Ms. Sabrina Mahisha Ajanta
A Company is considered an Artificial Person created by law. This is a separate legal entity which is separate from its Directors and Shareholders. Although Company has its own legal identity & separate personality, it represents an association of people & Directors are the key components of the Company. From conducting daily operational tasks to significant strategic decisions of the companies are taken by the Directors. Therefore, Directors are considered the driver of a Company who accelerate the wheels of the Company. Since Company works as an association of the people, the directors of a company perform, discharge duties, and make decisions collectively & jointly for the betterment of the Company. Hence, a joint & collective performance of the Directors in Company affairs is the key to running a company smoothly. Similarly, participating in decision-making & discharging duties are considered the right of the Directors. So, if the Company is run arbitrarily by other directors, what shall be the step of the aggrieved director to protect his right as a director?
Chapter IV of the Companies Act, 1994 has provided several instructions as to the duties, qualifications, penalties, power & limitations of the Directors. A company is not a One-Man Army institution rather all the directors are required to work as a body to ensure the smooth functioning of the Company. If any director is willingly kept in dark about the company’s affairs or deprived of participating in any decision of the Company or monitoring the affairs of the Company, it will be a grievous violation of the right of the Director. This non-participation of one director/director may lead to an arbitrary environment in the company, which frustrates the concept of establishing a Company.
Although there is no specific provision in the Companies Act, of 1994 which gives the power to an aggrieved director to file an application for the Winding up of the Company. However, recently the practice of Winding up a Company on the ground of complete deadlock between the directors has evolved. The Hon’ble Court exercises its power of Winding up under 241(vi) in such cases. There are some cases where the court has passed a winding-up order, SMM Yusuf vs Bismillah Shipping Lines (Pvt.) Ltd. & Ors. 5 BLC 603, where the Hon’ble High Court Division has decided that in such circumstances where there is a completely deadlock between the shareholders who are also directors and the company turned into a one-man company, it is just and equitable that the company should be wound up.
Since winding up is considered the death of a Company, the deadlock between the directors is not the sole ground of winding up rather some additional losses and irregularities are needed to be proved before the Hon’ble Court to obtain a decree of Winding up. In the case named Younus Bhuiyan & Others. Vs. Bashati property Development Ltd. 4 BLC 249 where the Hon’ble High Court Division has decided that where there is no co-operation between the two groups of Directors & misunderstanding between them and no chance of any compromise between the two groups of Directors. Moreover, prima facie it seems that the Managing Director has manifestly violated several provisions of the Articles of Association. All of these circumstances result in to a complete deadlock in the business of the Company, hence Court found it just and equitable to wind up the Company. So, it is already established that upon the satisfaction of the Hon’ble Court, winding up a Company due to the deadlock between the directors can be sufficient ground behind the winding up of a Company.
Recently, the team of Jural Acuity ‘Barristers & Consultants’ has obtained a Winding up the decree of Meridian Global International Ltd under section 241(VI) of the Companies Act, 1994 (Company Matter No. 93 of 2022). In this matter, Jural Acuity ‘Barristers & Consultants’ represented the petitioner Mr. Abbas Abdullah Al Husaiki, who is a foreign shareholder & director of Meridian Global International Ltd. The Respondent for satisfying his Malafide intention to run the business arbitrarily, kept the Petitioner completely in dark relating to the company’s affairs. Hence, the Respondent has failed to work as “akin to a partnership.” As this complete deadlock between the directors is not enough to obtain a winding-up decree, Jural Acuity has unveiled the shell of the several irregularities of the Company as well as the arbitrariness of Respondent No.2 which resulted in a complete deadlock in the business of the Company. After scrutinizing the claims, the Hon’ble Court was pleased to pass the Winding-up decree of Meridian Global International Ltd in favour of the Petitioner.
These incidents of Winding up may create an accountable environment among the Directors. Apart from the traditional practice of filing winding-up petitions by the Creditors, this new practice will encourage an aggrieved director to file a winding-up petition before the Hon’ble Court as a raise of voice against the irregularities resulting from the arbitrariness of other directors.