Board notice and director appointment rules: mortgage challenge failed, but unauthorized director appointments were set aside.

Notice to every director is mandatory for a valid board meeting, and a resolution passed without such notice may be vulnerable to challenge; however, relief setting aside a mortgage may still be refused where the statutory time limits for challenge are not satisfied. On the directors' appointments, the Companies Act, 1956 distinguishes ordinary directors from additional directors, and the board cannot use the wrong route to validate appointments. On the facts recorded, the mortgage challenge failed, while the appointment of respondents 5 to 7 as directors was treated as unauthorized and set aside.

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Issues: (i) Whether the mortgage created over the company's assets in favour of the bank was liable to be declared illegal, null and void for want of notice of the board meeting and for falling within the powers under section 402 of the Companies Act, 1956. (ii) Whether the appointment of respondents 5 to 7 as directors was valid when the meeting notice and supporting records were not produced and the appointments were not made as additional directors.

Issue (i): Whether the mortgage created over the company's assets in favour of the bank was liable to be declared illegal, null and void for want of notice of the board meeting and for falling within the powers under section 402 of the Companies Act, 1956.

Analysis: Notice to every director for a board meeting is mandatory under section 286 of the Companies Act, 1956, and is a condition precedent to the validity of resolutions passed at such meeting. Where the petitioners specifically denied receipt of notice and the respondents failed to produce the original records such as the dispatch register, attendance register, and original minutes, adverse inference was justified. Even so, the relief to set aside the mortgage was constrained by the temporal limits in section 402, since the challenged transaction was outside the statutory period and the petition itself was filed beyond three months from the transaction and beyond the petitioners' own asserted knowledge of the mortgage.

Conclusion: The mortgage was not declared illegal, null and void, and this issue was decided against the petitioners.

Issue (ii): Whether the appointment of respondents 5 to 7 as directors was valid when the meeting notice and supporting records were not produced and the appointments were not made as additional directors.

Analysis: The statutory scheme under sections 255, 256, 258 and 260 of the Companies Act, 1956 distinguishes appointment of directors from appointment of additional directors. The record showed that respondents 5 to 7 were appointed as directors and not as additional directors. In the absence of proof of notice of the board meeting and supporting original records, and since the board had no authority to appoint them as ordinary directors in the manner adopted, the resolution could not stand.

Conclusion: The appointment of respondents 5 to 7 as directors was held unauthorized and was set aside, in favour of the petitioners.

Final Conclusion: The petition succeeded only on the challenge to the appointment of respondents 5 to 7 as directors, while the challenge to the mortgage transaction failed.

Ratio Decidendi: A board resolution passed without notice to every director is invalid, but relief against a corporate transaction may still be refused where the statutory conditions for setting it aside are not satisfied; further, the board cannot appoint ordinary directors where the statute permits only additional directors by that route.

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