The articles of association of DEF Ltd. mentioned in it that Mr. X and Mr. Y will act as directors of the company from the date of incorporation. The company was incorporated on 2nd January, 2007. The articles also provided that the directors will have to obtain qualification shares within one month from the date of appointment as director. Mr. X purchased the shares of the company on 28th February, 2007 and Mr. Y purchased on 28th March, 2007 thus violating the provisions contained in the articles. Having regard to the provisions of the Companies Act, examine the validity of the appointments of Mr. X and Mr. Y as directors.
The provisions relating to first directors are contained in section 254 of the Companies Act, 1956. As per section 254, the directors named in the articles shall be the first directors of the company.
As per section 270, every director shall obtain share qualification within 2 months of appointment. Further, the articles cannot require a person to hold qualification shares before appointment. Similarly, the articles cannot require that a director shall obtain the qualification shares within a shorter time than 2 months. Any provision in the articles shall be void in so far as it requires a person to hold the qualification shares before his appointment as a director or to obtain them within a shorter time than 2 months.
Applying the provisions of sections 254 and 270 to the given case, -
Mr. X and Mr. Y are named in the articles as first directors. Accordingly, w.e.f. 02.01.07 they are the first directors of DEF Ltd. The articles are void in so far as the articles require the directors to obtain the qualification shares within 1 month Accordingly, Mr. X and Mr. Y must acquire the qualification shares within 2 months of incorporation of DEF Ltd. Mr. X. can continue in office since he has obtained the qualification shares within 2 months. Mr. Y shall vacate his office since he failed to obtain the qualification shares within 2 months of corporation of DEF Ltd.
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