TaxTMI 
TaxTMI 
2015 (6) TMI 771
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....ssues. The issues are being decided by this order. 2. The preliminary issues framed by this court are as follows : (i) Whether the suit, as filed, is maintainable in law ? (ii) Whether this court has jurisdiction to entertain and try the suit ? 3. A brief overview of the pleadings of the parties and their evidence is as follows : Plaintiffs Nos. 1 to 3 are widow, daughter and son, respectively, of one Ashok Kapur who was a co-founder of defendant No. 6 a banking company with his brother in law, defendant No. 1. Both Ashok Kapur and defendant No. 1 were described as "Indian Partners" in the articles of association of defendant No. 6. The other group of founders/shareholders was a banking company incorporated under the laws of Netharlands, Rabobank International Holding B. V. ("Rabobank"), referred to in the articles of association as "Rabo". Plaintiff No. 4 is part of the Ashok Kapur group of shareholders in defendant No. 6. 4. Defendant No. 1 is the present CEO and managing director of defendant No. 6. Defendant No. 2 (sister of plaintiff No. 1) and 3 are, respectively, wife and daughter of defendant No. 1. Defendants Nos. 4 and 5 are part of defendant No. 1 group....
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....between Ashok Kapur group represented by the plaintiffs and defendant No. 1 group concerning the exercise of the rights of Indian partners jointly under the articles. There were meetings and discussions between the two groups. In May 2013, the plaintiffs received a notice of the 9th annual general meeting of defendant No. 6 to be held on June 8, 2013. The notice, inter alia, concerned passing of resolutions for appointments of defendants Nos. 7 to 9 on the board of directors of defendant No. 6 under items designated as "Special Business". Defendant No. 7 was proposed to be appointed as independent director, whilst defendants Nos. 8 and 9 were proposed as nominated "by the Indian Promoter Mr. Rana Kapoor" (i.e., defendant No. 1). After a couple of unsuccessful attempts to sort out the matter, the plaintiffs filed the present suit asserting their rights, inter alia, as Indian partners to act jointly in the matter of nomination of IP representative directors of defendant No. 6 under the articles. The plaintiffs, inter alia, challenged the items of "Special Business" in the proposed annual general meeting to consider the appointments of defendants Nos. 7 to 9. 9. On the plaintiffs&#....
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....board meeting, etc. (in the case of appointments of defendants Nos. 10 to 12). Secondly, learned counsel submits that a civil suit challenging appointment of a director is impliedly barred under the provisions of the Companies Act. He submits that such appointment is governed by principles of corporate democracy. Learned counsel also submits that the remedies under the Companies Act are a complete code for the matters provided therein. He relies on the judgments of the Supreme Court and several High Courts including our court in support of his contentions. Learned counsel also relies upon several circulars of the Reserve Bank of India issued under section 35A of the Banking Act and submits that these circulars override the articles of association of the banking company. He submits that all the appointments were in compliance with the Banking Act and Reserve Bank circulars issued thereunder as well as the provisions of the Companies Act, and were not appointments covered by the articles of defendant No. 6 dealing with the rights of "Indian Partners" including article 110 thereof. Learned counsel submits that the appointments were not made on the basis of any nomination by defendant ....
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.... implied bar under the Companies Act and submits that the word "jurisdiction" under section 9A of the Code of Civil Procedure is used in a wider sense and covers every aspect of maintainability of a suit. 13. The learned advocate general, appearing for the plaintiffs, counters these submissions by contending that the provisions of the Banking Act are in addition to and not in derogation of the Companies Act. He submits that the exclusion of jurisdiction under section 10A (6) has to be strictly construed having regard to the object of section 10A. He submits that only reconstitutions made under the provisions of sub-sections (3), (4) or (5) of section 10A, by election, appointment or removal, as the case may be, are protected from challenges in a court of law and that too if such reconstitutions are "duly" made. Learned counsel submits that it is not the defendants' case that the appointments, which are the subject matter of challenge here, were made under any of these sub-sections. He relies on the evidence on record including the oral testimony of DW1 in support. He submits that the appointments are, therefore, not protected under sub-section (6). He submits that at any rat....
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.... 25 of the Companies Act, 1956 (1 of 1956), or (ii) any firm, which carries on any trade, commerce or industry and which, in either case, is not a small-scale industrial concern, or (2) be proprietors of any trading, commercial or industrial concern, not being a small-scale industrial concern. (2A) Notwithstanding anything to the contrary contained in the Companies Act, 1956 (1 of 1956), or in any other law for the time being in force,- (i) no director of a banking company, other than its chairman or whole-time director, by whatever name called, shall hold office continuously for a period exceeding eight years ; (ii) a chairman or other whole-time director of a banking company who has been removed from office as such chairman, or whole-time director, as the case may be, under the provisions of this Act shall also cease to be director of the banking company and shall also not be eligible to be appointed as a director of such banking company, whether by election or co-option or otherwise, for a period of four years from the date of his ceasing to be the chairman or whole-time director as the case may be. (3) If, in respect of any banking company, the requirements....
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....ts for the board of directors of a banking company. It is a non obstante clause and provides that every banking company shall comply with the requirements of the section. Sub-section (2) requires that "not less than fifty one per cent." of the total number of members of the board of a banking company shall consist of persons who have special knowledge or practical experience in respect of one or more of the subjects provided therein and at the same time have no substantial interest or connection with a company or a firm or a proprietorship carrying on trade, commerce or industry, which is not a small scale industrial concern. The other requirements, which are stipulated by sub-section (2A), are that (i) no director of a banking company, other than its chairman or whole-time director, shall hold office for a period exceeding eight years ; and (ii) upon removal of the chairman or whole-time director, he shall cease to be a director and shall not be eligible for appointment on the board of the banking company for a period of four years. Sub-section (3) mandates the board of a banking company to reconstitute itself so as to ensure compliance with sub-section (2). The board may reconsti....
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....ing company is under section 284 of the Companies Act. Section 10A of the Banking Act makes provisions requiring the board of directors of a banking company to fulfil certain criteria. These provisions do not supplant or substitute the provisions of the Companies Act, but override them. What this means is that the appointments of directors, though made under the Companies Act, must be consistent with the provisions of section 10A of the Banking Act, particularly sub-section (2) thereof. If and to the extent they are not so consistent, the provisions of section 10A will have an overriding effect and will have to be followed. Not less than 51 per cent of the board members must possess the qualifications provided in sub-section (2). If this condition is not satisfied, section 10A provides for the consequences. The first of such consequences is under sub-section (3), which mandates the board to reconstitute itself so as to ensure that the said requirement is fulfilled. The board shall in such a case appoint a director or directors or even remove any director/s, if necessary by retiring such director/s. Such reconstitution and any appointment or removal by the board to achieve such reco....
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....es not conform with the requirements of sub-section (2), steps will have to be taken under sub-sections (3), (4) or (5), as the case may be. Whilst taking those steps, only those provisions of the Companies Act and articles need to be followed which are consistent with section 10A. As long as that is done, the reconstitution of the board and every appointment, removal made or election held therefor, is final and cannot be called into question in any court of law. 19. I am fortified in this view by a judgment of the Madras High Court in the case of T. S. Arumugham v. Lakshmi Vilas Bank Ltd. [1994] 80 Comp Cas 814. In that case, the petitioner, an employee of a scheduled bank, who was originally co-opted as a member of the board of directors of the respondent-bank and subsequently elected as one of the directors by the shareholders of the bank, retired by rotation, but the general body at the annual general meeting decided not to fill up the vacancy. As a result, the vacancy caused by his retirement was not filled up. The petitioner filed a writ petition and applied for a writ of mandamus against the Reserve Bank to direct the respondent bank to fill up the vacancy. The Madras Hig....
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....ing to such banking company a reasonable opportunity of being heard, by an order in writing direct the banking company to so reconstitute the board of directors as to ensure that the said requirements are fulfilled and if the banking company does not comply with the directions made by the Reserve Bank, the Reserve Bank may remove such person from the office of director and with a view to complying with the provisions of sub-section (3) appoint a suitable person as a member of the board of directors, in the place of the person so removed whereupon the person so appointed shall be deemed to have been duly elected by the banking company as its director. From the above, it is manifest that if the composition of directors by the company does not fulfil the requirements of sub-section (2) of section 10A of the Act, the Reserve Bank has authority to direct them to reconstitute the board of directors so as to ensure that the requirements of the sub-section are fulfilled. In case the bank does not comply with the directions, the Reserve Bank has authority to remove the two directors and to appoint suitable persons so as to ensure that the requirements of sub-section (2) of section 10A of th....
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...., a vacancy would have to be filled up under sub-section (3). If the protection of sub-section (6) is available only to an appointee who comes in under sub-section (3), a peculiar situation may result-only the additional director appointed in the place of the sixth director would be protected and not the other five. 21. A closer look at these so-called anomalous situations, in the light of the law discussed above, shows that there is nothing strange or anomalous about them. In the first place, when a banking company elects its board as a whole in compliance with section 10A(2), the appointments are not under section 10A and there is no question of any of the directors having a "protected" status under sub-section (6) thereof. If for any reason, including the reason of new appointment/s, retirement/s or removal/s, the composition of the board becomes non-compliant with sub-section (2), the situation calls for a reconstitution and provisions of sub-sections (3), (4) and (5) come into play. The reconstitution made, whether by the banking company by election or by the Board by appointment or removal, as the case may be, or by the Reserve Bank by appointment or removal, has protectio....
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....ecommended by defendant No. 1 and appointed by the board of directors purportedly in pursuance of article 127A of defendant No. 6. The recommendations of the HR Committee, the minutes of the Nominations and Governance Committee and the minutes of the board of directors of defendant No. 6, in respect of their appointments, which are placed on record, do not indicate that these appointments were under sub-section (3) or (4) of section 10A. There is, thus, no case of appointment of any of defendants Nos. 7 to 12 being under sub-section (3) or (4) or having any protection of sub-section (6). 23. Since I have come to the conclusion that these appointments were not made under sub-section (3) or (4) of section 10A of the Banking Act and there is, therefore, no question of claiming any protection of sub-section (6), I have not considered the question whether these appointments were or were not "duly made". That question would have a bearing on the maintainability of the suit only in the alternative, if the appointments of defendants Nos. 7 to 12 were held to have been made under sub-section (3) or (4). So also, the other questions, namely, whether the circulars of the Reserve Bank issue....
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....s called upon to decide whether the jurisdiction is so barred, have long since been established by authority. Firstly, bar of jurisdiction of a civil court is not to be readily inferred. A provision seeking to bar jurisdiction of civil court requires strict interpretation. Secondly, the court would normally lean in favour of a construction, which would uphold the retention of jurisdiction of the civil court. Thirdly, the burden of proof in this behalf shall be on the party who asserts that the civil court's jurisdiction is ousted (see Dwarka Prasad Agarwal's case (supra). Where a statute does not expressly bar jurisdiction of a civil court, it is necessary to examine the particular statute and remedies provided thereunder to find out whether or not there is intendment to exclude jurisdiction. In that case it is necessary to see if the statute creates a special right or liability and provides for determination of that right or liability and further lays down that all questions about such right or liability shall be determined by the Tribunals so constituted or courts so provided, and whether remedies normally associated with actions in civil courts are prescribed by the said....
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.... provisions of the Act. In certain cases like winding up of companies, the jurisdiction of civil courts is impliedly barred. Where a person objects to the election of directors and claims a decree for a declaration that he was one of the directors, there is no provision which bars the civil court either expressly or by implication from trying such a suit." 28. A Division Bench of our court in the case of Santosh Poddar (supra) laid down a similar proposition of law. In Santosh Poddar's case (supra), the plaintiffs had claimed a declaration that the first defendant had ceased to be a director and the plaintiffs continued to be directors of the third defendant company. Construing the provisions of section 2(11) read with section 10 of the Companies Act, the Division Bench held as follows : "From the provisions of the Companies Act we do not find anything by which we can infer that the jurisdiction of the civil court is ousted. The very fact that section 2(11) is part of the definition clause under the Companies Act under which a court is defined to mean the court as prescribed under section 10 clearly shows that whenever the term 'the court' is used in any ....
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.... High Courts including the decisions of the High Courts of Kerala, Andhra Pradesh, Madras, Punjab and Haryana, and Calcutta in favour of the view that these sections 397, 398 and 408 do not confer exclusive jurisdiction on the company court to grant reliefs against oppression and mismanagement. The scope of these sections is to provide a convenient remedy for minority shareholders under certain conditions and the provisions therein are not intended to exclude all other remedies. The suits by minority shareholders against oppression and mismanagement, have been time-honoured exception to the rule in Foss v. Harbottle [1843] 2 Hare 461 and in the absence of word expressly or impliedly barring them it cannot be said that sections 397, 398 and 408 of the Companies Act exclude jurisdiction of the ordinary courts." 30. The Calcutta, Delhi and Kerala High Courts have also (in the cases noted above) held that in respect of matters provided under the Companies Act, the jurisdiction of the civil courts is not taken away unless such jurisdiction is impliedly excluded in respect of any particular matter. 31. In the present case, we are dealing with appointments of directors which are all....