TMI Blog2004 (9) TMI 393X X X X Extracts X X X X X X X X Extracts X X X X ..... and financial institutions. It is further incorporated that at present, there are a total of 1085 fixed deposits outstanding for repayment, totalling Rs. 2.63 crores. It is stated that for deposits up to Rs. 25,000, the petitioners had repaid two-thirds of the principal amount and the entire outstanding interest. It is also incorporated that the petitioners have faced financial difficulties because of non-receipt of Rs. 134 crores from its foreign buyers. It is stated that the petitioners are likely to make further repayments of maturing fixed deposits in the near future. 3. The petitioners state that section 274 of the Companies Act, 1956, provides grounds on which a director is disqualified from being appointed. New clause ( g ) was added to sub-section (1) of section 274 by the Companies (Amendment) Act, 2000, with effect from December 13, 2000. Section 274 reads as under: " Disqualifications of directors. (1) A person shall not be capable of being appointed director of a company, if ( a )he has been found to be of unsound mind by a Court of competent jurisdiction and the finding is in force; ( b )he is an undischarged insolvent; ( c )he has applied to be adjudic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars commencing on and after the first day of April, 1999; or has failed to repay its deposit or interest thereon on due date or redeem its debentures 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 debentures on due date or pay dividend referred to in clause (B)." 4. The petitioners are aggrieved by the said newly added amendment and have prayed that the provisions of section 274(1)( g ) of the Companies Act, 1956, are ultra vires the Constitution and be declared illegal, invalid, null, void and unenforceable. The petitioners have also prayed that it be declared that the Companies (Disqualification of Directors under section 274(1)( g ) of the Companies Act, 1956) Rules, 2003 are also ultra vires the rule-making power of the Central Government and consequently, are, therefore, null and void. 5. The petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any distinction whatsoever between a wilful failure and a failure which is beyond the means or capacity of the company. 9. It is also submitted that as far as failure to pay dividend is concerned, the same cannot be clubbed along with the failure to pay deposit or interest thereon or failure to redeem debenture on due date, inasmuch as the obligation of the company to pay dividend arises only when the same is declared. 10. It is further submitted by the petitioners that where the failure to repay deposit or interest thereon or repay debenture arises out of the incapacity or inability of the company to do so, it would be highly arbitrary, unreasonable, harsh and burdensome to penalise the directors of such public limited companies and visit them with the penalty of disqualification not only of that company but also of all other public limited companies for a period of five years. 11. It is clear that this amendment has been carried out in the case of a public company, which does not file annual accounts and annual returns for any continuous three financial years, and the director of such company will be debarred from becoming a director of any other public company for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mber of companies becoming defaulters. It is a matter of common knowledge that millions of small investors, who had deposited their lifetime savings with these companies, in order to get reasonable returns, have been totally ruined. In most cases, they neither receive the principal amount nor any interest. A number of such petitions are pending in various Courts of the country. We find no merit in the submission of the petitioners that this amendment, in any manner, violates the petitioners fundamental rights guaranteed under article 19(1)( g ) of the Constitution. 15. We do not see any merit in the petitioners submission that this amendment, in any manner, violates the rules of natural justice. Once the company failed to repay the interest or the principal amount, there is nothing required but surely, when this fact is not disputed by the company, the challenge that this amendment being violative of rules of natural justice becomes hollow and without any merit. 16. The petitioners submission is that no distinction is made between its failure and failure beyond the means of the directors of the company. It is pertinent to note that section 274(1)( g ) does not penalise t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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