9911796707
TMI Blog1991 (8) TMI 281X X X X Extracts X X X X X X X X Extracts X X X X ..... special knowledge or practical experience in respect of one or more of the following matters, viz ., ( i )accountancy ( ii )agriculture and rural economy ( iii )banking ( iv )co-operation ( v )economics ( vi )finance ( vii )law ( viii )small-scale industry ( ix )any other matter the special knowledge of and practical experience in which would, in the opinion of the Reserve Bank, be useful to the banking company. The proviso to the said section provides that out of the aforesaid number of directors, not less than two shall be persons having special knowledge or practical experience in respect of agriculture and rural economy, co-operation or small-scale industry, and shall not (1)have substantial interest in, or be connected with whether as employee, manager or managing agent ... or (2)be proprietors of any trading, commercial or industrial concern, not being a small scale industrial concern. Sub-section (3) to section 10A of the Act provides that if, in respect of any banking company, the requirements as laid down in sub-section (2) are not fulfilled at any time, the board of directors of such banking company shall reconstitute such board so as to ens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arded its approval to increase the strength of the board of directors. The said Singaram vacated his office of directorship in the annual general meeting held on September 12, 1977, on offering himself for appointment as elected director. He was elected as one of the directors in the annual general meeting. On a representation made by the officers' association, a joint meeting was held between the representatives of the officers association and the management on April 24, 1979, wherein the first respondent-bank agreed to co-opt the writ petitioner as one of the directors representing the officers of the bank. The Reserve Bank of India, the third respondent herein, expressed no objection to the board of directors of the first respondent bank co-opting the representative of the officers as director but advised the board to take steps to set right the imbalance in the composition of the directors, which at that time consisted of six directors in the majority sector and five in the minority sector. The first respondent-bank applied to the third respondent on December 21, 1979, for amendment of the relevant provisions of the articles of association so as to increase the strength o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the first respondent-bank and that the vacancy caused as a result of his retirement was not filled up. It is at this stage, the petitioner has filed the above writ petition for issue of a writ of mandamus directing the Reserve Bank of India, Madras, the third respondent herein, to take action under section 35A of the Act and directing the respondents Nos. 1 and 2 to fill up the vacancies caused by the retirement of directors representing the officers of the first respondent-bank. Mr. Venkatraman, learned counsel for the petitioner contended that the representation of the employees in the board of directors of the bank is based on the theory of the employees' participation in the management which has been accepted throughout the industrial world and the said theory is based on the principles enshrined in article 43A of the Constitution of India under Part IV as one of the Directive Principles of State Policy. Learned counsel for the petitioner further contended that the Government of India in exercise of its powers under section 9 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, framed a scheme wherein clause 3( b ) or 3( c ) are consistent with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Gopalan, learned counsel for respondents Nos. 1 and 2, contended that the writ petition instituted by the writ petitioner is not maintainable for the reason that the first respondent is only a company registered under the Companies Act and that, therefore, the first respondent is not amenable to the writ jurisdiction of this court. Learned counsel for respondents Nos. 1 and 2 contended that the third respondent has no control in the matter of filling up vacancies in the board of directors or in the election of directors or election of directors of any banking company except as mentioned in the proviso to section 10A of the Banking Regulation Act, 1949. The third respondent could exercise its powers to control or supervise over the first respondent only under the provisions of the Act. The third respondent does not have power to issue any direction in the matter of filling up the vacancy of the directors of the first respondent banking company. Therefore, this court cannot direct the third respondent to issue directions as desired by the writ petitioner unless and until it is warranted by any of the statutory provisions contained in the Act. Learned counsel further contended that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner was originally co-opted by the board of directors of the first respondent-bank and later, the petitioner was elected as one of the directors by the shareholders of the bank in the annual general body meeting, since the petitioner happened to be a shareholder of the first respondent-bank. In view of the fact that the petitioner was elected as one of the directors, he was considered as one of the directors representing the majority sector of the shareholders. The petitioner, after his term was over, retired from the board of directors. The company, in its annual general body meeting, considered as to whether the vacancy caused as a result of the retirement of the petitioner should be filled up or not and ultimately resolved that such vacancy need not be filled up for the present. However, there appears to be no impediment whatsoever to the writ petitioner being elected as one of the directors, provided that the majority of the shareholders elected him as such. Now the question or consideration is whether the petitioner, since he happens to be an officer/employee of the bank, or any other officer/employee of the bank, should be co-opted as one of the directors of the first respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... participation of workers in the management of undertakings, establishments or other organisations engaged in any industry. It is not brought to the notice of this court that the State has taken steps either by suitable legislation or in any other way to secure the participation of workers in the management of the affairs of the company in question. The Central -Government, by the exercise of the power conferred under section 9 of the Banking Companies (Acquisition and Transfer of Undertakings) Act framed a scheme in consultation with the Reserve Bank of India and such a scheme had provided, inter alia, for participation of the representatives of employees or depositors in the board of directors of the nationalised bank. In this connection, the decision in All India Bank Officers' Confederation v. Union of India [1990] 1 LLJ 352 (SC) was cited by learned counsel for the petitioner, wherein the All India Bank Officers' Confederation challenged the circular issued by the Government, which provides a different mode of appointment of officers representing the board of directors. The Supreme Court considered that the mode contemplated for appointment of a director representing the offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omic scene. This doctrine glorified the concept of a free economic society in which State intervention in social and economic matters was kept at the lowest possible level. But gradually this doctrine was eroded by the emergence of new social values which recognised the role of the State as an active participant in the social and economic life of the citizen in order to bring about general welfare and common good of the community. With this change in socio-economic thinking, the developing role of companies in modern economy and their increasing impact on individuals and groups, through the ramifications of their activities, began to be increasingly recognised. It began to be realised that the company is a species of social organisation, with a life and dynamics of its own and exercising a significant power in contemporary society. The new concept of corporate responsibility transcending the limited traditional views about the relationship between management and shareholders and embracing within its scope much wider groups affected by the trading activities and other connected operations of companies, emerged as an important feature of contemporary thought on the role of the corpor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can it be said that capital, which is only one of the factors of production, should be regarded as the owner having an exclusive dominion over the concern, as if the concern belongs to it ?... There was at one time a serious controversy between two schools of thought, one represented by Adolf Berle and the other by Professor Dodd as regards the nature of duties and obligations owed by directors representing the management of a company. Adolf Berle took the view that directors are trustees only for shareholders that is, the traditional view which directly flows from a purely capitalistic approach which identifies ownership and dominion with capital-while Prof. Dodd believed that directors are trustees not only for shareholders but also for the entire community. Ultimately, however, in his subsequent book, Twentieth Century Capitalist Revolution, Adolf. Berle conceded that Prof. Dodd was right and that modern directors are not limited to running business enterprises for maximum profit motive alone, but are in fact administrators of a community system or of a social institution. That is why we find that in recent times there is considerable thinking on the subject of social responsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffairs of the company. Learned counsel may be right in bringing to the notice of the court that the concept of the company has undergone a radical transformation and that there is considerable thinking on the concept of social responsibility of corporate management. However, it is for the Government to take steps as provided under article 43A of the Constitution of India for participation of workers in the management of industry and also it is for the Government to take note of the concept of social responsibility of corporate management and to bring necessary legislative changes in order to enable the workman-employee/officer-employee to participate in the management of the affairs of the banking company. Of course, the provisions contained in the Banking Companies (Acquisition and Transfer of Undertakings) Act brought about a change and the Central Government framed a scheme as contemplated under section 9 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, so as to ensure the employees' representation in the board of directors of the nationalised banks. However, these provisions are applicable to nationalised banks. In so far as scheduled banks are c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or practical experience in respect of matters viz ., ( i ) accountancy, ( ii ) agricultural and rural economy, ( iii ) banking, ( iv ) co-operation, ( v ) economics, ( vi ) finance, ( vii )law, ( viii ) small-scale industry, and ( ix ) any other matter, the special knowledge of and practical experience in which would, in the opinion of the Reserve Bank, be useful to the banking company. From and out of the persons appointed as directors of the bank, not less than two shall be persons having special knowledge of practical experience in respect of agriculture and rural economy, co-operation or small-scale industry. Section 10A of the Act further provides that where the Reserve Bank of India is of opinion that the composition of the board of directors of a banking company is such that it does not fulfil the requirements of sub-section (2) it may, after giving to such banking company a reasonable opportunity of being heard, by an order in writing direct the banking company to so reconstitute the board of directors as to ensure that the said requirements are fulfilled and if the banking company does not comply with the directions made by the Reserve Bank, the Reserve Bank may remove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the powers available under the aforesaid provisions. Though in the instant case, the writ petitioner prays for the issue of a writ of mandamus directing the third respondent to issue directions under section 35A of the Act to the first respondent to fill up the vacancies caused by the retirement of the director representing the officers of the first respondent-company, it may be relevant by way of repetition to state that section 35A of the Act does not empower the Reserve Bank of India to issue directions to respondents Nos. 1 and 2 to fill up vacancies caused by the retirement of directors by appointing any of the officers-employees to the board of directors of the first respondent-bank. In the absence of any provision enabling the officer, representing the officers of the first respondent-bank, to be appointed as one of the directors, the Reserve Bank of India has no authority to issue such directions as prayed for by the petitioner. Unless a situation as contemplated under section 35A of the Act arises warranting interference by the Reserve Bank of India or the exercise of power under section 35A of the Act, there cannot be any direction by issuing a writ of mandamus directin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia to issue directions under section 35A of the Act. It may be that as contended by the learned counsel for the petitioner, the Reserve Bank has wide powers under sections 10A, 12A and 35A of the Act. But such powers are to be exercised only under circumstances as contemplated under these provisions and not otherwise. It may be futile to contend that by reason of the provisions contained in article 43A of the Constitution, the Reserve Bank should have directed the first respondent to appoint any employee so as to enable such employee to be represented on the board of directors, unless and until a provision to that effect is incorporated either under the Act or under the Companies Act or under a special statute. In so far as the contention that there is no agenda to resolve as to whether the vacancy caused as a retirement of the writ petitioner should be filled up or not is concerned, it is manifest from the notice issued for holding the annual general meeting that as one of the items it was specified to appoint a director in the place of T. S. Arumugham, who retires by rotation as per articles 19 and 20 of the articles of association, etc. In view of the above, this contention ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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