Shareholder is eligible to give special notice for removing directors even though he has only one share

Barathkumar K M | Sastra Deemed to be University Thanjavur | 24th June 2020

Karnataka Bank Ltd Vs A.B.Datar and others

Facts:

Karnataka Bank Ltd. is registered under the Companies Act, 1956. The board of directors decided to hold the sixty-eighth annual meeting on 29^th October 1992 and issued notice to all the shareholders regarding this. On 3^rd October 1992 one of the shareholders, Narayana Somayaji, gave notice to the secretary of that bank under Sec. 190 of the Companies Act, of the intention to move three resolutions as ordinary resolutions under Sec. 284 of the Companies Act. 

The three resolutions are as follows:

1. A.B.Datar, the director of the Karnataka Bank is hereby removed from the office of the director of the Karnataka Bank Ltd.
2. Ravishankar Adiga, the director of the Karnataka Bank is hereby removed from the office of the director of the Karnataka Bank Ltd.
3. H.N.Rao, the director of the Karnataka Bank is hereby removed from the office of the director of the Karnataka Bank Ltd.

K.Krishna Holla, another shareholder, gave similar notice on 13^th October 1992 to intention to remove the same three resolutions and circulated the notice in some newspapers. The secretary ordered to remove the three men from the board of directors. The three men filed a suit against the bank in the lower court. The lower court held that the bank had failed to issue an individual notice to the shareholders about the proposed resolution to remove the board of directors and so the removal is not valid. The present appeal was filed by the appellant (Karnataka Bank Ltd.) for challenging the lower court’s order. 

Issue:

1. Whether the notice given by the shareholders to the secretary of the Karnataka Bank Ltd. is valid?
2. Whether the removal of the board of directors by the secretary is valid?

Legal Provision:

Sec. 190 and Sec. 284 of the Companies Act

Observation:

It was observed that under the Sec. 190 of the Companies Act the member can give notice for the intention of the resolution. The shareholders followed the proper protocol by circulating the notice in the newspaper. Under Sec. 284 of the Companies Act, the company had the power to remove the board of directors.

Judgment:                     

The Hon’ble Karnataka High Court held that the company had the power to remove the board of directors under Sec. 284 of the Companies Act and also the High Court stated that even a single member holding only one share is eligible to give special notice for removing directors. Further, held that the removal of the board of directors is valid and the High court quashed the order of the lower court.