Appointment and Removal of Directors in Bangladesh under the Companies Act, 1994

In Bangladesh, the appointment and removal of directors are foundational elements of corporate governance and are governed by the provisions of the Companies Act, 1994. Directors hold a critical role in the management of a company’s affairs, exercising control over strategic decisions and day-to-day operations on behalf of the shareholders. The integrity and effectiveness of a company’s leadership depend largely on the proper application of the law in appointing and, where necessary, removing directors.

The relevant statutory framework is encapsulated in Sections 90 to 115 of the Companies Act, 1994, which detail the qualifications, procedures, disqualifications, and legal grounds for vacating directorial office. Additionally, the Articles of Association (AoA) of a company, alongside case law, provide supplementary guidance in shaping these internal governance matters.

Appointment of Directors

According to Section 91 of the Companies Act, 1994, directors are generally appointed by the shareholders in a general meeting. Initially, the subscribers to the Memorandum of Association are deemed to be the first directors until formal appointments are made. Any subsequent appointments may be made either at the annual general meeting (AGM) or to fill casual vacancies as per the company’s internal regulations and Articles of Association.

In order to be eligible for appointment, a director must be a natural person, must provide written consent to act as a director, and must not fall within the disqualification criteria laid out under the Act. Persons who are minors, insolvent, or declared to be of unsound mind are barred from becoming directors. In practice, before any appointment, the Board or shareholders should verify compliance with both the statutory requirements and any additional conditions specified in the AoA.

Removal of Directors

The removal of directors is primarily governed by Section 106 of the Companies Act, 1994, which provides that a company may remove a director before the expiration of their term by passing an appropriate resolution. A special notice of the intention to move such a resolution must be given to the company and communicated to the director concerned. The removal typically requires a special or extraordinary resolution, which must be passed by at least three-fourths (75%) of the shareholders present and eligible to vote.

The Act also outlines specific grounds for disqualification under Section 94, such as unsoundness of mind, being declared insolvent, or failing to pay calls on shares held by the director. A director may also be removed voluntarily through resignation, or by way of rotation if the company’s AoA mandates rotational retirement.

Section 106 is generally construed to apply to elected directors, and not to those appointed via contractual agreements or by virtue of shareholder agreements. In this context, Section 91(2) empowers shareholders, particularly in a public company, to remove up to one-third of the directors at a general meeting. The Articles of Association may further define or restrict this power, introducing additional grounds or procedural requirements for dismissal.

Judicial Interpretation and Contractual Perspective

The landmark case of Syed Ameenul Huq and Ors v. M.H. Arif and Ors (1988) sheds light on the contractual nature of the directorial position. The High Court Division of the Supreme Court of Bangladesh observed that the office of a director is not purely statutory but also contractual in nature, subject to the terms of appointment as outlined in the company’s AoA or shareholder agreements. This perspective legitimizes the removal of directors through contractual provisions, including amendments to the Articles of Association.

Consequently, companies may incorporate customized dismissal mechanisms into their governing documents, provided such clauses do not conflict with statutory provisions or public policy.

Grounds for Disqualification and Vacation of Office

In addition to removal through shareholder resolution, a director’s office may become vacant by operation of law under Section 108 of the Companies Act, read with Regulation 78 of Schedule I. These grounds include being declared of unsound mind, adjudicated insolvent, failing to pay calls on shares, or absenting from Board meetings without leave for a specified period.

However, the lack of a clear judicial test regarding actions that cause "damage to the company or its stakeholders" has led to ambiguity in enforcement, sometimes resulting in the arbitrary or politically motivated removal of directors. This has raised concerns about misuse of power and the need for stricter judicial or regulatory oversight.

Maintaining the Register of Directors

In compliance with the Companies Act, 1994, every company is required to maintain a register of its directors and officers, including details of any contracts or arrangements in which a director has an interest. This register must be kept at the company’s registered office and be made accessible to any member during business hours, thereby ensuring transparency and accountability in corporate governance.

Maintaining an up-to-date register is not only a legal requirement but also essential for managing conflicts of interest and ensuring good corporate governance. Non-compliance may result in regulatory penalties and reputational damage to the company.

At Kazi Law Chamber, we provide strategic and compliant solutions for appointing, removing, or replacing directors. Our services include drafting resolutions, modifying Articles of Association, preparing filings with the RJSC, and, where necessary, litigating disputes before the Company Bench of the High Court Division.