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2015 (6) TMI 771 - HC - Companies LawAppointment of directors under section 10A of the Banking Act - jurisdiction of the civil court - Held that - In the first place, when a banking company elects its board as a whole in compliance with section 10A(2), the appointments are not under section 10A and there is no question of any of the directors having a protected status under sub-section (6) thereof. If for any reason, including the reason of new appointment/s, retirement/s or removal/s, the composition of the board becomes non-compliant with sub-section (2), the situation calls for a reconstitution and provisions of sub-sections (3), (4) and (5) come into play. The reconstitution made, whether by the banking company by election or by the Board by appointment or removal, as the case may be, or by the Reserve Bank by appointment or removal, has protection under sub-section (6). Even that protection is subject to such election, appointment or removal being duly made. Since I have come to the conclusion that these appointments were not made under sub-section (3) or (4) of section 10A of the Banking Act and there is, therefore, no question of claiming any protection of sub-section (6), I have not considered the question whether these appointments were or were not duly made . That question would have a bearing on the maintainability of the suit only in the alternative, if the appointments of defendants Nos. 7 to 12 were held to have been made under sub-section (3) or (4). So also, the other questions, namely, whether the circulars of the Reserve Bank issued under section 35A of the Banking Act override the articles of defendant No. 6 and whether article 110 has any purpose or operation after the exit of Rabobank and what is the correct interpretation of the articles providing for the rights of Indian Partners, need not detain us at this stage. All these questions may be relevant from the point of view of interim reliefs claimed under the notice of motion, but are not necessary to be decided under the preliminary issues framed by this court. Civil suit challenging the appointment of directors - Under section 9 of the Code of Civil Procedure, civil courts have jurisdiction to try all suits of a civil nature unless barred under a statute either expressly or by necessary implication. A few basic principles, whenever a court is called upon to decide whether the jurisdiction is so barred, have long since been established by authority. Firstly, bar of jurisdiction of a civil court is not to be readily inferred. A provision seeking to bar jurisdiction of civil court requires strict interpretation. Secondly, the court would normally lean in favour of a construction, which would uphold the retention of jurisdiction of the civil court. Thirdly, the burden of proof in this behalf shall be on the party who asserts that the civil court s jurisdiction is ousted. Number of judgments of the Supreme Court as well as the High Courts have considered the question of ousting of civil court s jurisdiction under the various provisions of the Companies Act after applying the above principles. In Dwarka Prasad Agarwal s case 2003 (7) TMI 481 - SUPREME COURT OF INDIA , the Supreme Court noted various High Court decisions and held that the civil court s jurisdiction is not completely ousted under the Companies Act. In the present case, we are dealing with appointments of directors which are alleged by the plaintiffs to be ultra vires the company, being opposed, inter alia, to the mandate of its articles. There is no remedy provided under the Companies Act for redressal of such a grievance before any particular court or forum or by recourse to any particular machinery. In these circumstances, the jurisdiction of the civil court cannot be said to be impliedly barred by the Companies Act for redressal of such a grievance. In the result, the jurisdiction of this court to entertain a challenge to the appointment of defendants Nos. 7 to 12 as directors is not impliedly barred under the Companies Act. Both the preliminary issues are, accordingly, answered in favour of the plaintiffs. The suit, as filed, is not barred by any law and is maintainable. This court has jurisdiction to entertain and try the suit.
Issues Involved:
1. Maintainability of the suit. 2. Jurisdiction of the court to entertain and try the suit. Issue-wise Detailed Analysis: 1. Maintainability of the Suit - Preliminary Issue: Whether the suit, as filed, is maintainable in law. - Background: The plaintiffs, shareholders of a banking company, challenged resolutions relating to the appointment of directors and sought declarations concerning their rights under the articles of association of the company. They also sought injunctive reliefs against other shareholders based on these rights. - Defendants' Argument: The defendants contended that the suit was barred under section 10A(6) of the Banking Regulation Act, 1949, and impliedly barred under the Companies Act. - Court's Analysis: The court examined section 10A of the Banking Regulation Act, which prescribes qualifications for the board of directors of a banking company. The court noted that section 10A does not deal with the appointment or removal of directors generally but mandates that the board must comply with certain qualifications. The court held that appointments under the Companies Act must be consistent with section 10A of the Banking Regulation Act. The court concluded that the appointments challenged were not made under sub-sections (3) or (4) of section 10A and, therefore, did not have the protection of sub-section (6). - Conclusion: The suit is maintainable as the appointments of the directors were not protected under section 10A(6) of the Banking Regulation Act. 2. Jurisdiction of the Court - Preliminary Issue: Whether this court has jurisdiction to entertain and try the suit. - Background: The plaintiffs challenged the appointments of directors as being ultra vires the company, opposing the mandate of its articles of association. - Defendants' Argument: The defendants argued that the civil suit challenging the appointment of directors is impliedly barred by the Companies Act. - Court's Analysis: The court referred to established principles that bar of jurisdiction of a civil court is not to be readily inferred and requires strict interpretation. The court examined various judgments, including those of the Supreme Court, which held that the jurisdiction of civil courts is not completely ousted under the Companies Act. The court noted that the Companies Act does not provide a remedy for redressal of grievances related to the ultra vires appointment of directors before any specific forum. - Conclusion: The jurisdiction of the court to entertain a challenge to the appointment of directors is not impliedly barred under the Companies Act. The court has jurisdiction to entertain and try the suit. Judgment: - Final Decision: Both preliminary issues were answered in favor of the plaintiffs. The suit is maintainable and the court has jurisdiction to entertain and try the suit. - Next Steps: The notice of motion will be taken up by the court for considering the grant of interim relief to the plaintiffs. This comprehensive analysis ensures that the legal terminology and significant phrases from the original text are preserved while providing a detailed summary of the judgment.
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