Powers of central government to remove managerial personnel from office on the recommendation of the company

Companies Act – Powers of Central Government to Remove Managerial Personnel from Office on the Recommendation of the Company [Company Law Board]

Section 388B. Reference to Company Law Board of cases against managerial personnel.
(1) Where in the opinion of the Central Government there are circumstances suggesting
(a) that any person concerned in the conduct and management of the affairs of a company is or has been in connection therewith guilty of fraud, misfeasance, persistent negligence or default in carrying out his obligations and functions under the law, or breach of trust; or
(b) that the business of a company is not or has not been conducted and managed by such person in accordance with sound business principles or prudent commercial practices; or
(c) that a company is or has been conducted and managed by such person in a manner which is likely to cause, or has caused, serious injury or damage to the interest of the trade, industry or business to which such company pertains; or
(d) that the business of a company is or has been conducted and managed by such person with intent to defraud its creditors, members or any other persons or otherwise for a fraudulent or unlawful purpose or in a manner prejudicial to public interest, the Central Government may state a case against the person aforesaid and refer the same to the 4[Company Law Board.] with a request that the 1[Company Law Board] may inquire into the case and2[record a decision] as to whether or not such person is a fit and proper person to hold the office of director or any other office connected with the conduct and management of any company.
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1. Subs. by Act 65 of 1960, s. 148, for ” 310″
2. Ins. by s. 149, ibid.
3. Ins. by Act 53 of 1963, s. 9 (w.e.f. 1-1-1964).
4. Subs. by Act 31 of 1988, s. 67 (w.e.f. 31.5.1991)
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(2) Every case under sub-section (1) shall be stated in the form of an application which shall be presented to the 1[Company Law Board] or such officer thereof as it may appoint in this behalf.
(3) The person against whom a case is referred to the 1[Company Law Board] under this section shall be joined as a respondent to the application.
(4) Every such application
(a) shall contain a concise statement of such circumstances and materials as the Central Government may consider necessary for the purpose of the inquiry, and
(b) shall be signed and verified in the manner laid down in the Code of Civil Procedure, 1908, (5 of 1908.) for the signature and verification of a plaint in a suit by the Central Government.
(5) The 1[Company Law Board] may at any stage of the proceedings allow the Central Government to alter or amend the application in such manner and no such terms as may be just, and all such alterations or amendments shall be made as may be necessary for the purpose of determining the real questions in the inquiry.

Section 388C. Interim order by Company Law Board.
(1) Where during the pendency of a case before the 1[Company Law Board] it appears necessary to the 1[Company Law Board] so to do in the interest of the members or creditors of the company or in the public interest, the 1[Company Law Board] may on the application of the Central Government or on its own motion by an order
(a) direct that the respondent shall not discharge any of the duties of his office until further orders of the 1[Company Law Board], and
(b) appoint a suitable person in place of the respondent to discharge the duties of the office held by the respondent subject to such terms and conditions as the 1[Company Law Board] may specify in the order.
(2) Every person appointed under clause (b) of sub-section (1) shall be deemed to be a public servant within the meaning of section 21 of the Indian Penal Code (45 of 1860).
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1. Subs. by Act 31 of 1988, s.67 (w.e.f.31.5.1991).
2. Subs. by Act 17 of 1967), s. 4 and Sch., for record a finding (w.e.f. 1-7-1967).
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Section 388D. Decision of the Company Law Board.
At the conclusion of the hearing of the case, the 7[Company Law Board] shall record its decision] stating therein specifically as to whether or not the respondent is a fit and proper person to hold the office of director or any other office connected with the conduct and management of any company.

Section 388E. Power of Central Government to remove managerial personnel on the basis of Company Law Board’s decisions.
(1) Notwithstanding any other provision contained in this Act, the 2[Central Government shall], by order, remove from office any director, or any other person concerned in the conduct and management of the affairs, of a company, against whom there is a 3[decision of the 1[Company Law Board under this Chapter]:
Provided that where a firm or a body corporate is concerned in the conduct and management of the affairs of a company as its managing agent or secretaries and treasurers, and the 4[decision of the1[Company Law Board] is against any partner in such firm, or any director of, or any person holding a general power of attorney from, such body corporate, the Central Government may also remove from the office of managing agent or secretaries and treasurers, such firm or body corporate.
5[(2) No order removing a firm or body corporate from the office of managing agents or secretaries and treasurers shall be made in pursuance of the proviso to sub-section (1) unless such firm or body corporate has been given a reasonable opportunity of showing cause against the same:
Provided that no matter shall be raised by such firm or body corporate before the Central Government if such matter has been decided by the 1[Company Law Board].
(3) The person against whom an order of removal from office is made under this section shall not hold the office of a director or any other office connected with the conduct and management of the affairs of any company during a period of five years from the date of the order of removal:
Provided that the Central Government may, with the previous concurrence of the 1[Company Law Board] permit such person to hold any such office before the expiry of the said period of five years.
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1. Subs. by Act 31 of 1988, s.67 (w.e.f. 31-5-1991).
2. Subs. by Act 17 of 1967, s. 4 and Sch., for “Central Government may “(w.e.f. 1-71967).
3. Subs. by s. 4 and Sch., ibid., for ” finding of the Tribunal under this Chapter or a decision of a High Court thereon ” (w.e.f 1-7-1967).
4. Subs. S. 4 and Sch., ibid., for “finding of the Tribunal or the decision of a High Court” (w.e.f. 1-7-1967).
5. Subs. by s. 4 and Sch., ibid., for sub-section (2) (w.e.f. 1-7-1967).
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(4) Notwithstanding anything contained in any other provision of this Act or any other law or any contract, memorandum or articles, on the removal of a person from the office of a director or, as the case may be, any other office connected with the conduct and management of the affairs of the company, that person shall not be entitled to, or be paid, any compensation for the loss or termination of office.
(5) On the removal of a person from the office of a director or, as the case may be, any other office connected with the conduct and management of the affairs of the company, the company may, with the previous approval of the Central Government, appoint another person to that office in accordance with the provision of this Act.

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