Pvt ltd co.- what happens if one of the 2 directors passes away?
akash
(Querist) 07 October 2012
This query is : Resolved
Hello Experts,
One of my relatives is one of the two Directors of a Private Limited Company. The other Director has gone missing and has been untraceable (FIR has been lodged). Questions-
1) The cheque signing authority is in joint name. My relative is not able to issue any cheques due to this. What can be done if this has to be changed to single name?
2) If the other person continues to be missing or God forbid, is presumed to be dead, and there is no will available regarding whom his 50% share would be transferred, what happens to that share?
Thanks
Guest
(Expert) 07 October 2012
How you can say that the director has passed away, when he is missing? You cannot presume the missing director as dead before expiry of 7 years of his being gone missing. You may act according to the provisions of the company law to remove and substitute him with another director.
akash
(Querist) 07 October 2012
Thanks for your reply Sir. What does Company law say regarding this-
1) how can we substitute the Director if he's missing, since he holds 50% shares and there is no will? Is consent from his family sufficient?
2) Following up on point 1, how should he be paid back the share capital?
Hemant Agarwal
(Expert) 08 October 2012
1. Under Companies Act, Private Ltd. Co. means minimum 2 directors and the Pvt.Ltd. Co. cannot operate /function with only one director.
2. IF minimum directorship falls below 2 directors, either the BOD appoints another director or the remaining one director may sell his 25% shares to another person and appoint him as director, AFTER proper proceedings before the ROC.
3. Share capital cannot be paid back without proper procedure or by dissolving /closing the co., AFTER proper proceedings before the ROC.
4. The 50% shares of the deceased director have to be purchased by some other person or remaining directors (subject to minimum 2 directors). Usual succession proceedures have to be followed to pay the share-capital to the deceased director's kin. Transfer the 50% shares of the deceased director to his kin, after due succession proceedures.
Keep Smiling .... Hemant Agarwal
Sivadas Chettur
(Expert) 08 October 2012
Your attention is invited to the explanation to section 186 of the Act wherein the CLB is given the power to constitute a meeting with one director in order to save the deadlock created out of the situation described by you. I am reminded of an English case in Re opera photographic ltd (1989)1WLR 634 wherein the Chancery Division resolved an issue where the court passed an order directing the holding of a one man meeting. You may also think about issuing new shares and appointing a new director. If no qualification share is prescribed then even a person without share can be appointed. You may also think about transferring a part of the share held by the available director and appoint that person as a new director. But please note that all these can be done only in the duly convened meeting and therefore follow Section 186 procedure.
Siva208@yahoo.com
Sivadas Chettur
(Expert) 08 October 2012
I am afraid the seven years missing or not found rule can be of much help to you. It can be applied only in proceedings brought before the court. It is a rule of evidence under the Indian Evidence Act and can be resorted to to justify the action. Therefore I feel that the most hassle free route is section 186.
Guest
(Expert) 08 October 2012
Dear Sivadas,
The query is with regard to problem pertaining to banking transactions due to one missing director out of total two of a private limited company, NOT pertainig to mettings/ AGM, etc., whereas, sections 171 to 186 apply to meetings only, and further, your suggested section 186 deals with Power of Company Law Board/Tribunal to order meeting. Would you kindly like to enlighten us in what way the query has any concern with the calling of the meetings by order of the Company Law Board or the Tribunal?
Sivadas Chettur
(Expert) 08 October 2012
Dear Dhingra sir,
The query relates to operation of bank accounts.It is stated that the bank accounts are at present operated by two directors out of which one is untraceable and totally missing. That means the co is not in a position to operate the bank account. So in order to operate the bank account the co has to give the bank a new resolution duly passed in the board meeting authorizing the available director. But in the circumstances the meeting cannot be held as the quorum as per articles of the company must be two.
Therefore according to me the best way to solve the problem is by resort to section 186.I do not wish to express my opinion relating to other methods except to the extent stated above. I request you to express your views also in this regard for the overall benefit of our readers.
siva208@yahoo.com
Guest
(Expert) 08 October 2012
Every Pvt. Ltd. Company must have atleast two directors.In the instant case , since the number has fallen below the prescribed minmum,then the remaing director can appoint an additional director by holding a Board meeting or may summon an EGM.
In view of the circumstances mentioned by you, the continuing director has no option but to hold a board meeting for the limited purpose of appointing an individual as director.This is permissible even though the Companies Act requires that there shasll be atleast two/three direcors on the Company's board.(Zimmers Ltd. Vs. Zimmer(1951)WN 600;Collieries Trust Ltd. Vs. Dover St. Margaret Mill Light Rly Co. (191402 Ch 506 (CA)[Ref. p/3364 in part VI of Ramaiya's Guide to the Companies Act,1956].
In this connection, I would further like to add that the suggestion given by some of the experts to issue/transfer certain p.c. of shares to a new person to enable him to become a director is not practicable becauise even such action will need holding of a board meeting.Moreover, an individual may become a director even without holding any share ,unless the AoA so require.
Regarding missing director, the legal postion is that a person inter-alias cease s to be a director if he remains absent for a continuous period exceeding three months/does not attend three consequitive board meetings unless his leave of absence is approved by the board.
Sivadas Chettur
(Expert) 08 October 2012
The forum is grateful to Mr.Arun kumar Mitra for his brilliant analysis of the matter. I have something to say.
Regarding the vacation of the director due to absence for 3 consecutive meetings, it appears to me that the facts supplied are inadequate. It is not clear whether the board meetings were in fact called or attempted by the sole director. Attention is invited to the decision in TECHNICAL CONSULTANCY HOUSE P LTD V KULDIP RAJ NARANG 1989 66 comp cases 410 (Del)wherein it was held that there was nothing on record to show that any meeting of the board was held during THE PERIOD he was away or any notice was sent or whether he did not obtain leave for absence etc. Hence the court held that he shall be deemed to be a director.
In the case of Zimmers Ltd v Zimmers the facts appears to be different. In that case the other director RESIGNED and hence there was a deadlock. the other cases cited are also stated by Ramayya to be under similiar circumstances. Ultimatly the provisions of the English Companies Act must be refereed to in order to make sure that the Indian law is in pari materia.
The Canadian decision cited by Ramayya is also distinguishable since in that case the articles provided that a single director can appoint a director. This appointment was subsequently rejected by the shareholders in their meeting on the ground that the appointment by the sole director was invalid. But the court approved the appointment as the articles granted power. Here in the case on hand there appears to be no such power.
Attention is invited to the decision in Pucci Danite v Rafeeque Ahmed (1999) 95 Com cases 566 (CLB) where there were only two directors and one director was not attending, the CLB directed calling of a EGM under section 186 taking note of the impracticability of calling EGM under section 169.The decision in Ruttonjee @co
ltd AIR 1969 Cal 550 may also be refereed to for grasp of the principles to be kept in mind and the circumstances in which invoking the power can be justified by CLB.
The forum is grateful to the queriest and the learned experts for throwing open a very useful discussion on the matter. I request all to come out with more views on this matter.
Sivadas Chettur
(Expert) 08 October 2012
Attention is invited to section 107 of the Evidence Act 1872 which provides as follows.
"When the question is whether a man is alive or dead, and it is shown that he was alive within thirty years, the burden of proving that he is dead is on the person who affirms it."
Section 108 further provides like this....
Provided that when the question is whether a man is alive or dead, and it is proved that he has not been heard of for seven years by those who would naturally have heard of him if he had been alive, the burden of proving that he is alive is shifted to the person who affirms it.
Thus in the first case a person if found alive at anytime during the last 30 years it is for the person asserting that he is dead to prove that he is in fact dead.But if a person IS MISSING or HAS NOT BEEN HEARD FOR SEVEN YEARS by the persons who would have naturally heard him the burden of proving that he is alive is on the person affirming the same.
Indian Evidence Act 1872 is a piece of procedural law and hence the relevance of the above sections arise during the proceedings in courts.
siva208@yahoo.com
R.V.RAO
(Expert) 18 February 2014
qualification shares issue does not arise here being a pvt.ltd.co.
since it is a casual vacancy created by death of director,the remaining director can hold board meeting(only for purpose of filling casual vacancy) and fill THE casual vacancy.
certain english law precedences were quoted above by LCI members.
iF THE BANKERS OR STATUTORY AUTHORITIES suggest, the.co. may also write to inform the National company law tribunal, about the circumstances which led to the filling of the casual vacancy.
to avoid such exigencies where there are only 2 directors, the new co. act 2013 created the concept of ONE PERSON COMPANY.
