Following is a summary of some of the major provisions of the Companies Act, 1994 (“the Act”), which allow judicial intervention by the Company Bench of the High Court Division, Supreme Court of Bangladesh (“the Court”) in the affairs of companies, shareholders, and other relevant aspects.
This is Part One of the article, which illusrtates 6 (six) major litigations in the Company Court. You may also find it worthwhile to review Part Two of the Article here for the remaining litigation.
1. Alteration of the Objects clause of the Memorandum of Association
Relevant Law: Section 12/13 of the Act
A company may by special resolution alter the provisions of its memorandum with respect to the objects of the company so far as may be required to enable it to (i) carry on its business more economically or more efficiently or; (ii) to attain its main purpose by a new or improved means or; (iii) enlarge or change the local area of its operations or; (iv) carry on some business which under the existing circumstances may conveniently or advantageously be combined with the business of the company or; (v) restrict or abandon any of the objects specified in the memorandum or; (vi) sell or dispose of the whole or any part of the undertaking of the company; or (vii) amalgamate with any other company or body of body of persons.
Who may approach the Court: Majority of the Company Shareholders, collectively (by way of special resolution in the prescribed manner)
Procedure:
- Issuance of Notice for EGM to pass a Special Resolution (21 days);
- Adoption of Special Resolution in the EGM with the required majority
- Application to the Company Bench of the High Court Division under section 12/13 of the Act
- Admission by the Court, publication of notice in two national daily newspapers (one in Bangla and the other in English)
- Submission of Affidavit-in-Compliance to the Court
- Hearing of the Application and obtaining judgment and direction
- Submission of the Judgment and the amended copy of the Memorandum of Association along with other relevant documents to RJSC within the prescribed time.
Notably, the Court usually allows the application and passes the order with a donation payable to a charity.
(Note: In applicable cases, notice may need to be issued to the stakeholders whose interest may be affected by the proposed alteration of the objects; No-Objection Certificate(s) from the creditors of the Company may also be required as per the applicable provisions of the Bank Companies Act and other relevant laws.)
2. Rectification of the Share Register of Company
Relevant Law: Section 43 of the Act
As per section 34 of the Act, every Company must keep one or more books of register of its members (i.e. shareholders) which includes their names and addresses, statements of shares (quantity/amount), date of entry and date of ceasing, etc.
If the name of any person is without sufficient cause entered in or omitted from the register of members of a company, or default is made or unnecessary delay takes place in entering on the register of the fact of any person having become or cease to be a member. The person aggrieved or any member of the company or the company may apply to the court for rectification of the register. The Court may decide any question relating to the title of any person who is a party to the application to have his name entered in or omitted from the register, and may also decide any issue involving any question of law.
It is important to note that the petitioner needs to satisfy the court that he/she has “sufficient cause” to bring in the application.
Who may approach the Court: The Company Shareholders or any person aggrieved who is affected by the changes in the share register.
Procedure:
- Sending a Legal Notice to the Company
- Application to the Company Bench of the High Court Division under section 43 of the Act
- Admission by the Court, publication of notice in two national daily newspapers (one in Bangla and the other in English)
- Submission of Affidavit-in-Compliance to the Court
- Hearing of the Application and obtaining judgment and direction
- Submission of the Judgment and other relevant documents to RJSC within the prescribed time.
Notably, the Court usually allows the application and passes the order with a donation payable to a charity.
3. Reduction of Share Capital of the Company
Relevant Law: Section 59/60 of the Act
A limited company may reduce its authorized share capital in any way [power to reduce share capital is unlimited]; in particular, the company may, as part of the general power, extinguish or reduce the liability of any of its shares in respect of share capital not paid up; either with or without extinguishing or reducing the liability of any of its shares, cancel any paid-up share capital which is lost or presented by available assets; either with or without extinguishing or reducing liability on any of its shares, pay off any paid-up share capital which is in excess of the wants of the company.
Importantly, the power to reduce share capital must be included in the articles of association of the Company, and such a decision has to be approved by a special resolution.
While deciding the application, the Court may consider, among other factors, whether the reduction of shares is fair and equitable for all classes of shareholders as well as creditors. The court may also consider whether the proposal affects all the shareholders of the same class in a similar manner, whether those treated differently have consented to it; and whether the causes of the reduction were properly appraised to shareholders so that they exercised informed choice.
Who may approach the Court: Majority of the Company Shareholders, collectively (by way of special resolution in the prescribed manner)
Procedure: Same as above (more or less) as mentioned for the application under section 12/13 of the Act.
4. Condonation of delay in holding the Annual General Meeting in time
Relevant Law: Section 81(2)/85(3) of the Act
Every Company is generally required to arrange and hold the Annual General Meeting by 31st December of every calendar year. However, if a company fails to hold the AGM within the statutory stipulated period, the Court may, on the application of any member of the Company, call or direct the calling of a General Meeting of the company and give such ancillary or consequential direction as the court thinks expedient in relation to the calling, holding and conducting of the meeting.
Furthermore, section 85(3) of the Act states that if, for any reason, it is impracticable to call a meeting of a company in any manner in which meeting of that company may be called or to conduct the meeting of the company in manner prescribed by the articles of this act, the court may either of its own motion or on the application of any director of the company or any of member of the company who would be entitled to vote at the meeting, order a meeting of the company to be called, held, held and conducted in such manner as the Court thinks fit and where any such order is given, the court may give such ancillary or consequential directions as it thinks expedient and any meeting called, held and conducted in accordance with any such order shall for all purposes be deemed to be a meeting of the company duly called, held and conducted.
Who may approach the Court: Company Shareholders
Procedure: Same as above (more or less) as mentioned for the application under section 12/13 of the Act.
5. Condonation of delay in filing the return of allotment of shares in due time
Relevant Law: Section 151 read with section 396 of the Act
If a limited company allots its shares, it must, within 60 days, submit a report of the allotments to the Registrar. Failure to comply with this rule could result in a fine of up to one thousand taka per day for each day the violation persists, for every officer of the company knowingly involved in the default.
However, if there is a delay in submitting the required document to the Registrar within the specified time, the company or the responsible individual can seek relief from the Court. The Court, upon being convinced that the failure to file the document was unintentional, due to oversight, or for other just and fair reasons, may issue an order extending the time for filing the document as deemed appropriate by the Court.
Who may approach the Court: Company Directors, Managers/Managing Agents or Officers of the Company as empowered by the Board of Directors
Procedure: Same as above (more or less) as mentioned for the application under section 12/13 of the Act.
6. Condonation of delay in registering Mortgages or Charges on the properties of the Company
Relevant Law: Section 159 read with section 171 of the Act
If a company creates a mortgage or charge for specific reasons, like securing debentures, using uncalled share capital, or dealing with property or debts, it must register this with the Registrar within 21 days. If not, the mortgage or charge becomes invalid against the liquidator and any creditor. However, the obligation to repay the money is not affected. When a mortgage or charge becomes invalid, the money owed becomes due immediately. If a mortgage or charge is properly registered, anyone acquiring the property afterward is considered aware of the mortgage or charge.
However, if a company fails to register a mortgage or charge on time or if there are mistakes in the registration, the court can grant relief under certain conditions. This includes accidental omissions, no harm to creditors or shareholders, or when it’s fair and just. The court can extend the registration time or correct the omission, with costs decided by the court. If the court extends the registration time, it doesn’t affect any rights acquired regarding the property before the actual registration.
Who may approach the Court: Company, represented by the Managing Director or any person duly authorized by Board Resolution
Procedure: Same as above (more or less) as mentioned for the application under section 12/13 of the Act.