TaxTMI 
TaxTMI 
2022 (11) TMI 168
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.... whether the rejection of the nomination of the writ petitioners for the directorship of the appellant under Section 160 of the Companies Act, 2013 by the appellant bank, allegedly being a statutory violation, is a subject matter amenable for writ jurisdiction. 2. Brief facts are required to be discussed in order to consider the said issue; Petitioners 1 and 2 in W. P. (C) No. 19758 of 2021 leading to W. A. No. 425 of 2022 / respondents 1 and 2 herein are shareholders of the appellant - M/s. Dhanalakshmi Bank Ltd., however, the 3rd petitioner / the 3rd respondent herein, is not a shareholder. Petitioner in leading to writ appeal No. 432 of 2022 / the 1st respondent herein, is a shareholder of the appellant Bank and formerly a Director. 3. Reliefs sought for by the petitioners in W. P. (C) No. 19758 of 2021 are that (i) issue a writ of mandamus commanding Dhanalakshmi Bank Ltd; Board of Directors of Dhanalakshmi Bank Ltd., represented by its Managing Director; and the Nomination and Remuneration Committee of Dhanalakshmi Bank Ltd., to place the candidature of the petitioners before the General Body of M/s. Dhanalakshmi Bank Ltd. scheduled to be held on 29.09.2021 for ....
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....Dhanalakshmi Bank Ltd., its Board of Directors and the Nomination Remuneration Committee is bound to discharge their statutory responsibilities under Section 160 of the Companies Act, 2013, to inform the General Body Meeting of the Dhanalakshmi Bank with respect to the candidature of the 1st petitioner for the office of the Director as mandated under Section 160(2) of the Companies Act. It is also the contention of the said petitioners that under Section 160 of the Companies Act, a person eligible for appointment to the post of Director at the General Body of the company can place a notice in writing at the company's registered office, not less than 14 days before the General Body meeting signifying his candidature as a Director. 7. It is also the case of the petitioners that the 1st petitioner has given a notice in writing and deposited Rs. 1,00,000/- and therefore the appellant company registered under the Companies Act has a statutory duty to inform the members of the General Body of the candidature of such person. According to the petitioners, apart from the 1st petitioner, 3 others had placed their candidature i.e. (i) Sri. B. Ravindran Pillai; (ii) Sr....
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....ecting the request of the 1st petitioner and others is a clear violation of the statutory prescriptions contained under Sections 160 and 178 of the Companies Act, 2013. 12. The petitioner in the other writ petition has also raised similar contentions; as we have pointed out above, the essential relief sought in the writ petition is in respect of the rejection of the nomination offered by the petitioner by the Director Board of the Bank. Petitioner therein has also contended that petitioner is the most suitable person and he was formerly the Director General of Income Tax (Rtd.), former Insurance Ombudsman, Independent External Monitor (IEM) for Visakhapatnam Steel Plant Ltd. and FACT Ltd. Udyogamandal, Kochi. 13. True, petitioner therein Sri. P. K. Vijayakumar has also contended that the RBI and the SEBI have failed to take prompt steps against the appellant Bank as well as its Director Board for not adhering to the Corporate Governance Standards and ignoring the scheme for selection of fit and proper candidates under the 2004 notification, and the SEBI (LODR) Regulations, 2015. 14. The basic pleading raised in the said writ petition is that the petitioner is aggrieved for....
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....order read as follows:- "34. The discussions above lead to a situation where it must be found that there is a mandatory statutory duty to consider the application/proposal for appointment as directed in a general meeting. The power of the general body under Section 160 has not been delegated to the Board of Directors. Such a delegation would necessarily affect the very constitution of the Board, which ultimately is a representative body which must conduct the affairs of a banking company. A banking company, whether in the private sector or in the public sector, is handling public money, public finance and also has to necessarily comply with several statutory requirements including conducting business in accordance with certain national policies. It cannot hence be said that there is no public law element at all in the functioning of a Bank. There can be cases where individual actions relating to contract with a depositor or a customer who has taken a loan may arise which necessarily is in the field of a private contract. We are not concerned here with a singular business transaction, but with the very functioning of the company and its conduct of the business through a pro....
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....ares of the appellant are held by private shareholders; and that the appellant does not discharge a public duty or a positive obligation of a public nature. 22. It is also contended that the learned Single Judge erred in interpreting Section 160 of the Companies Act, 2013 and further it is contended that the learned Single Judge failed to appreciate that no person has a right under Section 160 of the Companies Act, 2013 to have his candidature for Directorship place directly before the General Body Meeting in the case of a banking company. That apart it is contended that the learned Single Judge failed to consider and appreciate that Section 35A of the Banking Regulation Act provides RBI the power to issue directions inter alia to secure the proper management of banking companies, which directions the banking companies are bound to comply with. 23. It is also contended that the learned Single Judge failed to consider and appreciate that in terms of the RBI circular read with 'Dr. Ganguly Group Report' in case of banking companies; (i) there is a requirement for the Directors to have requisite professional qualifications, special experience, specified technica....
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....being a mandatory statutory violation, it is well settled that a writ petition is maintainable under law. Other contentions are also raised with respect to the factual circumstances involved in the matter and argued that there is a real element of public duty involved in the matter since the appellant Bank is discharging public duty by accepting deposits from the public and granting loans to the public. That apart it is contended that the Board of Directors of the appellant has no power or authority to reject an application submitted under Section 160 of the Companies Act, 2013. It is also contended that under Section 152(2) of the Companies Act, 2013, every Director shall be appointed by the company in the general meeting and therefore there is a clear statutory requirement for the Directors to place the applications of the petitioners before the General Body of the appellant Bank. 27. It is also pointed out that in order to maintain a writ petition the appellant Bank need not be a Public Sector Bank; and further that the appellant Bank is regulated by RBI, SEBI and ROC, who are all having statutory powers and duties and therefore, the appellant Bank is amenable to writ jurisdi....
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....], Chanda Deepak Kochhar v. ICICI Bank Ltd. [2020 SCC Online Bom. 374], Sulochana Gupta v. RBG Enterprises Pvt. Ltd. [2020 SCC Onliine Ker. 4153], Praga Tools Corporation v. Shri C. A. Imanual [(1969) 1 SCC 585], Andi Mukta Sadguru Shree Muktajee Vandas Swami Suvarna Jayanti Mahotsav Smarak Trust v. R. Rudani [(1989) 2 SCC 691], State of U. P. v. Johri Mal [(2004) 4 SCC 714], K. K. Saksena v. International Commission on Irrigation & Drainage [(2015) 4 SCC 670], Rejendra Menon v. Cochin Stock Exchange Limited [1989 SCC Online Ker. 539 (Single Judge) and 1990 SCC Online Ker. (Division Bench)] and Sri. Ramdas Motor Transport Ltd. v. Tadhi Adhinarayana Reddy [(1997) 5 SCC 446]. 33. So also, learned Senior Counsel for the writ petitioners have relied upon the judgment of a Full bench of this Court in John Kuriakose v. State of Kerala [(2015) 1 KLT 720 (FB)], a Division Bench judgment of this Court in the President, Peechi Service Cooperative Bank and Another v. Tessy Varghese and Others [(2015) 4 KLT 919], the judgment in Y. Sleebachan v. State of Kerala and Others (judgment rendered by us) Manu/KE/2283/2020. 34. To put it differently, the learned Senior Counsel on either side hav....
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....tors out of which not less than one half shall be independent Directors. 38. It is important to note that sub-section (2) of Section 178 stipulates that the Nomination and Remuneration Committee shall identify persons who are qualified to become Directors and who may be appointed in senior management in accordance with the criteria laid down, recommend to the Board their appointment and removal and shall carry out evaluation of every Director's performance. 39. It is equally important to bear in mind that as per sub-section (3) of Section 178, the Nomination and Remuneration Committee shall formulate the criteria for determining qualifications, positive attributes, and independence of a Director and recommend to the Board a policy, relating to the remuneration for the Directors, key managerial personnel and other employees. Other prescriptions are also contained under the said provision. 40. The Companies (Appointment and Qualification of Directors) Rules, 2014, is a Rule constituted also taking into consideration Section 160 of the Companies Act, 2013. Rule 13 of the said Rules dealing with notice of candidature of a person for Directorship specifies that the company ....
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....ce of the Regulator. On going further through Ext. P6 said to be a whistle blower's complaint, it can be seen that allegations are made against the RBI nominee Sri. G. Jagan Mohan and Sri. D. K. Kashyap. It is true that various allegations are made against the said persons, however the said letter dated 23.06.2021 has nothing to do with the rejection of nomination by the Director Board of the appellant Bank. So also, in Ext. P7 complaint dated 16.09.2021 addressed to the Chairman, SEBI, Mumbai, allegations are made against the RBI nominees. 45. Therefore, it can be seen that the complaint of Sri. P. K.Vijayakumar filed before the RBI as well as the SEBI have no manner of connection, or somewhat totally detached from the paramount and essential relief sought for in the writ petitions, that is to say, the rejection of nomination as per Ext. P3 communication dated 20.09.2021. 46. Now, in the above background, we propose to consider whether the RBI and the SEBI have any manner of control in so far as the nomination to the post of Directorship of the appellant Bank is concerned. Section 10A(2) of the Banking Regulation Act, 1949, reads as follows:- "10A. Board of dire....
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....ng company the requirements, as laid down in subsection (2), are not fulfilled at any time, the Board of directors of such banking company shall re-constitute such Board so as to ensure that the said requirements are fulfilled. (4) If, for the purpose of re-constituting the Board under sub-section (3), it is necessary to retire any director or directors, the Board may, by lots drawn in such manner as may be prescribed, decide which director or directors shall cease to hold office and such decision shall be binding on every director of the Board. (5) Where the Reserve Bank is of opinion that the composition of the Board of directors of a banking company is such that it does not fulfill the requirements of subsection (2), it may, after giving to such banking company a reasonable opportunity of being heard, by an order in writing, direct the banking company to so re-constitute its Board of directors as to ensure that the said requirements are fulfilled and, if within two months from the date of receipt of that order, the banking company does not comply with the directions made by the Reserve Bank, that Bank may, after determining, by lots drawn in such manner as may ....
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.... and P7 are not at all germane to decide the issue with regard to the rejection of the nomination of the petitioners. 51. This question was considered by the Hon'ble Apex Court in Begum Sabiha Sultan v. Nawab Mohd. Mansur Ali Khan and Others [(2007) 4 SCC 343] and held as follows:- "11. This position was reiterated by this Court in T. Arivandandam Vs. T.V. Satyapal & Anr. [(1978) 1 S.C.R. 742] by stating that what was called for was a meaningful --- not formal --- reading of the plaint and any illusion created by clever drafting of the plaint should be buried then and there. In Official Trustee, West Bengal & Ors. Vs. Sachindra Nath Chatterjee & Anr. [(1969) 3 S.C.R. 92], this Court approving the statement of the law by Mukherjee Acting Chief Justice in Hirday Nath Roy Vs. Ramchandra Barna Sarma, [I.L.R. 48 Calcutta 138 F.B.] held: "Before a court can be held to have jurisdiction to decide a particular matter it must not only have jurisdiction to try the suit brought but must also have the authority to pass the orders sought for. It is not sufficient that it has some jurisdiction in relation to the subject- matter of the suit. Its jurisdiction must include ....
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....of landlord and tenant; the nature of the cause of action; the character of the reliefs sought and whether the claim of the Plaintiff arises from and out of the obligations of the parties as licensor and licensee or, landlord and tenant are important considerations. The garb or cloak which is wrapped around the pleadings by an astute draftsman must be kept aside to deduce the pith and substance of the pleadings. If the suit relates to the recovery of possession, it is a suit to which Section 41(1) applies notwithstanding the fact that some of the reliefs or a portion of the cause of action is structured around a claim for specific performance. The Court must ask itself : Does the theme and the foundation relate to the recovery of possession? And in answering that question, the pleadings must be considered as a whole without severing its constituents or reading parts in isolation." 53. We have also gone through the provisions of the Securities and Exchange Board of India (Listing Obligations and Disclosure Retirements) Regulations, 2015 issued by the Securities and Exchange Board of India wherein also we find that the provisions are dealing with principles governing disclosures a....
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.... Directors of the appellant banking company. Even assuming that the procedures contained under Section 160 and Section 178 of the Companies Act are violated, it is a subject matter within the realm of a private dispute by and between the rival parties. 59. In that view of the matter we deem fit and proper to discuss the preposition of law laid down by the Hon'ble Apex Court in some of the abovementioned judgments. It is laid down by the Hon'ble Apex Court in most of the judgments above that a writ of mandamus or the remedy under Article 226 is pre-eminently a public law remedy and is not generally available as a remedy against private wrongs. 60. It is held in Binny Ltd. (supra) that a writ of mandamus under Article 226 is used for enforcement of various rights of the public or to compel public / statutory authorities to discharge their duties and act within their bounds. It was also held therein that the scope of mandamus is limited to enforcement of public duty and the scope is determined by the nature of the duty to be enforced, rather than the identity of the authority against whom it is sought. It was further held therein that if the private body is discharging a....
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....ing facilities."" 62. So also, it was held therein that, it is difficult to draw a line between public function and private functions when they are being discharged by purely personal authority and that a body is performing a public function when it seeks to achieve some collective benefit for the public or a section of the people and is accepted by the public for that section of the public as having authority to do so; and that bodies, therefore, exercise public functions when they intervene or participate in social or economic affairs in the public interest. It was also held therein that the duty cast on the public body may be either statutory or otherwise and the source of such power is immaterial but nevertheless there must be the public law element in such action; and there cannot be any general definition of public authority or public function and the facts of each case decide the point. 63. In Federal Bank Ltd. (supra) also, the Hon'ble Apex Court has held that a writ petition under Article 226 of the Constitution of India may be maintainable against (i) the State Government; (ii) an authority; (iii) a statutory body; (iv) an ins....
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....) 5 SCC 345], had to consider the performance of public functions by a private party vis-a-vis the necessity of, for invocation of writ jurisdiction and held as follows; "18. Even otherwise, it is required to be noted that a writ petition against the private financial institution - ARC - appellant herein under Article 226 of the Constitution of India against the proposed action/actions under Section 13(4) of the SARFAESI Act can be said to be not maintainable. In the present case, the ARC proposed to take action/actions under the SARFAESI Act to recover the borrowed amount as a secured creditor. The ARC as such cannot be said to be performing public functions which are normally expected to be performed by the State authorities. During the course of a commercial transaction and under the contract, the bank/ARC lent the money to the borrowers herein and therefore the said activity of the bank/ARC cannot be said to be as performing a public function which is normally expected to be performed by the State authorities. If proceedings are initiated under the SARFAESI Act and/or any proposed action is to be taken and the borrower is aggrieved by any of the actions of the private ....