Director co-option powers survive a reduced board, but appointments must be bona fide and serve the company's interests.

A clause empowering continuing directors to fill vacancies remained operative even after the board fell below the minimum strength or quorum, because it was designed to meet that contingency. The power to co-opt, however, had to be exercised bona fide and in the interests of the company and its shareholders. On that basis, the co-option of K.N. Narayana Iyer was upheld as valid, while the co-option of K.C. Chandy was treated as invalid because the surrounding circumstances suggested it was used to strengthen management rather than serve corporate interests.

---

---

Issues: (i) Whether the co-option of K.N. Narayana Iyer as a director was valid when the board had fallen below the minimum strength and the annual meeting had been called; (ii) Whether the co-option of K.C. Chandy as a director was a valid exercise of the power to fill vacancies.

Issue (i): Whether the co-option of K.N. Narayana Iyer as a director was valid when the board had fallen below the minimum strength and the annual meeting had been called.

Analysis: The relevant articles allowed the continuing directors to act notwithstanding vacancies and to fill vacancies when the number fell below the minimum. The fact that the board had dropped below the prescribed strength, and even below quorum, did not by itself destroy the power to co-opt, because the clause was intended to meet such contingencies. The power, however, had to be exercised bona fide and in the interests of the company and its shareholders.

Conclusion: The co-option of K.N. Narayana Iyer was valid and was upheld in favour of the respondent.

Issue (ii): Whether the co-option of K.C. Chandy as a director was a valid exercise of the power to fill vacancies.

Analysis: The co-option of K.C. Chandy was made shortly before the annual meeting, without any shown necessity comparable to the appointment of Narayana Iyer and without any demonstrated benefit to the company. The surrounding circumstances indicated that the step was taken to strengthen the hands of the management rather than to serve the shareholders' interests, and therefore it was not a proper exercise of the power.

Conclusion: The co-option of K.C. Chandy was invalid and was rejected in favour of the appellant.

Final Conclusion: The power of co-option under the articles could survive even when the board had fallen below the minimum strength, but its exercise had to be bona fide and directed to the company's interests; on that test, Narayana Iyer's co-option stood while Chandy's did not, and the appeals were dismissed.

Ratio Decidendi: A clause empowering continuing directors to fill vacancies remains operative even if the board is reduced below the minimum strength or quorum, but any co-option made under that power must be bona fide and for the benefit of the company and its shareholders.

---