remuneration. Any decision taken in those meetings suffers from illegality. 2 as the Managing Director once the term of five years under the Companies Act. The Board of Directors must first address the issue and come to a clear findings that such amendments are necessary. While amending the articles dealing with fiduciary powers it should have been kept in mind that such powers are exercised only in the interest of and for the benefit of the company. Such absolute authorization to give loan by the Managing Director from the Company’s fund is contrary to the provisions of the company law and prejudicial to the interest of the company and its members. The Managing Director has arrogated himself with the power to give loan to all directors. Therefore. This has resulted in the violation of Article 31 of the Company’s Articles of Association which specifically lays down that an Extraordinary General Meeting may be called either by the Board or the Managing Director. Therefore. Nothing is produced as evidence to show that the secretary was empowered by the concerned authorities to call the Extraordinary General Meetings. including himself as the managing director. 1994. only then an Extraordinary General Meeting is convened to amend the articles. amendment of any of the articles is always a serious matter and deserves to be taken seriously. by which two Extraordinary General Meetings were called on 15-10-2000 and 25-10-2000. The 7th Annual General Meeting does not contain any agenda for appointment of a Managing Director. For adoption of a special resolution in any General Meeting amending an article or articles. it further appears that it was the company secretary who convened the meeting ‘by order of the Board. But the petitioner did not produce before this Court any such prior decision of the Board to draw the conclusion that the resolutions were adopted properly  and legally. Since Articles of Association contain a network of rules regulating the affairs of the company. 2 was re-appointed as the Managing Director in the said meeting. 7 . there is no consent of the Board of Directors to the re-appointment of the respondent No. However. the necessary changes were brought in without the consent of  all the members of the meeting. though the respondent No. In this connection it may be noted that the said notice contained a specific agenda for the appointment of the  Managing Director. had expired. The notices. there should be a Board decision or a decision of the Board by circulation expressing he need for such amendment of the article. the Extraordinary General Meetings thus called are not properly called meetings and no meetings in the  eye of law.

While amending the articles dealing with fiduciary powers it should have been kept in mind that such powers are exercised only in the interest of and for the benefit of the company. 2 as Managing Director of the Company to open and operate bank account/accounts both in Bangladesh and abroad is. as the Managing Director alone can open and operate bank accounts requiring no resolution of the Board. Therefore. 8 . including himself as the managing director. there is no consent of the Board of Directors to the re-appointment of the respondent No. in my view. no resolution was made to approve the changes in the Article in Associations. The sole authority. 2 by reappointing him once the question is raised that he is no longer the Managing Director of the Company. 2 should not have been appointed as the Managing Director under a miscellaneous agenda. It leads one to believe that this might have been done only to regularise holding of the post of Managing Director by the respondent No. For example. In addition. Such absolute authorisation to give loan by the Managing Director from the Company’s fund is contrary to the provisions of the company law and prejudicial to the interest of the company and its members. before the amendments. acting for the welfare of the overall company and the members of the company. It centralises the power in one hand. the Board will not know where in the world an account is opened in the name of the Company. had expired. 2 as the Managing Director once the term of five years under the Companies Act.2 were not brought in for the total welfare of the company. prejudicial to the interest of the Company and its members. given under the amended Article 66 to the respondent No. the increase in remuneration by double would mean that less profit to be saved for the company. the respondent no. Also the amendment for giving out the power to sanction loan to anyone upon approval from the Managing Director was unethical. All the amendments that were brought by the acting Managing Director. giving plenty of opportunity to the Managing Director to divert and misappropriate Company’s fund. and not for the interest and benefit of the directors. Conclusion The Managing Director of a company is said to be an agent of the company. 1994. The respondent No. This amendment will serve only the personal interests of the Managing Director.5. The Managing Director has arrogated himself with the power to give loan to all directors. Under the circumstances. This deprived the petitioner and others of a fair chance to compete in the appointment of the Managing Director.

Base Textile Ltd (See in next page) 9 .The affairs of the Company are conducted and the powers of the directors are being exercised contrary to the interest of the petitioner as a member of the Company and also to the Company. The amendments. Appendix: Case of Shahadat Hossain (Md. minutes and resolutions in 2 Extraordinary General Meeting held in absence of the petitioner is void. which gave the Managing Director of the company illegal powers were to be cancelled.) Vs. In view of the above.