1983 (2) TMI 176 - HC - Companies Law

Court rules Banking Regulation Act prevails over Companies Act in pledged shares sale case. Private complaint dismissed.

The court held that Section 108B of the Companies Act does not apply to banking companies, validating the sale of pledged shares by Vysya Bank under the ... Restriction on the Transfer of shares, Offences against the act to be cognizable only on complaints by registrar, etc. Issues Involved:1. Applicability of Section 108B of the Companies Act to a banking company.2. Legality of the sale of pledged shares by the eighth accused (Vysya Bank).3. Locus standi of the complainant to file the private complaint.4. Constitutionality of Section 108B (6)(a) and (b) of the Companies Act.Detailed Analysis:1. Applicability of Section 108B of the Companies Act to a Banking Company:The primary issue was whether Section 108B of the Companies Act, which restricts the transfer of shares by a 'body corporate,' applies to a banking company. The court noted that the definitions of 'banking company' and 'body corporate' are distinct and separate under the Companies Act. Section 2(5) defines 'banking company' as per the Banking Regulation Act, 1949, and Section 2(7) defines 'body corporate.' The court concluded that Section 108B applies only to a 'body corporate' and not to a 'banking company.' Therefore, the transfer of shares by Vysya Bank, a banking company, is not governed by Section 108B.2. Legality of the Sale of Pledged Shares by the Eighth Accused (Vysya Bank):The court examined whether the sale of pledged shares by Vysya Bank was legal. Under Section 6(1) of the Banking Regulation Act, a banking company has the authority to manage, sell, and realize any property that comes into its possession as part of its banking business. The court found that Vysya Bank acted within its rights under Section 6(1)(f), (g), and (n) of the Banking Regulation Act. Additionally, Section 21 of the Banking Regulation Act grants the Reserve Bank the power to control advances by banking companies, including dealing with securities for loans. Thus, the sale of the pledged shares by Vysya Bank was lawful and did not constitute an offense under Section 108B(6) of the Companies Act.3. Locus Standi of the Complainant to File the Private Complaint:The complainant, a shareholder and director of the company, filed a private complaint alleging violations of the Companies Act. The court noted that Section 621 of the Companies Act allows a shareholder to file a complaint. However, the court emphasized that matters of public importance should be determined by the Central Government or the Reserve Bank of India (RBI), not by private individuals. The court found no evidence that the Central Government or the RBI had taken any action regarding the sale of the shares. Therefore, the court concluded that the private complaint was unsustainable and should have been rejected.4. Constitutionality of Section 108B (6)(a) and (b) of the Companies Act:The petitioners argued that Section 108B (6)(a) and (b) of the Companies Act were unconstitutional as they violated Article 14 of the Constitution of India. However, the court deemed it unnecessary to address this point for the purpose of disposing of the petitions under Section 482, Cr. PC.Conclusion:The court concluded that Section 108B of the Companies Act does not apply to banking companies, and the sale of pledged shares by Vysya Bank was lawful under the Banking Regulation Act. The private complaint filed by the complainant was found to be unsustainable, as it lacked the necessary locus standi and was not supported by any action from the Central Government or the RBI. Consequently, the court quashed the proceedings in C.C. No. 250 of 1979, on the file of the Judicial First Class Magistrate, Coimbatore, to secure the ends of justice. The petitions were allowed, and the proceedings were quashed.