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

1. Shahadat Hossain (Md.) Vs. Base Textile Ltd

Shahadat Hossain (Md.) Vs. 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. Also the amendments in Associations of Articles that were made
during those general meetings were called as void. 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. Also the company was ordered to follow
and run its affairs in accordance with Memorandum and Articles of Association of the Company.

2. Identification of Issues:
Base Textile Ltd. was incorporated with an authorised capital of Taka 3 crore divided into
3,00,000 ordinary share of Taka 100 each. The petitioner, respondents Nos. 2, 3 and one Mr.
Mainuddin Ahmed were the subscribers to the Memorandum and Articles of Association of the
Company. Petitioner, Respondent 2 and 3 had 40%, 40% and 20% shares of the company
respectively. The Company was established by the petitioner and the respondent No. 2, who are
childhood friends. Loan was taken from Sonali Bank as a result of which there is a huge
outstanding liability to Sonali Bank.
The petitioner and the respondent No. 2 used to receive Taka 1 lac each per month and
respondent No. 3 used to receive Taka 50,000 per month as remuneration.
The petitioner went abroad for few days. Before his departure the respondent No. 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. Upon return he noticed that during his
absence the respondent No. 2 has assumed all powers of the Company. The following changes
were brought in using the powers:

Two Extraordinary General Meetings of the Company were held without providing any

notice.
After arrival of Petitioner, a meeting of the Board of Directors was held. During the said
board meeting arbitrary decisions, with objections from the petitioner, were taken which
were detrimental to the interest of the Company and the shareholders. In the meeting of
the Board of Directors the remuneration of the respondent No. 2 was raised to Taka 2 lac
from 1 lac and that of the respondent No. 3 to Taka 1,25,000 from Taka 50,000, but the
petitioners remuneration was raised to Taka 1,25,000 only from Taka 1 lac. Over and
above the increase of the remuneration of the respondent No. 2 the ceiling for
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telephone, fuel were withdrawn and made unlimited. The meeting also gave respondent

No. 2 the authority to sanction unlimited loan to himself and any other Director.
5 articles were amended during the absence of the petitioner. 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. It also provided that the accounts of the Company would be
operated by the Managing Director singly or as per Board decision. 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.
The original Article 51 provided that three Directors would form a quorum for any

meeting, but by amendment of the said Articles it is reduced to two Directors.

Before amendment, Article 34 provided that the quorum for any General Meeting would

be three shareholders but by amendment it is reduced to two shareholders.

Articles 42 in its original form provided that the number of company directors would
never be less than 3 and not more than 6. But, according to the amended article, it may

not be less than 2 Directors and more than 6 Directors.

Article 64 in its original form provided that Md. Shahadat Hossain the petitioner, would
be the Finance Director and would continue in that position till otherwise decided. This
Article was amended giving the Board of Directors power to delegate to one or more of
the Directors responsibilities temporarily. The person thus delegated will remain
accountable to the Board.

In Addition, after returning from abroad, a board meeting was held including the petitioner. In the
said board meeting arbitrary decisions, with objections from the petitioner, were taken which
were detrimental to the interest of the Company and the shareholders. In the meeting of the
Board of Directors the remuneration of the respondent No. 2 was raised to Taka 2 lac from 1 lac
and that of the respondent No. 3 to Taka 1,25,000 from Taka 50,000, but the petitioners
remuneration was raised to Taka 1,25,000 only from Taka 1 lac. Over and above the increase of
the remuneration of the respondent No. 2 the ceiling for telephone, fuel were withdrawn and
made unlimited. The meeting also gave respondent No. 2 the authority to sanction unlimited
loan to himself and any other Director.

3. Applicable Laws
Private Company- A private company is one which, by its articles, a) restricts the right of the
members to transfer their shares, if any; b) limits the number of its members to 50; and c)
prohibits any invitation to the public to subscribe for any shares in, or debentures of, the
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company- Sec. 2(1) (k). 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. It determines the relationship
between the company and the outsiders.
Article of Association: The Articles of Association is a document which contains rules, regulation
and bye-laws regarding the internal management of a company. It Is the second most important
document in a company. It is registered with the memo. Articles of Association contain a network
of rules regulating the affairs of the company. Some features of Article are as follows:

Articles cannot exclude or limit the right provided in the Act.

Articles cannot allow something that is forbidden by law.
Under section 19, 23, formalities of Articles require subscriber who signs the memo must

sign the article as well.

Binding forces of Articles (s22)- 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

define the rights and liabilities of members.

Alternation of article can be done by special resolution (section 20).
As per the case Hutton vs. Scarborough Cliff Hotel Co, a change in articles which
influence the Memo is void.

Member: according to section 41 of the act, the term member of a company means the
subscriber of the memorandum of the company.
Managerial Remuneration: This rule does not apply to a private company. In this case of public
company there is certain limit of remuneration. Schedule 1 (170.)
Appointment of Directors: Sec- 91(1)(b) This rule does not apply in private company.
Company shall be appointed directors by the members among their members in general
meeting.
Meetings: There are three kinds of meeting: Statutory, Ordinary, Extraordinary meeting. 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. 83).

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. This
meeting may also be called an Annual general Meeting. The period during which the
subsequent meeting should be held is 15 months from the previous general meeting. The
articles may provide such meeting shall be held on a certain date every year. If no such meeting
in held, the company and every director or manager who is a party to the default shall be liable
to a fine of TK. 10,000 and Tk. 250 for each day of default and the Court may on the application
of any member of the company, call or direct the calling of such meeting (Sec. 81,82)
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, for a period covering eighteen months from the
date of incorporation. The balance sheet and the profit and loss account or the income and
expenditure account must be audited by the company auditor and the auditors report must be
attached therewith.
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. These meeting
may be called by the directors wither suo moto or on the requisition of not less than one-tenth of
the shareholders. Where the directors fail to call such a meeting so requisitioned within the
prescribed time limit 84 (i) it would be called, by the requisitionists themselves (84(3).
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. But the period from one AGM to next AGM shall not
exceed 15 months. Every company shall hold its first AGM after incorporation within 18 months
from the date of incorporation. But as per SEC regulations the AGM is to be held within 6
months from the end of its accounting year.
For calling AGM notice to the shareholders is to be given at least 14 days before the AGM
mentioning the date, time, agenda and venue of the meeting therein. The annual report of the
company is to be accompanied.
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. If the Directors do
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not cause a meeting to be called within twenty one days from the date of the requisitions being
so deposited, 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. Notice for holding the meeting is to be given at least 21 days before
the date of the meeting. The Agenda of the meeting is to be mentioned in the notice.
Types of Resolution: a)Ordinary resolution: This is passed by a majority of members present
at a general meeting. Such a resolution is passed in the ordinary way and deals with ordinary
business, such as passing of accounts, appointing directors and so on. Unless required by the
articles, no notice of suich resolution needs to be given, But notice must be given of all ordinary
resolutions to be proposed at the statutory meeting.
b) Special resolution: This is passed at one meeting by a three fourths majority of the members
present in person or by proxy, 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. Special
resolutions are necessary for the following among other purposes:
I.
II.
III.
IV.
V.
VI.
VII.

To change the name of the company with consent of the Central government (Sec. 11)
To alter the memorandum with leave of the court (Sec. 5.12)
To alter the articles of the company (Sec. 20)
To reduce the capital (sec. 59)
To convert any portion of the capital, uncalled, into reserve capital (Sec. 74)
To appoint inspectors to investigate the company own affairs (Sec. 207) (1).
To wind up a company voluntarily (Sec. 286(2)

c) Extra- 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. The notice must specify
the intention to propose the resolution as an extra ordinary resolution (Sec. 87(1). 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.
Safeguard of Minority: Section 233 entitles a member holding not less than 10% of the shares
to file, 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. Under sections 233 the main function of the Court is not to see whether

fraud is committed but whether the resolutions adopted are unfair to the company and the
minority shareholders.
Same Person Acting as the Director and the Chairman: Refer to section 54 of the First
Schedule Regulations of the Companies Act, 1994.

4. Judgment (Application of the Facts)

The petitioner claimed that the aforesaid amendments were made to oust the petitioner
from the Company. Before a meeting, notices should be provided to all the members,
which the petitioner never received. Also before the petitioner left for abroad, the quorum
for holding for a meeting was 3 members, which was changed to 2 members without the

permission of the petitioner. This is a violation of a members right.

The Articles of Association were amended without prior approval of the Sonali Bank
contrary to the loan agreement. There was no Board decision expressing the need for

such amendment of the Article.

It is also argued that the respondent No. 2 has already ceased to be the Managing
Director of the Company long ago under section 110(2) of the Companies Act of 1994,
as no one can be appointed Managing Director for a term exceeding 5 years. The
respondent No. 2, the Managing Director, has been holding the office of the Managing
Director since the commencement of the Company. The new Companies Act came into
force on 1-1-1995 therefore, the tenure of 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. However, The Managing Director, the respondent No. 2, was re-appointed in the last
AGM held in 2001. Therefore, he was not functioning illegally. However, this point is not
relevant because minutes were signed by the respondent No. 2 in his capacity as the

chairman and not as the Managing Director of the Company.

It is further argued that 6th Annual General Meeting was never held. The respondents
have not averred that 6th AGM was held and they have not produced the
Notice/Minutes/Return of the 6th AGM. 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.

The amendment of Articles 51 and 34 were necessary because of reduction in the
number of members and Directors from four to three. The reduction of quorum was done

out of necessity.
The salary of the petitioner was increased in proportion to his contribution to the affairs
of the Company. He never comes to the office and does nothing but collect

remuneration. However, the necessary changes were brought in without the consent of

all the members of the meeting.

Since Articles of Association contain a network of rules regulating the affairs of the
company, amendment of any of the articles is always a serious matter and deserves to
be taken seriously. For adoption of a special resolution in any General Meeting
amending an article or articles, there should be a Board decision or a decision of the
Board by circulation expressing he need for such amendment of the article. The Board of
Directors must first address the issue and come to a clear findings that such
amendments are necessary, only then an Extraordinary General Meeting is convened to
amend the articles. 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.
The notices, by which two Extraordinary General Meetings were called on 15-10-2000
and 25-10-2000, it further appears that it was the company secretary who convened the
meeting by order of the Board. This has resulted in the violation of Article 31 of the
Companys Articles of Association which specifically lays down that an Extraordinary
General Meeting may be called either by the Board or the Managing Director. Nothing is
produced as evidence to show that the secretary was empowered by the concerned
authorities to call the Extraordinary General Meetings. Therefore, the Extraordinary
General Meetings thus called are not properly called meetings and no meetings in the

eye of law. Any decision taken in those meetings suffers from illegality.
The 7th Annual General Meeting does not contain any agenda for appointment of a
Managing Director, though the respondent No. 2 was re-appointed as the Managing
Director in the said meeting. Therefore, there is no consent of the Board of Directors to
the re-appointment of the respondent No. 2 as the Managing Director once the term of
five years under the Companies Act, 1994, had expired. In this connection it may be
noted that the said notice contained a specific agenda for the appointment of the

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

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.
In view of the above, minutes and resolutions in 2 Extraordinary General Meeting held in
absence of the petitioner is void. The amendments, which gave the Managing Director of the
company illegal powers were to be cancelled.

Appendix: Case of Shahadat Hossain (Md.) Vs. Base Textile Ltd

(See in next page)