In an Iranian private joint-stock company with a 5-member board of directors, the holders of 20% of the shares elect one board member. After some time, the majority believes this member is harming the company. They convene an extraordinary general meeting and, with an absolute majority (50% + 1), dismiss the minority-elected member, replacing them with an alternate member, in their view.
The Main Question: Assuming the articles of association are silent, does the ordinary general assembly have the right to dismiss a member elected by the minority with an absolute majority (50% + 1)?
We face an apparent contradiction between the "philosophy of the law" and the "letter of the law" in the Iranian Commercial Code:
The Letter of the Law (Permitting Dismissal): Article 107 of the Amendment Bill to the Commercial Code generally stipulates that board members "can be dismissed wholly or partially." Article 88 also states that decisions of the ordinary general assembly are "always" valid with a "majority of half plus one" (except in the election of directors and inspectors), which logically subjects dismissal to the half-plus-one majority as well.
The Philosophy of the Law (Protecting Minority Rights): Article 88 (the section on cumulative voting) was explicitly enacted to protect minority rights in the election of directors.
A superficial combination of these articles leads to an illogical result: Suppose today, in the meeting to elect directors of a joint-stock company, the owners of 80% of the shares cannot prevent the representative of the 20% from entering the board (due to the mandatory cumulative voting). But tomorrow, in a dismissal meeting, the owners of 51% of the shares can remove that same representative from the board, effectively nullifying the minority right that the legislator recognized in the election process.
Personal Analysis: Reductio ad Absurdum in the Clash of Election and Dismissal
It seems that accepting the assembly's jurisdiction to dismiss with an absolute majority (50% + 1) is a clear example of "fraud against the law" (circumventing the law) and a complete neutralization of the legislator's intent in Article 88.
Let us use an inferred analogy and reductio ad absurdum:
Would anyone accept it if, in the process of electing board members, the ordinary general assembly convened and said: "Today we will only elect the first director," and elected them with 51% of the votes, and then held another meeting next week to "elect the second director," and so on, electing all members with 51%? Absolutely not. Such a process is absurd because it bypasses the "cumulative voting" mechanism of Article 88 (which is meant to protect minority rights) and allows the 51% majority to capture "all" the seats.
Now, in the dismissal process, how can it be accepted that the same ordinary general assembly convenes and says: "Today we are only dismissing the fifth director (the minority representative)" and dismisses them with a 51% majority? And tomorrow, presumably, the fourth director?
These two scenarios are identical in nature. Both allow the majority to nullify the legislator's intent in Article 88 by separating the subject matter (whether in election or dismissal).
If "one-by-one" election is void and an instance of fraud against the law, then logically, "one-by-one" dismissal must also be void by the same reasoning. This means the legislator could not have acted so contradictorily as to give a right to the minority with one hand (Article 88) and immediately allow the majority to completely strip away that same right with the other hand (Articles 107 and 88).
Logic dictates that, regardless of the letter of the law, the dismissal process must follow the same mechanism upon which the directors were elected.
Written by Reza Bastani Namaghi
Back to Home
