9911796707
TMI Blog2004 (9) TMI 393X X X X Extracts X X X X X X X X Extracts X X X X ..... irectors appointed by these institutions cannot be disqualified as appointment as directors is by virtue of section 274(1)( g ) and also directors appointed on the boards of assisted companies, etc. Regarding the grievance of the petitioners that the name of the disqualified directors are given on the website, it is desirable for the public to know the names of some defaulting directors of the other companies, so that they would be wary of such persons who are directors of such companies. This can also be justified in the large public interest. In our considered opinion, this amendment of section 274(1)( g ) of the Companies Act, 1956, has been made primarily in larger public interest. This amendment became absolutely imperative to protect large number of investors, particularly small and poor investors, who had invested their lifetime savings with these companies, and in majority of cases, neither the principal amount nor interest is repaid. We find no merit in any of the submissions of the petitioners. We do not find that the said amendment violates the petitioners fundamental rights or any other right in any manner. The petition, being wholly devoid of merit, is accordingly dism ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the date of expiry of the sentence; (e )he has not paid any call in respect of shares of the company held by him, whether alone or jointly with others and six months have elapsed from the last day fixed for the payment of the call; or (f )an order disqualifying him for appointment as director has been passed by a Court in pursuance of section 203 and is in force, unless the leave of the Court has been obtained for his appointment in pursuance of that section; (g )such person is already a director of a public company which,-- (A)has not filed the annual accounts and annual returns for any continuous three financial years commencing on and after the first day of April, 1999; or (B)has failed to repay its deposit or interest thereon on due date or redeem its debenture on due date or pay dividend and such failure continue for one year or more : Provided that such person shall not be eligible to be appointed as a director of any other public company for a period of five years from the date on which such public company, in which he is a director, failed to file annual accounts and annual returns under sub-clause (A) or has failed to repay its deposit or interest or redeem its deb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fourth respondents, their officers, servants and agents be restrained by an injunction from declaring that the first petitioner is a defaulter under section 274(1)(g) of the Companies Act, 1956, and declaring that the second to fourth petitioners or fifth to seventh respondents have or any of them has incurred any disqualification under section 274(1)(g) of the Companies Act, 1956. 6. In the Statement of Objects and Reasons, it is enumerated that the above amendment will ensure proper governance of companies, transparency in working of companies and also ensure more effective enforcement. The impugned section 274(1)(g) has been enacted with the intention and purpose of: (i)disqualifying errant directors; (ii)protecting the investors from mismanagement; (iii)ensuring compliance and filing of annual accounts and annual returns which are the means of disclosure to all stakeholders; (iv)increasing compliance rate of filing statutory documents; and (v)infusing good corporate governance in the regulation of corporate affairs. 7. According to the petitioners, section 274(1)(g), being highly arbitrary, unreasonable and unintelligible, therefore violative of article 14 of the Consti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid amendment. In view of the Statement of Objects and Reasons of enactment of section 274(1)(g) of the Act, it is abundantly clear that this amendment has been incorporated for better corporate governance and protection of the investment of the depositors. In the instant case, the company has collected huge deposits from small and poor investors, who had deposited their lifetime savings with this company, in the hope of getting reasonable interest on their deposits. It is expected that such amendment would ensure transparency in the functioning of the company and would lead to the protection of the investment of investors and better corporate governance. According to the wisdom of the Legislature, this can be achieved by enhancing penalty/ punishment for contravention so as to ensure better compliance with the provisions of the Companies Act, 1956. 13. We fail to appreciate how article 21 of the Constitution is attracted, which refers to right to live. The challenge seems to be totally without any merit. We would appreciate if the submission is made on behalf of the small investors, who had deposited their lifetime savings with the petitioners and similar other companies where th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, ensure that the directors should not take loan and see that no loan, more than their liability to repay, is taken. 17. We see no force in the submission of the petitioners that the section does not make any discrimination between director and non-director or executive and non-executive director. Once any person becomes a director, it is his primary duty to ensure that there is proper governance and investors' money is protected. 18. We find no merit in the submission of the petitioners that this amendment is violative of article 14 of the Constitution. The provision of section 274(1)(g) does not make distinction between the Government-nominated directors and other directors. The Government of India, Ministry of Law, Justice and Company Affairs, letter dated March 22, 2003, has interpreted the composite effect of the non obstante clause in the statute of public financial institutions like Industrial Development Bank of India, Life Insurance Corporation of India, Unit Trust of India, etc., and gave an opinion that the directors appointed by these institutions cannot be disqualified as appointment as directors is by virtue of section 274(1)(g) and also directors appointed on the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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