Directors Can't Bypass CEO To Call Board Meeting In Producer Company: NCLT Kochi

The National Company Law Tribunal (NCLT) at Kochi has set aside a notice convening a board meeting of Harithamrutham Farmers Producer Company Limited, holding that the notice violated mandatory provisions of the Companies Act applicable to producer companies.

A coram of Judicial Member Vinay Goel held that once a Chief Executive Officer is appointed, the power to issue notice of board meetings rests only with the CEO.

The tribunal said producer companies are governed by a special statutory regime that overrides general company law. “The provisions applicable to Producer Companies override the general provisions relating to companies to the extent of inconsistency,” it observed.

Producer companies are set up by farmers or other producers so they can work together to produce, process, and market their goods for the benefit of all members.

The dispute arose from a July 2021 notice signed by three directors and emailed to all board members. Sunija Darsan, the managing director, said the notice was issued without her knowledge. She pointed out that under the Articles of Association, board meeting notices must be signed by the chairman, a role she claimed to have been performing.

She also alleged that the notice lacked agenda notes and proposed holding the meeting outside the registered office. Apprehending an attempt to take control of the company and remove the existing management, she approached the tribunal.

The respondent directors opposed the plea. They claimed Binu V. was the CEO, an ex officio director, and the chairman. They said the notice was issued with his permission and was meant to address financial issues in the company.

Rejecting this defence, the tribunal held that statutory duties of the CEO cannot be waived or delegated. “Consequently, the authority to issue notice of the Board Meeting stood vested exclusively with the Chief Executive Officer, and the Directors could not have assumed such authority on their own,” it said.

It added, “The issuance of the notice by the Directors, bypassing the Chief Executive Officer, is therefore in clear violation of Section 378V of the Companies Act, 2013.”

The notice was set aside; however, liberty was granted to convene a fresh board meeting in accordance with law.

For Petitioner: Arun K Kamololbhavan, PCS

For Respondents: Advocate Harikrishnan R Nair