2012 (4) TMI 277 - HC - Companies Law

Regulations of Membership of AEPC - Whether an appellant Company incorporated under Section 25 of the Companies Act, 1956 is entitled to have two kinds of membership - the Member Exporters having a right to elect and to be elected as office bearers of the appellant whereas the Registered Exporters have no such right Writ petition by exporters who are unable to meet the Regulations of Membership - Learned Single Judge allowed the writ petition by removing such classification of membership and vesting the right of voting - mentioning that appellant owes its existence to the Exim Policy which provides for formation of Export Promotion Council (EPC) requiring all exporters to become members of such EPC - appellant has contended that does not owe its existence to the Exim Policy as the appellant was incorporated by leading garment exporters associations before the Foreign Trade (Development & Regulation) Act came into force - that the appellant is not a monopolistic body as perceived by the Learned Single Judge - that the Government itself had with effect from 31st March, 2000 deliberately repealed the requirement of democratization in the EPCs from the Exim Policy and which shows that it was not the requirement of the Exim Policy Held that - Once the Model Bye- Laws provide for two kinds of membership, a right to membership can be read only as a right to non-voting membership till the member qualifies to become a voting member. The Exim Policy has to be read as a whole -The concepts of Associate Member without voting rights and of placing restrictions on the right to vote were upheld. Restriction on the right to vote provided with the avowed object of better welfare and convenience of regular practitioners directly concerned with the day-to-day affairs is Constitutional and valid - if no such restrictions were to be placed the possibility of a rival industry/trade snatching away the management of an EPC to destroy the same also cannot be ruled out in favour of appellant company - the appellant which is a Company incorporated under Section 25 of the Companies Act, 1956 is entitled to have two kinds of memberships as aforesaid.

Summary

Issues Involved:
1. Validity of the classification of membership into "Member Exporters" and "Registered Exporters".
2. Consistency of the appellant's membership regulations with the Exim Policy.
3. The democratic nature of the appellant's election process.
4. Applicability of the doctrine of ultra vires to the appellant's Articles of Association.
5. Impact of amendments to the Exim Policy and Model Bye-Laws on the appellant's membership regulations.

Detailed Analysis:

1. Validity of the Classification of Membership into "Member Exporters" and "Registered Exporters":
The primary issue is whether the appellant, a Company incorporated under Section 25 of the Companies Act, 1956, is entitled to have two kinds of memberships, namely "Member Exporters" with voting rights and "Registered Exporters" without voting rights. The respondents/writ petitioners, who are non-voting members, contended that this classification deprived them of their rights to participate in the management and elections of the appellant. The learned Single Judge quashed this classification, holding that it was ultra vires the Exim Policy and violative of Article 19(1)(g) of the Constitution.

2. Consistency of the Appellant's Membership Regulations with the Exim Policy:
The learned Single Judge held that the appellant owes its existence to the Exim Policy, which does not envisage two kinds of members. The Exim Policy requires democratization of its members and democratic elections of its office bearers. The appellant's classification of members was deemed inconsistent with these requirements. However, the appellant argued that it does not owe its existence to the Exim Policy and that its Articles of Association are only required to comply with the Companies Act. The appellant further contended that the Exim Policy, as amended in March 2000, allows for such classification and that the Model Bye-Laws prescribed under the amended Exim Policy permit voting and non-voting members.

3. The Democratic Nature of the Appellant's Election Process:
The respondents/writ petitioners argued that the classification of members was undemocratic and created a small caucus that appropriated the management of the appellant. The learned Single Judge agreed, stating that restricting the right to participate in elections to only 10% of its members was not democratic. The appellant countered by stating that the classification is reasonable and has a rational nexus to the object of ensuring that EPCs provide necessary support to the Central Government in framing and implementing the Exim Policy.

4. Applicability of the Doctrine of Ultra Vires to the Appellant's Articles of Association:
The appellant argued that the doctrine of ultra vires cannot apply to its Memorandum or Articles of Association, which are only required to comply with the Companies Act. The learned Single Judge, however, held that the appellant's membership regulations were ultra vires the Exim Policy. The appellant contended that it is not a monopolistic body and that its functioning is autonomous and regulated by its Memorandum and Articles of Association.

5. Impact of Amendments to the Exim Policy and Model Bye-Laws on the Appellant's Membership Regulations:
The amendments to the Exim Policy in 2000, which provided for Model Bye-Laws allowing classification into voting and non-voting members, were not challenged by the respondents/writ petitioners. The court noted that the amendments knocked off the basis of the relief claimed by the respondents/writ petitioners. The appellant's Membership Regulations, framed in accordance with the Model Bye-Laws, were thus deemed valid. The court also emphasized the importance of such classification to prevent the management of the appellant from being taken over by those not genuinely interested in the export of garments.

Conclusion:
The appeal succeeded, and the judgment of the learned Single Judge was set aside. The court upheld the appellant's classification of members into voting and non-voting categories, stating that it was consistent with the amended Exim Policy and necessary to prevent the hijacking of the appellant's management by non-serious exporters. The writ petition of the respondents/writ petitioners was dismissed, with no order as to costs due to the appellant's failure to highlight the amendments of the year 2000 during the arguments before the learned Single Judge.