The Supreme Court has ruled on Thursday that the courts can intervene to remove Company Directors from their positions in instances where they are working in detriment to the company, and the company is unable to dismiss him themselves.
As per Company Law, directors of companies can be removed through a general meeting of its board. It does not specify that the courts can intervene in situations where the decision cannot be reached through a general meeting.
The France company which holds shares in Save the Dream company who runs the Rihiveli Beach Resort filed charges against its local sector Managing Director who released some funds to another company he holds shares in. Save the Dream France company claims that these funds, although claimed to be released under the Rihiveli Resort sublease agreement, had, in fact, been issued without their knowledge.
Ruling on the case submitted by Save the Dream France seeking dismissal of the Managing Director and reclamation of lost funds, both the Civil Court and High Court have previously ruled that the Managing Director cannot be removed from his position.
After the France company appealed this in the Supreme Court, the apex court ruled on Thursday that although Company Law stipulates that a director can be dismissed through passing a motion at a general meeting, the courts can provide a resolution in cases where company director numbers are even. The ruling declared that courts have the jurisdiction to dismiss directors in the instance that said directors are working in a manner detrimental to the company they represent.
The ruling states that there has to be a legal consequence in the case of directors who do not comply with their responsibilities towards a company. Shareholders of a company are allowed by law to present to court cases where a director is acting in a way that causes loss to shareholders.
The court ruled that despite claims that the funds were transferred under the Rihiveli Resort sublease agreements, there is a conflict of interest as the Managing Director also holds the post of Director in the company that received the funds. The ruling also stated that since Save the Dream has two shareholders as Directors in the company, it is unable to resolve the matter within the company and hence the court has to provide a resolution in the matter.
The Supreme Court ruled that the Managing Director has been removed from his position forthwith for breaching his responsibilities towards the company.
The ruling, however, states that the court cannot order repayment of the funds. This is because as the funds are claimed to be resort lease, repayment of the funds may provide undue enrichment to Save the Dream company.
The case was presided over by Supreme Court Judges Mahaz Ali Zahir and HusnuSuood, with Judge Ali Rasheed acting as the presiding judge.
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