HC for drastic change to century-old company law to make it business-friendly

The High Court has asked the government to take initiatives to "radically amend" the century-old company law and make it time-befitting and business-friendly, with the existing Companies Act proving ineffective in many cases and putting up impediments to ease of doing business and sustainable financial growth.

"The present Companies Act is unenforceable in many cases. Although it is called the Companies Act 1994, in fact, it remains the Companies Act 1913 in its entirety," noted the HC bench of Justice Md Ashraful Kamal, making its recommendations in a 232-page full-text judgement published on the Supreme Court's website on Wednesday.

Under current circumstances, it has become absolutely necessary to amend the 109-year-old law to make Bangladesh a developed nation, the court further observed.

Earlier on 25 August 2022, the HC bench pronounced the verdict after disposing of a case filed over the ownership of Top Ten Fabrics and Tailors Limited. The case was moved under the Company Act, 1994.

Company law experts have told TBS that company laws show the way out in case of any disputes relating to the formation and management of a company but since the existing law is not up-to-date, many aspects of the law are not easy to implement.

At the same time, many issues are unclear in the law, due to which a large number of cases are being filed in the courts, which require a long time to settle, they said.

Barrister Tanjib-ul-Alam, an expert in company law, told TBS that many large companies and even foreign companies are not able to conduct business in Bangladesh easily due to the fact that court cases are not disposed of quickly, with individuals and businessmen facing losses.

There are also no provisions on many matters relating to existing companies, which is why companies have to approach the court regarding those matters too, he said.

According to the World Bank's Ease of Doing Business Index 2020, Bangladesh ranked 189th among 190 economies in terms of Enforcing Contracts – an indicator that measures the time and cost to resolve a commercial dispute and the quality of judicial processes.

Company law expert Advocate Probir Neogi told TBS that there is a big difference between Bangladesh's Companies Act and the company laws of various countries, including India. "As a result, the laws and courts of those countries are business-friendly, so they are much ahead of us."

"Our company law does not mention the number of courts to settle commercial disputes, but there are lakhs of cases. Those cases are being tried in regular courts."

He observed that there is no proper provision for regulating a company after its registration. In foreign countries, an alternative dispute resolution (ADR) mechanism is mandatory for the speedy settlement of company and trade-related disputes, but that is not the case in Bangladesh.

Probir Neogi further said that if there is a difference of opinion among the directors of a company, there is nothing clear about how it can be resolved. It takes years to resolve such disputes in court. Again, there is no clear provision in the law as to where the company's AGM will be held.

There are more than fifty such problems in company law, which is why it is difficult for business to be conducted even if there are many companies in the country.

Only one bench to hear lakhs of cases

The High Court has observed that there are a great number of private and public companies in the country but only one HC bench for dealing with company-related cases. 

Disposals of numerous company cases are in limbo due to the lack of company courts, said the court, adding that due to the lack of adequate courts to deal with company disputes, companies are suffering tremendous financial losses in their day-to-day operations. 

Sources at the RJSC told TBS that there are 2,79,167 companies, including public limited companies, private limited companies, foreign companies, partnership firms, and one-person companies in the country as of January this year.

According to court sources, about 2.11 lakh commercial litigations involving disputes related to transactions worth around Tk3,00,000 crore are currently pending in the High Court and trial courts in the country. Over 39,000 of these cases are more than ten years old.

Among all cases, there are about 34,000 cases of Bangladeshi business institutions and companies with various foreign commercial institutions and companies. 

These cases have been filed over disputes related to the transfer of shares of companies, disputes regarding ownership, disputes related to breach of contract, fraud, disputes related to investment, and disputes related to the supply of substandard goods.

A study of Saarc countries in 2016 revealed that the lack of resolution of trade disputes causes a loss of about $600 billion in global trade every year. In Bangladesh, the amount of this loss is about $400 million, finds the study.

HC recommendations to ease settling disputes

The apex court has also made a set of recommendations – including constituting one or more company law tribunals in every district, creating a company appellate tribunal in each department, establishing special criminal courts for offences under the Companies Act, and modernising the Registrar of Joint Stock Companies and Firms (RJSC) – to ease the process of settling all types of disputes, including those related to ownership of private and public companies.

The High Court bench in its set of 14 recommendations also said that every company has to keep a copy of the company law code in Bangla in its office, companies must have a permanent legal officer and a lawyer experienced in company law as a consultant and training centres have to be established under the Ministry of Commerce in each district. 

The court also suggested the mandatory appointment of an independent director, a company secretary and an internal auditor in every company, the mandatory appointment of a full-time company secretary (who will be a member of ICSB) in every company if the paid-up capital is above Tk5 crore, issuance of a circular making annual general meetings (AGM) mandatory in the city where a company's office is registered, avoiding and preventing conflicts with stock market laws, and untoward situations in company AGMs, and making the filing of tax returns easier, formulation of regulations completely prohibiting any gift, gratuity, or cash payments from companies to its shareholders at AGMs or anywhere else and automatically cancelling the registration of a company if it fails to hold an AGM, and introduction of specific rules for filing profit and loss accounts, balance sheets, and tax returns with the RJSC.

The case 

It is learned from the documents of the case – the full text of the verdict of which was published on Wednesday – that Md Syed Hossain started a business in cloth and tailoring in 1990 as a sole proprietorship and established the first showroom named Top Ten at the capital's Elephant Road. In 2011, he formed Top Ten Mart Limited Company and gave 35% shares to his younger brother Ujjal and 5% shares to another younger brother Abdul Awal and took 60% shares himself.

In 2019, Ujjal filed a case in the High Court demanding all the shares held by his elder brother after a dispute had begun between the two brothers over taking out a loan of Tk150 crore from a private bank.

Last August, the court disposed of the case, ordering the handover of all shares held by Ujjal in the company to Syed Hossain within three months. The court also appointed the chartered account firm Huda Vasi Chowdhury & Co. to complete the audit of the company before completing the transfer process of this company. The two brothers were asked to bear all the expenses of the audit.

In the verdict, the court said, "The relationship between elder brother Syed Hossain and younger brother Ujjal has deteriorated due to disagreement in the management of the company. The situation has become such that it is impossible for both of them to work together in the interest of the company. In our opinion, the only way to retrieve the company from this impasse is to purchase the shares of the petitioner by the majority shareholders."

The court further said, "On perusal of the said company petition, all the affidavits of both parties and all the documents attached, it is crystal clear that the dispute has arisen because our companies act is 109 years old."