2022 (11) TMI 168 - HC - Companies Law

Scope of writ jurisdiction - statutory violation - 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 - HELD THAT - Section 1(4)(a) of the Companies Act, 2013 makes it clear that it applies to companies incorporated under the Act 2013 or under any previous company law. Clause (c) of Section 1(4) makes it clear that the provisions apply to the banking companies, except in so far as the said provisions are inconsistent with the provisions of the Banking Regulation Act, 1949. It is true, from the provision of Section 160 of Act 2013, that definite parameters are prescribed concerning how an application for Directorship is to be submitted and considered. Section 178 of Act 2013 deals with the Nomination and Remuneration Committee and Stakeholders Relationship Committee. Sub-section (1) thereto specifies that the Board of Directors of every listed company and such other class shall constitute a Nomination and Remuneration Committee consisting three or more non-executive Directors out of which not less than one half shall be independent Directors. On a conjoint reading of Section 160, Section 178 of the Companies Act, 2013 and Rule 13 of the Rules 2014, it is evident that a clear cut procedure is prescribed in so far as the notice of candidature is concerned. Whatever that be, the primary question to be considered is whether the rejection of nomination and election to the Director Board of the appellant company, a private banking company, has any public law element in order to consider the alleged violations exercising the powers conferred under Article 226 of the Constitution of India. The prayer sought for in petition for complaints filed before the RBI as well as SEBI against its nominee Directors, are not at all connected or related to the fundamental issue raised in the writ petition on account of the rejection of nomination. It is also stated that the matters with respect to Exts. P6 and P7 are not at all germane to decide the issue with regard to the rejection of the nomination of the petitioners. Even though learned Senior Counsel for the writ petitioners Sri. P. Chidambaram contended that from the website of the appellant Bank, it could be gathered that there are only two Directors in the Nomination and Remuneration Committee, learned Senior Counsel appearing for the appellant Bank Sri. Rafiq Dada submitted that no such contention is raised before the writ court and further that the present members of the Nomination and Remuneration Committee limited to two is on account of various factors and developments that have taken place subsequent to the rejection of nomination of the petitioners and the same would not have any bearing to the issue to be decided in the appeal - there are force in this contention. Whether a writ in the matter of rejection of nomination can be issued against the appellant Bank? - HELD THAT - It may be true that the Dhanalakshmi Bank, though a private Bank, may be discharging certain duties with respect to receipt of deposits and issue of loans and other financial activities. But the said duty cast upon a private Bank like the appellant, even assuming it as a public duty, has nothing to do with the election to the Director Board of the banking company, whose activity is confined to the realm and control of the shareholders of the appellant company. The appellant Bank is able to satisfy this Court that the rejection of the nomination for the post of Directorship has nothing to do with the public element or public duty of the appellant company or its Board of Directors or the Nomination and Remuneration Committee - There are no hesitation to say that interference is required to the interim order of the learned Single Judge in view of the fact that the issue raised in the writ petition has no public element involved, and the issue of rejection of nomination has nothing to do with the public duty and public function if any discharged by the Bank with respect to the other commercial and financial banking activities of the Bank concerning the public. The writ petitions are dismissed as being not maintainable under law.

Issues Involved:
1. Maintainability of writ petitions under Article 226 of the Constitution of India against a private bank.
2. Interpretation and application of Section 160 and Section 178 of the Companies Act, 2013.
3. Role and jurisdiction of the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI) in the nomination and election of directors in private banks.
4. Public law element in the functioning of private banks and their amenability to writ jurisdiction.

Detailed Analysis:

1. Maintainability of Writ Petitions under Article 226:
The primary issue was whether the writ petitions challenging the rejection of nominations for directorship in a private bank are maintainable under Article 226 of the Constitution of India. The court examined precedents and held that writ jurisdiction is generally not available for private wrongs unless a public law element is involved. The court noted that the appellant bank, although a private entity, discharges certain public functions like accepting deposits and granting loans. However, the rejection of nominations for directorship does not involve any public duty or public law element. Thus, the writ petitions were deemed not maintainable.

2. Interpretation and Application of Section 160 and Section 178 of the Companies Act, 2013:
The petitioners argued that the bank's Board of Directors and Nomination and Remuneration Committee violated Sections 160 and 178 by not placing their nominations before the General Body. Section 160 allows any person to stand for directorship if they meet certain conditions, while Section 178 mandates the Nomination and Remuneration Committee to recommend qualified candidates. The court found that these sections pertain to internal corporate governance and do not confer any public duty that would make the issue amenable to writ jurisdiction.

3. Role and Jurisdiction of RBI and SEBI:
The petitioners sought to involve RBI and SEBI, arguing that these regulatory bodies have a role in ensuring corporate governance in banks. The court clarified that while RBI and SEBI have regulatory powers, these do not extend to interfering with the nomination or election of directors in private banks. The RBI's role is limited to ensuring that directors meet certain qualifications as per the Banking Regulation Act, 1949, and SEBI's powers are confined to regulating securities and market practices. Neither body has jurisdiction over the internal corporate decisions of private banks regarding directorship nominations.

4. Public Law Element in the Functioning of Private Banks:
The court emphasized that for a writ petition to be maintainable against a private entity, the issue must involve a public law element. The rejection of nominations for directorship is an internal matter of corporate governance and does not affect the public at large or involve any public duty. Therefore, the court concluded that there is no public law element in the rejection of the nominations, making the writ petitions not maintainable under Article 226.

Conclusion:
The appeals were allowed, and the interim order of the learned Single Judge was set aside. The writ petitions were dismissed as not maintainable under Article 226 of the Constitution of India. The court clarified that the petitioners could seek remedies under the Companies Act, 2013, or before civil courts if they believe statutory requirements were violated. The findings and observations were made solely for determining the maintainability of the writ petitions and do not affect the merits of the case.

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