2002 (11) TMI 655 - HC - Companies Law

Court upholds bank conversion under Companies Act, 1956

The court dismissed the writ petitions, upholding the legality of the conversion of the Development Co-operative Bank Ltd. into the Development Credit ... Unregistered Companies Issues Involved:1. Legality of the conversion of the Development Co-operative Bank Ltd. into a joint stock banking company under the Companies Act, 1956.2. Validity of the certificate of incorporation issued to the Development Credit Bank Ltd.3. Compliance with the statutory requirements for conversion.4. Impact of conversion on the interests of employees, shareholders, and third parties.5. Equities created post-conversion and their implications.Detailed Analysis:Issue 1: Legality of the ConversionThe primary question in these writ petitions was whether the Development Co-operative Bank Ltd., initially registered under the Maharashtra Co-operative Societies Act, 1960, and deemed registered under the Multi-State Co-operative Societies Act, 1984, could be converted into a joint stock banking company under Part IX of the Companies Act, 1956. The court examined the legality of the steps taken by the bank for conversion, including obtaining approvals from the Reserve Bank of India (RBI) and the Ministry of Finance. The court concluded that there is no express provision in the Multi-State Act prohibiting such conversion if all requirements under Part IX of the Companies Act are met.Issue 2: Validity of the Certificate of IncorporationThe petitioner challenged the certificate of incorporation issued to the Development Credit Bank Ltd. The court noted that the certificate of incorporation is conclusive evidence that all requirements of the Companies Act have been complied with. The court referred to the principle that once a company is incorporated, its existence can only be extinguished through winding up under the Companies Act, not by challenging the incorporation process.Issue 3: Compliance with Statutory RequirementsThe court reviewed whether the Development Co-operative Bank Ltd. complied with all statutory requirements for conversion under Part IX of the Companies Act. It was found that the bank had submitted necessary forms and resolutions to the Registrar of Companies and obtained the required approvals from the RBI and the Ministry of Finance. The court was satisfied that the bank met all conditions for conversion into a joint stock company.Issue 4: Impact on Employees, Shareholders, and Third PartiesThe petitioner argued that the conversion adversely affected the interests of employees and shareholders. However, the court noted that the conversion was approved by the shareholders in a special general meeting. The court also highlighted the remarkable growth and progress of the Development Credit Bank Ltd. post-conversion, indicating that the interests of shareholders and other stakeholders were safeguarded.Issue 5: Equities Created Post-ConversionThe court considered the equities created in favor of third parties post-conversion, such as the issuance of shares to new investors and the significant growth in deposits, advances, and branches. The court concluded that reversing the conversion would cause tremendous injustice and hardship to several persons, including employees and shareholders. Therefore, the court refrained from exercising its extraordinary jurisdiction to grant the reliefs sought by the petitioner.Conclusion:The court dismissed the writ petitions, upholding the legality of the conversion of the Development Co-operative Bank Ltd. into the Development Credit Bank Ltd. under the Companies Act, 1956. The court found that all statutory requirements were complied with, and the certificate of incorporation was valid and conclusive. The court also recognized the significant growth and progress of the bank post-conversion and the equities created in favor of third parties. Consequently, the court ruled that it would not be just or equitable to grant the reliefs sought by the petitioner.