2021 (9) TMI 1440 - HC - Indian Laws

Prayer for an interim order directing the Bank to place their candidature for directorship of the Bank in the ensuing Annual General Meeting of the Bank - alternatively seeking direction to the Bank to refrain from conducting the Annual General Meeting scheduled on 29.09.2021 - HELD THAT - With regard to the case of the petitioners that the Bank is statutorily obliged under Section 160 of the Act to place the notice of the petitioners before the General Meeting it was pointed out by the learned counsel that the same is only a regulatory provision and an alleged breach of such a regulatory provision is not sufficient to invoke the writ jurisdiction of this Court under Article 226 of the Constitution. The fact that the Board has refused to place the notices given by the petitioners under Section 160 of the Act in the Annual General Meeting scheduled on 29.9.2021 is not in dispute. In other words the writ petitions are instituted for enforcing a statutory obligation of the Bank. That apart the Bank is a listed company engaged in banking business. It is a scheduled bank regulated by the Reserve Bank. The materials on record indicate that the Bank has had a chequered history on the governance issues forcing the Reserve Bank to intervene at regular intervals; that there are adverse reports concerning the functioning of the Board and Committees of the Bank especially as regards lack of transparency in the selection of Directors by the NRC; that having found that the Bank is functioning with a minuscule number of Directors the Bank has been directed by the Reserve Bank in exercise of its powers under Section 35A of the Banking Regulation Act 1949 to expedite and complete the process of appointment of Directors and that the Bank has for some or other reasons not complied with the said direction of the Reserve Bank. The writ petitions are instituted for enforcing obligations of public nature as well - it is deemed appropriate to pass an interim order directing the Bank to refrain from concluding the Annual General Meeting scheduled for today - application disposed off.

Summary

Issues:
1. Obligation of the Board to place recommendations before General Meeting.
2. Refusal of the Board to place notices for directorship in the Annual General Meeting.
3. Maintainability of the writ petitions against a private banking company.
4. Enforcement of statutory obligations and public nature obligations on the Bank.

Issue 1: Obligation of the Board to place recommendations before General Meeting:
The case involves a private sector banking company where the Nomination and Remuneration Committee (NRC) recommended the appointment of certain individuals as Directors. The petitioners alleged that the Board failed to act upon the NRC's recommendation and did not place the notices signifying candidature as Directors in the Annual General Meeting. This led to the petitioners seeking directions for the placement of their notices in the meeting as required under Section 160 of the Companies Act, 2013.

Issue 2: Refusal of the Board to place notices for directorship in the Annual General Meeting:
The petitioners sought interim orders directing the Bank to place their candidature for directorship in the Annual General Meeting or to refrain from conducting the meeting. The learned Senior Counsel argued that the Board had a statutory obligation to place the notices in the meeting and that the refusal was against the interests of the shareholders.

Issue 3: Maintainability of the writ petitions against a private banking company:
The Bank argued that being a private bank, it was not amenable to the writ jurisdiction of the Court as it did not have a public law element. The Bank contended that the writ petitions lacked a regulatory provision breach substantial enough to invoke the writ jurisdiction under Article 226 of the Constitution. The Bank relied on previous court decisions to support its position.

Issue 4: Enforcement of statutory obligations and public nature obligations on the Bank:
The petitioners argued that even private bodies are amenable to the writ jurisdiction when necessary to compel enforcement of statutory obligations or public nature obligations. The Court noted that the Bank, being a listed company regulated by the Reserve Bank, had a history of governance issues and non-compliance with directions from regulatory authorities. The communication from the Reserve Bank dated 03.06.2021 highlighted the need for transparency in the nomination process and governance practices, indicating public interest obligations. The Court found merit in enforcing obligations of public nature and statutory obligations on the Bank.

In conclusion, the Court deemed it appropriate to pass an interim order directing the Bank to refrain from concluding the Annual General Meeting scheduled for that day. The order allowed the Bank to transact agenda items and adjourn the meeting to a later date, ensuring compliance with statutory and public interest obligations.