Eligibility of CFO - appointed in Private Limited Company in accordance with any provisions in its Articles of Association shall be established on the criteria as provided in Section 203 of the Companies Act, 2013: NCLAT
The National Company Law Appellate Tribunal (NCLAT) principal bench comprising of Justice Anant Bijay Singh, Dr. Alok Srivastava and Mr. Barun Mitra in the matter of Hamlin Trust & Ors. Vs. LSFIO Rose Investments S.A.R.L & Ors. (Company Appeal (AT) No. 77 of 2022) vide Order dated 07.09.2022 ruled on the issue that in case of a Private Limited Company where Article of Association of the Company contains any provisions for nomination and appointment of CFO in the Company, but is silent on the eligibility criterion for such appointment, the provisions of section 203 of the Companies Act, 2013 shall be binding for establishing such eligibility.
Background of the Case
An appeal was filed by the Hamlin Trust (approx. 50% shareholder of Rattan India Finance Private Limited {RFPL}) against the impugned order of the National Company Law Tribunal (NCLT) Principal Bench in CA No. 19 of 2022 regarding the appointment of Chief Financial Officer (CFO) in M/s Rattan India Finance Private Limited (RFPL), where such appointment was made in compliance of Article 140 of Article of Association of RFPL.
Contention of the Appellants
The Appellants contended that while passing the impugned order the NCLT has wrongly established that the provisions of Article of Association are absolute and no contention on the basis of eligibility as established under Section 203 of the Companies Act, 2013 can be made a ground for rejection where such rejection forms a part of the provisions of Article of Association of the Company, for the appointment of CFO. Basically, the appellants referred to Section 6 of the Companies Act, 2013 and claim that provisions of AOA cannot override the provisions of the Companies Act, 2013 whenever, the provisions of Articles of Association is silent it is perfectly logical and rational that reference be made to the Act and rules made thereunder to consider the eligibility criteria of CFO.
Held
It was held that impugned order failed to interpret the import of provisions of Article 140 of AoA in its true letter and spirit and does not contemplate that a person’s nomination can be considered to be valid or invalid for any particular reason where not provided in the subject Article. The NCLAT established that nomination of ineligible candidate as CFO shall not act as Hobson’s choice for the Appellants. The NCLAT also held that where the AoA of the Company is silent on any specific condition of eligibility for nomination of CFO, a logical recourse has to be taken to the relevant provisions in the Act and in this case provisions of the section 203 of the Companies Act, 2013.
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