Analysis of the concept –

In the case of Éclairs Group Limited & Ors V. JKX & Gas Plc, Supreme Court of UK considered that the directors of the company to exercise their duty within the scope of its purpose ‘for the purpose mentioned in Section 171 of Companies Act, 2006’. Here the order by trial court was restored by the Supreme Court appealed by Eclairs and Glengary and is a leading case for purpose test.  

Eclairs and glengary were the share holders of the company JKX Oil and Gas Plc being the respondent where the dispute was raised with the JKX’s board when they opposed to issues regarding removal of individuals and additional capital and pre- emption rights and the directors of the JKX gave notice under its company’s Articles requesting information from both the share holders in regards with the shares and their beneficial ownership. The reply send by the share holders to the disclosures notices seemed to be inaccurate to the board and they suspended the right to vote in meetings and also restricted from transferring of shares under their right granted by the article of the JKX Company.

And hence it’s not right for the directors to send a notice to their share holders and suspend their rights only for the reason given that the justification given was not proper and justified to the board of directors and clearly shows the malicious intention of the company thought he fact cannot be ignored that the notice was mentioned earlier in the Articles of the company but it doesn’t gives right to the company to restricts the shareholder as it would be violation to their right.

I completely agree with the judgment made in the case as stated in the given ‘Article’ referred, which allows the company under section 793 of Companies Act, 2006 to give a notice to the other share holder companies asking about the relevant information regarding shares but restricting them from vote is unlawful which violates their right under section 171(b) of Companies Act, 2006.

The judgment the held in references to the cases where the board of directors have exercise their power wrongly in order to take control over the company and here it was quite predictable by the restrictions put on the share holders of the company in name of protecting the company and its shareholders.

As also given in the case, Punt V. Symons[2], where in order to take the majority of the voting the restrictions were made which merely the benefit claimed by the directors was leading to decontrol of the affairs of the Company.

And hence in my opinion the notices given must be in order to take control must be testified as it violates rights of the shareholders.

CONCLUSION:

The decision as mentioned in ‘Article’ referred it taken was definitely the reminder to the board of directors ensuring their power for a proper purpose.

And since this case was based on the power of purpose there a thin line of intention where the notice given by the company is totally of the facts and observation where there is suspicions or any other kind of fraudulent activity and when the company isn’t satisfied with the  with the given statements the exercise of the power to restricts if given in the Article of the company is justified and to the future companies it brings light to the Section 171(b) ‘power to proper purpose’, of the Companies Act 2006 clearly stating to protect the company for any such frauds with proper test which would include many purposes and to see which ones are improper and proper purpose applied by the directors.

[1] https://www.nortonrosefulbright.com/en/knowledge/publications/17c9b8cc/eclairs-group-ltd-and-glengary-overseas-ltd-v-jkx-oil-gas-plc

[2] Punt V. Symons, 1903 2 Ch 506.

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