2021 (5) TMI 51 - HC - Companies Law

Court upholds Companies Act section constitutionality, dismisses writ petition, imposes Rs. 5 Lakhs cost

Devas Employees Mauritius Private Limited, (In Its Capacity As A Shareholder Of Devas Multimedia Private Limited) Versus Union Of India Through Ministry Of Corporate Affairs, Antrix Corporation Ltd.,

The court held that Section 272 (1)(e) of the Companies Act is not ultra vires the Constitution of India. Additionally, the court found that the order ... Validity of Section 272(1)(e) of Companies Act, 2013 - seeking declaration that the second proviso to Section 272(3) of the Act, must be read to be applicable to the petitions presented by persons falling under Section 272(1)(e) of the Act - Whether Section 272 (1)(e) is ultra vires Constitution of India? - HELD THAT:- It is settled that when a provision of law is challenged, Courts are required to exercise restraint and be cautious in striking down a provision. It may be profitable to note the decision of the Apex Court in Government of Andhra Pradesh and others Vs. P. Laxmi Devi (Smt) [2008 (2) TMI 850 - SUPREME COURT] where it was held that Constitutional validity of the amended Section 47A of the Stamp Act is upheld. The impugned amendment is an economic measure, whose aim is to plug the loopholes and secure speedy realization of stamp duty, thus the said amendment, being an economic measure, cannot be said to be unconstitutional. Whether order dated 18.01.2021 needs any interference? - HELD THAT:- In the case on hand, petitioner is a miniscule shareholder in Devas. It has already filed an application for impleadment before the appropriate forum namely the NCLT. Devas is not aggrieved by the sanction order. Petitioner has all opportunity to urge its contentions before NCLT. At this juncture, there is no order, which has any civil consequences - petitioner has challenged the order dated January 19, 2021 passed by the NCLT before the NCLAT and the NCLAT has disposed of the said appeal by its order dated February 11, 2021 by directing petitioner to file necessary interlocutory application before the NCLT seeking permission to implead itself in the main pending Company Petition. NCLAT has also granted liberty to raise all factual and legal pleas before the NCLT. Petitioner has accepted the said order and proceeded further and filed an application under Rules 11 and 34 of the NCLT Rules, 2016 for impleadment in the main petition. Having held that Registrar and 'a person authorized by the Central Government' fall into different categories, it does not warrant reading down Section 272(3) of the Companies Act - both points for consideration are held in the negative. Petition dismissed with cost of Rs. Five Lakhs payable in the name of the Registrar General of this Court within four weeks from today. Issues Involved:1. Whether Section 272 (1)(e) of the Companies Act, 2013 is ultra vires the Constitution of India.2. Whether the order dated January 18, 2021, needs any interference.Issue-wise Detailed Analysis:Re. Point No.1: Whether Section 272 (1)(e) is ultra vires Constitution of IndiaRs.- Arguments by Petitioner: The petitioner argued that both the Registrar of Companies and a 'person authorized by the Central Government' should be treated equally. The petitioner contended that the Central Government is required to give an opportunity to the company before according sanction to the Registrar, which is not required for a 'person authorized by the Central Government.' The petitioner cited the case of Ram Dial vs. State of Punjab (AIR 1965 SC 1518) to argue that this lack of opportunity is arbitrary and unconstitutional.- Counterarguments by Respondents: The respondents argued that there is a clear distinction between the Registrar of Companies and a person authorized by the Central Government. The Registrar is a regulator privy to all company information and stands on a different footing. The respondents cited various cases, including Superintendent of Police (C.B.I.) vs. Deepak Chowdhary (1995)6 SCC 225 and Manganlal Chhanganlal (P) Ltd. vs. Municipal Corporation of Greater Bombay (1974)2 SCC 402, to argue that different procedures for different categories of persons are permissible and do not violate constitutional principles.- Court's Analysis: The court found that the Registrar of Companies, being a regulator, falls into a distinct category. The court also noted that the authorities cited by the petitioner do not apply to the facts of this case. The court accepted the respondents' argument that the Registrar and a person authorized by the Central Government fall into different categories and that different procedures can be prescribed for them.- Conclusion: The court held that Section 272 (1)(e) of the Companies Act is not ultra vires the Constitution of India.Re. Point No.2: Whether order dated January 18, 2021 needs any interferenceRs.- Arguments by Petitioner: The petitioner argued that the Central Government's decision to accord sanction was malafide. The petitioner contended that the sanction was given in a hurried manner to avoid payment under an arbitration award and that the allegations of fraud were designed to deprive Devas of its legitimate dues.- Counterarguments by Respondents: The respondents argued that Devas had committed fraud in collusion with officials of Antrix Corporation, resulting in a significant financial loss to the Government of India. The respondents provided detailed allegations of siphoning off money and other illegal activities by Devas. The respondents also argued that the sanction was an administrative act and did not require an opportunity for hearing at that stage.- Court's Analysis: The court found that the petitioner had not come to the court with clean hands, as there were serious allegations of siphoning money and other illegalities against Devas. The court noted that the petitioner had already challenged the NCLT's order before the NCLAT and had filed an application for impleadment in the main petition. The court also found that the sanction order did not have any civil consequences for the petitioner, who was a minor shareholder in Devas.- Conclusion: The court held that the order dated January 18, 2021, did not need any interference and dismissed the writ petition with a cost of Rs. Five Lakhs payable to the Registrar General of the court.Final Judgment:The court dismissed the writ petition, holding that Section 272 (1)(e) of the Companies Act is not ultra vires the Constitution of India and that the order dated January 18, 2021, did not require any interference. The petitioner was ordered to pay a cost of Rs. Five Lakhs to the Registrar General of the court within four weeks.