2004 (7) TMI 371 - HC - Companies Law

Court dismisses writ petition under Article 226 for enforcing personal service contract. No breach found. Termination deemed contractual.

The court dismissed the writ petition, ruling it was not maintainable under Article 226 for enforcing a contract of personal service. It found no breach ... Directors - Removal of Issues Involved:1. Maintainability of the Writ Petition2. Arbitrariness and Violation of Natural Justice3. Breach of Contractual Obligations and Statutory Provisions4. Allegations of Mala Fide ActionsIssue-Wise Detailed Analysis:1. Maintainability of the Writ Petition:Preliminary Objection by Respondents:The respondents raised a preliminary objection regarding the maintainability of the writ petition under Article 226 of the Constitution of India, arguing that it seeks enforcement of a contract of personal service, which is not maintainable. They argued that the Articles of Association of the company do not have the force of law and are akin to the bye-laws of a cooperative society, which are binding only between the parties but do not have statutory force.Petitioner's Argument:The petitioner contended that the writ petition is maintainable as it is against a Government Company, which is an 'Authority' or 'Instrumentality' of the State under Article 12 of the Constitution of India. The petitioner argued that the writ petition is justified due to the arbitrary and hasty actions of the respondents, which violated the principles of natural justice.Court's Analysis:The court referred to several judgments, including Co-operative Central Bank Ltd. v. Additional Industrial Tribunal and Hanuman Prasad Gupta v. Hira Lal, to support the view that Articles of Association do not have the force of law. The court also cited A.K. Home Chaudhary v. National Textile Corpn. Ltd. and Smt. Farrel Futado v. State of Goa to conclude that the petitioner's services were terminated in accordance with the terms of the contract, and no statutory provision was violated. Therefore, the writ petition for enforcement of contractual obligations was not maintainable.2. Arbitrariness and Violation of Natural Justice:Petitioner's Argument:The petitioner claimed that the termination was arbitrary, illegal, and in contravention of the principles of natural justice. The petitioner argued that no opportunity was provided to explain his position, and the termination was politically motivated.Respondents' Argument:The respondents argued that the termination was based on the recommendation of the Selection Committee as per Article 73(g) of the Articles of Association. They contended that the termination was due to the petitioner's unsatisfactory performance, including unrest among employees and disruption of power supply.Court's Analysis:The court found that the termination was not stigmatizing and was a simple exercise of the company's power under the Articles of Association. The court held that there was no violation of any statutory provision or principles of natural justice. The court also noted that the petitioner did not press the submissions regarding non-compliance with Section 284 of the Companies Act.3. Breach of Contractual Obligations and Statutory Provisions:Petitioner's Argument:The petitioner argued that the termination violated the contractual obligations under the Articles of Association and Section 284 of the Companies Act, which requires a director to be served with a memo of charges and given an opportunity to respond before removal.Respondents' Argument:The respondents contended that the termination was in accordance with Article 73(g) of the Articles of Association, which allows for the removal of the Managing Director on the recommendation of the Selection Committee. They argued that the Articles of Association do not have statutory force, and the termination was a contractual matter.Court's Analysis:The court concluded that the Articles of Association do not have the force of law and are not statutory provisions. The court held that the termination was a contractual matter and the petitioner could seek remedies for damages under Section 284(7) of the Companies Act.4. Allegations of Mala Fide Actions:Petitioner's Argument:The petitioner alleged that the termination was politically motivated and driven by the Chief Minister's insistence. The petitioner claimed that he was pressurized to resign and threatened with jail if he did not comply.Respondents' Argument:The respondents denied the allegations of mala fide actions and argued that the termination was based on the petitioner's unsatisfactory performance. They contended that the termination was ratified by the Board of Directors and was not influenced by political considerations.Court's Analysis:The court found the petitioner's allegations of mala fide actions to be contradictory and not supported by evidence. The court noted that the termination was ratified by the Board of Directors and was based on the recommendation of the Selection Committee. The court held that the termination was not arbitrary or influenced by political considerations.Conclusion:The court dismissed the writ petition, holding that it was not maintainable under Article 226 of the Constitution of India for enforcing a contract of personal service. The court found no violation of statutory provisions or principles of natural justice and concluded that the termination was a contractual matter. The court made no order as to costs.