Recommendations of the High Court Division for a better company act

The High Court Division (HCD) of the Supreme Court of Bangladesh has recently recommended that the Company Act 1994 should undergo significant change for shifting the status of the developed nation from the present situation. Moreover, the HCD further recommended setting up one company appellate tribunal in each division and one or more company law tribunals in each district according to the number of companies. The HCD made this observation while disposing of two company matter petitions filed by Md. Uzzal to seek justice for minority shareholder protection under section 233 of the Company Act 1994 against Top Ten Fabrics & Tailors Limited.  

The management of a company is run by majority rule. In Foss vs. Harbottle case, the principle of majority rule is firmly established. Decisions of a company are often taken in the best interest of majority shareholders. All the decisions whether finance or management are taken based on the majority rule. The Board of Directors (BOD) consists of directors who have qualified shares to be a director. However, section 233 of the Companies Act 1994 is enacted to the exceptions of the majority rule for the protection of the interest of the minority. If the company fails to protect the interest of the minority shareholders, the creditors will be highly discouraged to invest there. Bangladeshi legislature is not enough to protect the minority shareholders. In India, the term prejudice means that if the matters of the company are prejudiced against any shareholders or members of the company, then legal action can be taken according to the Company Act of 2013. In these cases, the courts first investigate whether the conduct of the shareholders against whom the petition has been filed comes under the concept of unfair prejudice or not. Moreover, a separate tribunal has been formed which is dealing with the protection of the rights of minority shareholders. However, in Bangladesh, there is no such procedure.   

For the protection of minority shares and for an updated company act, the HCD made some observations in this judgment. In the observations, the HCD advised the commerce ministry to prepare a new company legislation modeled after India's Companies Act. The Ministry was also instructed to revise the Act annually, to create Special Criminal Courts for Companies Act violations, and modernise and reinforce the RJSC's legal structure and services. It further requested that the Ministry require every company to hire a permanent legal officer, and a company law professional as a consultant. This judgment proposed establishing a training center in each district under the Ministry of Commerce for company formation and administration and requiring company officials to attend at least one training session each year. It further requested that the Ministry compel the nomination of one independent director, company secretary, and internal auditor in every company and that any company with a paid-up capital exceeding Tk. 50 million have a full-time company secretary. The HCD urged the Ministry to create Special Criminal Courts for Companies Act violations and modernise and reinforce the RJSC's legal structure and services.

The setting up of a company law tribunal in each district is absurd. In reality, we have no such companies that we need a separate trial for company matters. Our highly centralised economy is mainly based in Dhaka. Most of the companies are situated in a few districts. There are some districts where there is no trace of any company. We can set up a company law tribunal in the division and form a company appellate tribunal in Dhaka. India formed the National Company Law Tribunal in 2016, which has sixteen benches throughout the country. So, we need not set up a separate tribunal system at the district level. The crime relating to a company is of a civil nature. The criminalisation of offenses arising out of such a company matter is against international rules and regulations.   

A bona fide and appropriate equilibrium of the rights between majority and minority shareholders is the eminent necessity to root out minority oppression and the smooth and pleasant functioning of the company. For ensuring corporate governance and pace with our shifting economy, our existing company law should be updated. This sort of judgment is very needed for improving our backdated situation.

The writer is an advocate, Dhaka Judge Court.