EGM : Shareholders have absolute right to remove directors unless there is procedural anomaly

NCLAT Upholds Shareholder Rights in Director Removal, Denies Interim Relief Tribunal Affirms Corporate Democracy and Compliance with Companies Act, 2013, as EGM Resolutions Stand Unchallenged

In a significant ruling, the National Company Law Appellate Tribunal (NCLAT) in Chennai has upheld the right of shareholders to remove a director in the case of Biju Scaria v. Media Team Solutions (I) Pvt Ltd. The tribunal emphasized the principles of corporate democracy and shareholder autonomy under the Companies Act, 2013, while dismissing an appeal for interim relief related to the removal of a Whole-Time Director during an Extraordinary General Meeting (EGM).

The case involved Biju Scaria, the appellant, who challenged his removal as a Whole-Time Director by seeking an interim stay on the EGM convened by Media Team Solutions (I) Pvt Ltd. The EGM, held on July 1, 2025, resulted in a resolution to remove Scaria from his position, which the appellant argued was procedurally flawed and unjust.

However, the NCLAT, comprising Justice Sharad Kumar Sharma and Member Jatindranath Swain, found no procedural anomaly or illegality in the EGM notice or its conduct. The tribunal highlighted that the shareholders exercised their rights in accordance with Section 169 of the Companies Act, 2013, which allows for the removal of directors unless procedural irregularities or malafide intents are demonstrated.

The tribunal noted that the appellant failed to establish any procedural flaws or violations of natural justice. The EGM was conducted transparently, with appropriate notice served to all relevant parties, including an opportunity for representation by the appellant. Furthermore, the tribunal observed that any resolutions passed during the EGM were legally binding and did not warrant judicial interference.

The NCLAT's decision underscores the importance of maintaining a balance between shareholder rights and corporate governance. By upholding the EGM's outcome, the tribunal reinforced the statutory framework designed to protect shareholder interests while allowing companies to exercise autonomy in their internal affairs.

This ruling sets a precedent in reinforcing corporate democracy and the sanctity of shareholder decisions within the bounds of the Companies Act, 2013. The denial of interim relief reflects the tribunal's commitment to respecting shareholder resolutions unless compelling evidence of procedural misconduct or illegality is presented.

The tribunal's decision has been welcomed by corporate governance advocates, who view it as a reaffirmation of the principles enshrined in the Companies Act, 2013, ensuring that shareholder rights are preserved in the absence of procedural anomalies.

Bottom Line:

Corporate democracy and shareholder rights must be respected under the Companies Act, 2013, and judicial interference in removal of directors through EGM is unwarranted unless procedural anomaly, illegality, malafide intent, or violation of natural justice is established.

Statutory provision(s): Sections 169, 241, 242, 115, 116 of the Companies Act, 2013

Biju Scaria v. Media Team Solutions (I) Pvt Ltd, (NCLAT)(Chennai) : Law Finder Doc Id # 2794398