1994 (8) TMI 181 - SC - Companies Law

Certain provisions of the Companies (Amendment) Act, 1988 challenged by which an independent Company Law Board was constituted - Held that - Appeal dismissed. Proceedings of this Court would show that this case was being adjourned from time to time to enable the Government to finalise the aforesaid rules which having been done in 1993 and having undergone amendment in 1994, the grievance about the qualifications of the members of the Board, about which the Act, when enacted, was silent inasmuch as it left the qualifications and experience to be prescribed, has been well met. So the petition has served its purpose well, as stated in the opening paragraph of the judgment. It may be put on record that the qualifications as amended in 1994 do leave sufficient room for appointment of persons with judicial experience as a Judicial Member of the Board. This has not been disputed by Shri Satish Chandra.

Summary

Issues: Challenge to provisions of Companies (Amendment) Act, 1988; Legislative incompetence and lack of valid classification in conferring power; Protection of minority shareholders; Previous establishment of Company Law Board; Qualifications of Board members.

In this judgment by the Supreme Court of India, the challenge was made against certain provisions of the Companies (Amendment) Act, 1988, specifically sections 4, 5, 16, 21, and 27, which established an independent Company Law Board. The petitioner argued that these provisions lacked constitutional validity due to legislative incompetence and a lack of valid classification in conferring power. The Court, however, found no constitutional infirmity in the challenged sections. The petitioner relied on a previous case regarding administrative tribunals, but the Court distinguished the present case, as the Board was not a substitute for the High Court, and appeals from the Board's decisions could be made to the High Court, unlike administrative tribunals. The Court rejected the argument of legislative incompetence.

Regarding the lack of valid classification, the Court held that the power of winding up under section 443, which remained with the High Court, was more drastic compared to the power under section 397 conferred on the Board. The Court found merit in the argument that retaining winding up power with the High Court while giving less drastic powers to the Board provided a valid ground of distinction. The Court was not convinced by the argument of lack of intelligible differentia in having two separate fora for different purposes.

The petitioner also raised concerns about the protection of minority shareholders, arguing that they may face difficulties in obtaining relief against oppression by the majority through the Board. However, the Court noted that the Company Law Board Regulations ensured that the Benches of the Board were located in major cities where most registered offices are situated, providing access to minority shareholders. The Court dismissed the argument that minority shareholders would be neglected or suppressed.

The petitioner mentioned a previous unsuccessful experiment with a Company Law Board in 1963, which was abolished in 1967. The Court stated that the failure of the previous experiment did not preclude the Parliament from trying again, and the decision to establish the Board was within the Parliament's domain of wisdom, not subject to judicial review. The Court highlighted that the qualifications of Board members had been addressed through rules framed in 1993 and amended in 1994, allowing for the appointment of individuals with judicial experience as Judicial Members of the Board.

Ultimately, the Court concluded that the petition had served its purpose with the framing of the rules for the Company Law Board, and as such, the petition was closed. The judgment disposed of the petition accordingly.