2003 (5) TMI 418 - HC - Companies Law

Summary

Issues Involved:
1. Locus Standi of the Plaintiff/Shareholders.
2. Retrospective or Prospective Operation of Section 274(1)(g) of the Companies Act, 1956.
3. Effect of Company Law Board's Order on Rescheduled Repayment Dates.
4. Disqualification of Directors under Section 274(1)(g) of the Companies Act, 1956.

Issue-wise Detailed Analysis:

1. Locus Standi of the Plaintiff/Shareholders:
The court addressed the issue of whether the shareholders have the locus standi to maintain the suit. It was argued that shareholders are not concerned with the management of the company but only with dividends. The court rejected this argument, stating that shareholders are vitally interested in the proper and lawful management of the company. The court held that shareholders must ensure that the company is managed by competent and untainted persons to protect their interests. Therefore, the plaintiffs/petitioners, being shareholders, have the locus standi to question the appointment of allegedly disqualified directors.

2. Retrospective or Prospective Operation of Section 274(1)(g) of the Companies Act, 1956:
The core issue was whether the amended Section 274(1)(g) has retrospective or prospective operation. The court noted that generally, statutes are not retrospective unless expressly stated by the legislature. However, in this case, the court found that the language of the section implied retrospective operation. The terms "is already a director" and "has failed to repay its deposit" suggest that the failure could have started before the commencement of the Act. The court concluded that the section has retrospective operation, meaning it applies to directors who were already in office at the time of the amendment.

3. Effect of Company Law Board's Order on Rescheduled Repayment Dates:
The court examined whether the order of the Company Law Board (CLB), which rescheduled the repayment dates of deposits, affects the disqualification under Section 274(1)(g). The court held that the effect of the CLB's order is to postpone the date of repayment, but it does not change the original due date. The court distinguished between the terms "due" and "payable," stating that a debt is due when it exists as a debt, even if payable in the future. The court concluded that the rescheduled dates do not negate the fact of default, and the directors remain disqualified if the company failed to repay within the rescheduled period.

4. Disqualification of Directors under Section 274(1)(g) of the Companies Act, 1956:
The court analyzed whether the directors were disqualified under the amended Section 274(1)(g). It was found that the directors were appointed before the amendment and had resigned after the amendment came into force. The court noted that the company had defaulted in repaying deposits even after the rescheduled dates set by the CLB. The court held that the directors were disqualified as the company failed to repay its deposits within one year or more, and the directors were in office during the period of default. The court emphasized that the provision aims to protect depositors and the public by preventing tainted directors from managing companies.

Conclusion:
The court upheld the interim order of status quo, preventing the appointment of the disqualified directors until the disposal of the suit. The application to vacate the interim order was dismissed, and the court expedited the hearing of the suit. The court's decision was based on the retrospective operation of Section 274(1)(g), the effect of the CLB's order, and the continuous default by the company in repaying deposits.