1. The suit is filed by shareholders of a banking company challenging resolutions relating to appointment of directors as well as claiming declarations concerning the rights of the Plaintiff shareholders under the Articles of Association of the company and injunctive reliefs against other shareholders based on these rights. On the application of the Plaintiffs for interlocutory reliefs, objections to the jurisdiction of the Court were raised by the Defendants. Preliminary issues concerning jurisdiction were accordingly framed by this Court under Section 9 A of the Code of Civil Procedure. Evidence was led on these issues. The issues are being decided by this order.
2. The preliminary issues framed by this Court are as follows:
(I) Whether the suit, as filed, is maintainable in law?
(ii) Whether this Court has jurisdiction to entertain and try the suit?
3. A brief overview of the pleadings of the parties and their evidence is as follows:
4. Plaintiff Nos.1 to 3 are widow, daughter and son, respectively, of one Ashok Kapur who was a co-founder of Defendant No.6 a banking company with his brother in law, Defendant No.1. Both Ashok Kapur and Defendant No.1 were described as Indian Partners in the Articles of Association of Defendant No.6. The other group of founders /shareholders was a banking company incorporated under the laws of Netharlands, Rabobank International Holding B. V. (œRabobank?), referred to in the Articles of Association as œRabo?. Plaintiff No.4 is part of the Ashok Kapur group of shareholders in Defendant No.6.
5. Defendant No.1 is the present CEO and Managing Director of Defendant No.6. Defendant Nos.2 (sister of Plaintiff No.1) and 3 are, respectively, wife and daughter of Defendant No.1. Defendant Nos.4 and 5 are part of the Defendant No.1 group of shareholders in Defendant No.6. Defendant Nos.7 to 12 are appointed as Directors of Defendant No.6, whose appointments are the subject matter of challenge in the present suit.
6. Defendant No.6 “ Yes Bank “ was incorporated by the Indian partners Ashok Kapur and Defendant No.1, and Rabobank, who entered into a Share Subscription Agreement and a Shareholders Agreement. Under these Agreements, Rabobank agreed to subscribe to equity shares constituting 49 % of the equity capital of Defendant No. 6. The Share Subscription Agreement and the Articles of Association of Defendant Nos.6, which formed part thereof, defined Indian Partners as Ashok Kapur and Defendant No.1 collectively, and Ashok Kapur and Defendant No.1 as, respectively, the two individuals including (subject to context) their successors, legal representatives and assigns. The Articles and the Agreements required the Board of Defendant No.6 to consist of Representative Directors and Independent Directors. Each of 'Rabo' and 'Indian Partners' had the right to recommend the appointment of three directors as œRepresentative Directors? to be known, respectively, as œRabo Representative Directors? and œIP Representative Directors?. Apart from the Representative Directors, the Board was to have other independent directors (œIndependent Directors?). Under the Articles, so long as Indian Partners along with their affiliates directly or indirectly held at least 10% of the issued and paid up share capital of Defendant No.6, they were to have the right to recommend the three œI P Representative Directors?.
7. Defendant No.6 bank grew from strength to strength under the joint leadership of Ashok Kapur and Defendant No.1 till Ashok Kapur became an unfortunate victim of the terror attacks in Mumbai on 26th November, 2008 and died on that day.
8. Even after his death, Ashok Kapur group continued to be a major shareholder in Defendant No.6. Plaintiff Nos.1 to 3 continued to represent the late Ashok Kapur as his successors and legal representatives. The group presently holds about 12% of the issued, subscribed and paid up capital of Defendant No.6 and together with the Defendant No.1 group of shareholders constitutes the Indian Partner of Defendant No. 6 holding equity capital of 25 % between the two groups.
9. Since about 2011, there were bickerings between Ashok Kapur group represented by the Plaintiffs and the Defendant No. 1 group concerning the exercise of the rights of Indian Partners jointly under the Articles. There were meetings and discussions between the two groups. In May 2013, the Plaintiffs received a notice of the 9th Annual General Meeting of Defendant No. 6 to be held on 8th June 2013. The notice inter alia concerned passing of resolutions for appointments of Defendant Nos. 7 to 9 on the Board of Directors of Defendant No. 6 under items designated as œSpecial Business?. Defendant No. 7 was proposed to be appointed as Independent Director, whilst Defendant Nos. 8 and 9 were proposed as nominated œby the Indian Promoter Mr. Rana Kapoor? (i.e. Defendant No. 1). After a couple of unsuccessful attempts to sort out the matter, the Plaintiffs filed the present Suit asserting their rights inter alia as Indian Partners to act jointly in the matter of nomination of I P Representative Directors of Defendant No. 6 under the Articles. The Plaintiffs inter alia challenged the items of œSpecial Business? in the proposed AGM to consider the appointments of Defendant Nos. 7 to 9.
10. On the Plaintiffs' ad-interim application, a learned vacation Judge of this Court by his order dated 7th June 2013, declined to grant any Ad-interim relief in respect of the proposed AGM to be held on 8th June 2013. It was, however, made clear that the appointments made in the AGM shall be subject to further directions of the Court when the matter was taken up before the regular Court. The scheduled AGM was held by Defendant No. 6 and Defendant Nos. 7 to 9 were appointed as directors. Within a few days of appointment of Defendant Nos. 7 to 9, the Board of Directors of Defendant No. 6 appointed Defendant Nos. 10 to 12 as whole Time Directors at its meeting held on 27th June 2013. The Plaintiffs, thereupon, amended their plaint and incorporated the challenges to the appointments of Defendant Nos. 7 to 12 on the ground inter alia that the appointments were contrary to the Articles of Defendant No. 6 as also to the provisions for appointment of directors under the Companies Act, 1956 (œCompanies Act?). The Plaintiffs also incorporated appropriate prayers for the requisite declarations and injunctions in respect of the appointments.
11. The Defendants oppose the Suit inter alia on the grounds that (i) Defendant Nos. 7 to 12, having been duly appointed in compliance with the requirements of the Banking Regulation Act, 1949 (œBanking Act?), the suit is barred under section 10 A (6) of that Act, and (ii) the appointments of Defendant Nos. 7 to 12 cannot be made the subject matter of challenge in a civil suit, since such a suit is impliedly barred under the provisions of the Companies Act.
12. Mr. Kadam, the learned Senior Counsel for Defendant No. 6, submits that all appointments on the Board of a banking Company are appointments made under the Banking Act. He submits that the appointments of directors, which have been challenged in the present suit, have all been duly made. The learned Counsel relies upon the provisions of sections 193 and 194 of the Companies Act, the Articles of Association of Defendant No. 6 and the documents such as notices of appointment, notice of 9th AGM of Defendant No. 6, minutes of the AGM, etc. (in the case of appointments of Defendant Nos. 7 to 9) and recommendations of the HR Committee, minutes of the Nomination and Governance Committee, minutes of the Board Meeting, etc. (in the case of appointments of Defendant Nos. 10 to 12). Secondly, the learned Counsel submits that a civil suit challenging appointment of a director is impliedly barred under the provisions of the Companies Act. He submits that such appointment is governed by principles of corporate democracy. The learned Counsel also submits that the remedies under the Companies Act are a complete code for the matters provided therein. He relies on the judgments of the Supreme Court and several High Courts including our Court in support of his contentions. The learned Counsel also relies upon several circulars of Reserve Bank of India issued under Section 35 A of the Banking Act and submits that these circulars override the Articles of Association of the banking Company. He submits that all the appointments were in compliance with the Banking Act and Reserve Bank Circulars issued thereunder as well as the provisions of the Companies Act, and were not appointments covered by the Articles of Defendant No. 6 dealing with the rights of 'Indian Partners' including Article 110 thereof. The learned Counsel submits that the appointments were not made on the basis of any nomination by Defendant No. 1. The learned Counsel relies upon both the documentary evidence and oral evidence of DW 1 in this behalf. He submits that at any rate after the exit of rabobank Article 110 had no purpose and was not operable.
13. Mr. Cooper, the learned Senior Counsel for Defendant Nos. 7 to 12, whilst adopting the submissions of Mr. Kadam, additionally submits that as provided by Section 616 (b) of the Companies Act, the provisions of that Act apply to a banking company only insofar as they are not inconsistent with the Banking Act. He submits that Section 10 A of the Banking Act, which begins with a non obstante clause, lays down a regulatory framework to apply to the entire Board of a banking company and sub-Section (6) thereof applies to appointments/removals of the entire Board, whether or not the individual directors constituting the Board come within the 51 % members who must specially qualify under Subsection (2). The learned Counsel submits though all appointments/removals of directors are governed by Section 10 A, that Section does not provide for the procedure for such appointments/removals. He submits that such procedure is provided under the Companies Act, but all the appointments/removals made by following that procedure are still governed by Section 10 A and not de-hors it. The learned Counsel gives numerous examples of anomalies which would result, if Sub-section (6) of Section 10 A were to apply only to reconstitutions by appointments/ removals/elections made under sub-Sections (3), (4) and (5). He submits that the idea behind Sub-section (6) was to insulate the Boards of banking companies from challenges in civil suits. He relies on various judgments and also explains the authorities cited by the Plaintiffs. He submits that the appointments of Defendant Nos. 7 to 12 were made by the banking company (in case of Defendant Nos. 7 to 9) and by its Board (in case of Defendant Nos. 10 to 12) by duly following the procedure under the Companies Act consistently with the provisions of the Banking Act and the Reserve Bank circulars. These appointments, according to learned Counsel, were not in pursuance of any nomination by Defendant No. 1 and even if they were, the appointments were not contingent upon any valid nomination and having been lawfully made under the Companies Act, were not open to challenge. The learned Counsel reiterates the submissions of Mr. Kadam on the implied bar under the Companies Act and submits that the word œjurisdiction? under Section 9 A of the Code of Civil Procedure is used in a wider sense and covers every aspect of maintainability of a suit.
14. The learned Advocate General, appearing for the Plaintiffs, counters these submissions by contending that the provisions of the Banking Act are in addition to and not in derogation of the Companies Act. He submits that the exclusion of jurisdiction under Section 10 A (6) has to be strictly construed having regard to the object of Section 10 A. He submits that only re-constitutions made under the provisions of Sub-section (3), (4) or (5) of Section 10 A, by election, appointment or removal, as the case may be, are protected from challenges in a court of law and that too if such re-constitutions are 'duly' made. The learned Counsel submits that it is not the Defendants' case that the appointments, which are the subject matter of challenge here, were made under any of these Sub-sections. He relies on the evidence on record including the oral testimony of DW1 in support. He submits that the appointments are, therefore, not protected under Sub-section (6). He submits that at any rate the appointments were not made 'duly', since they were ultra virus the Articles and in breach thereof. The learned Counsel submits that the appointments were indeed made in pursuance of a nomination by Defendant No. 1 and such nomination was in breach of the Articles. He submits that the minority rights of the Plaintiffs, which are provided for in the Articles, ought to be protected. The learned Counsel submits that the Companies Act does not expressly or impliedly bar a suit for protection of such rights and challenging the appointments of directors made in breach thereof. He relies on several judgments in support of his contentions.
15. The contravercy, in the first place, concerns the interpretation of Section 10 A of the Banking Act. The Section is quoted below:
œ10 A. Board of directors to include persons with professional or other experience.-
(1) Notwithstanding anything contained in any other law for the time being in force, every banking company;-
(a) in existence on the commencement of section 3 of the Banking Laws (Amendment ) Act, 1968 (58 of 1968), or
(b) which comes into existence thereafter,
shall comply with the requirements of this section:
Provided that nothing contained in this subsection shall apply to a banking company referred to in clause (a) for a period of three months from such commencement.
(2) Not less than fifty-one per cent of the total number of members of the Board of directors of a banking company shall consist of persons, who -
(a) Shall have special knowledge or practical experience in respect of one or more of the following matters, namely;-
(i) accountancy,
(ii) agricultural and rural economy,
(iii) banking,
(iv) cooperation
(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;
Provided that out of the aforesaid number of directors, not less than two shall be persons having special knowledge or practical experience in respect of agricultural and rural economy, co-operation or small-scale industry; and
(b) Shall not “
(1) have substantial interest in, or be connect with, whether as employee, manager or managing agent,-
(i) any company, not being a company registered under sections 25 of the Companies Act, 1956 (1 of 1956), or
(ii) any firm,
which carries on any trade, commerce or industry and which, in either case, is not a small-scale industrial concern, or
(2) be proprietors of any trading, commercial or industrial concern, not being a small-scale industrial concern.
[(2A) Notwithstanding anything to the contrary contained in the Companies Act, 1956 (1 of 1956), or in any other law for the time being in force,-
(i) no director of a banking company, other than its chairman or whole time director, by whatever name called, shall hold office continuously for a period exceeding eight years;
(ii) a chairman or other whole-time director of a banking company who has been removed from office as such chairman, or whole-time director, as the case may be, under the provisions of this Act shall also cease to be director of the banking company and shall also not be eligible to be appointed as a director of such banking company, whether by election or co-option or otherwise, for a period of four years from the date of his ceasing to be the chairman or whole-time director as the case may be].
(3) 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 re-constitute such Board so as to ensure that the said requirements are fulfilled.
(4) If, for the purpose of re-constituting the Board under subsection (3), it is necessary to retire any director or directors, the Board may, by lots drawn in such manner as may be prescribed, decide which director or directors shall cease to hold office and such decision shall be binding on every director of the Board.
(5) Where the Reserve Bank is of opinion that the composition of the Board of directors of a banking company is such that it does not fulfill 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 re-constitute its Board of directors as to ensure that the said requirements are fulfilled and, if within two months from the date of receipt of that order, the banking company does not comply with the directions made by the Reserve Bank, that Bank may, after determining, by lots drawn in such manner as may be prescribed, the person who ought to be removed from the membership of the Board of directors, remove such person from the office of the director of banking company and with a view to complying with the provision of sub-section (2) appoint a suitable person as a member of the Board of directors in the place of the person so removed whereupon the person so appointed shall be deemed to have been duly elected by the banking company as its director.
(6) Every appointment, removal or reconstitution duly made, and every election duly held, under this section shall be final and shall not be called into question in any Court.
(7) Every director elected or, as the case may be, appointed under this section shall hold office until the date up to which his predecessor would have held office, if the election had not been held, or, as the case may be, the appointment had not been made.
(8) No act or proceeding of the Board of directors of a banking company shall be invalid by a reason only of any defect in the composition thereof or on the ground that it is subsequently discovered that any of its members did not fulfil the requirements of this section.]
16. Section 10A of the Banking Act prescribes certain requirements for the Board of Directors of a banking company. It is a non-obstante clause and provides that every banking company shall comply with the requirements of the Section. Sub-section (2) requires that œnot less than fifty one per cent? of the total number of members of the Board of a banking company shall consist of persons who have special knowledge or practical experience in respect of one or more of the subjects provided therein and at the same time have no substantial interest or connection with a company or a firm or a proprietorship carrying on trade, commerce or industry, which is not a small-scale industrial concern. The other requirements, which are stipulated by Sub-section (2A), are that (i) no director of a banking company, other than its chairman or whole-time director, shall hold office for a period exceeding eight years; and (ii) upon removal of the chairman or whole-time director, he shall cease to be a director and shall not be eligible for appointment on the Board of the banking company for a period of four years. Sub-section (3) mandates the Board of a banking company to re-constitute itself so as to ensure compliance with Sub-section (2). The Board may reconstitute itself in a manner provided in Sub-section (4). If for re-constituting the Board it is necessary to retire any director/s, the Board may do so by drawing lots and the decision of the Board in this behalf shall be binding on every director. Sub-section (5) empowers the Reserve Bank to issue directions to the banking company to re-constitute its Board to fulfill the requirements of Sub-section (2). If the banking company does not comply with the directions, the Reserve Bank may itself remove or appoint any person from or to the Board. Sub-section (6) mandates that every appointment, removal or reconstitution duly made and every election duly held, under the Section, shall be final and not called into question in any court. This is broadly the scheme of the Section.
17. The question, which needs to be addressed, is essentially this: can all appointments made to the Board of Directors of a banking company be said to be appointments under Section 10A of the Banking Act? For if they are appointments under that Section, they are accorded finality and cannot be challenged. It is submitted by the learned Counsel for the Defendants that every election or appointment of a director of a banking company must be made so as to ensure that the Board as a whole complies with the provisions of Section 10A (2) of the Act and therefore, they are all appointments under that Section. On the other hand, it is submitted by the Plaintiffs that it is only the appointments, removals, re-constitutions or elections under Sub-section (3), (4) and (5) of Section 10A, which are protected under Sub-section (6) and cannot be called in question.
18. At the outset, it must be noted that the Banking Act and particularly Section 10A thereof, does not deal with the subject of appointment or removal of a director generally. It merely prescribes certain qualifications for the Board of Directors as a whole. The appointment or removal of a director of a banking company, as much as any other company, is governed by the Companies Act, which is a self-contained code. The constitution of Board of Directors of a banking company is very much governed by Sections 252 to 266 of the Companies Act. The appointment of directors and proportion of those who are to retire by rotation and filling up of their vacancies, are matters governed by Sections 255 and 256 of that Act. Removal of directors of a banking company is under Section 284 of the Companies Act. Section 10A of the Banking Act makes provisions requiring the Board of Directors of a banking company to fulfill certain criteria. These provisions do not supplant or substitute the provisions of the Companies Act, but override them. What this means is that the appointments of directors, though made under the Companies Act, must be consistent with the provisions of Section 10A of the Banking Act, particularly Sub-section (2) thereof. If and to the extent they are not so consistent, the provisions of Section 10 A will have an overriding effect and will have to be followed. Not less than 51 per cent of the Board members must possess the qualifications provided in Sub-section (2). If this condition is not satisfied, Section 10 A provides for the consequences. The first of such consequences is under Sub-section (3), which mandates the Board to re-constitute itself so as to ensure that the said requirement is fulfilled. The Board shall in such a case appoint a director or directors or even remove any director/s, if necessary by retiring such director/s. Such re-constitution and any appointment or removal by the Board to achieve such re-constitution is accorded finality, if the same is 'duly' made. Whilst ''duly' making such appointment or removal, the provisions of the Companies Act, which are not inconsistent with the Banking Act (particularly, Sub-section (2) of Section 10A) shall be resorted to. That is the combined effect of Sub-sections (3), (4) and (6). The second consequence is, the Reserve Bank may issue an order in writing (after hearing the banking company) directing the banking company to re-constitute its Board. Again the banking company shall comply with these directions by appointing or removing any director/s by following the provisions of the Companies Act. If it does not so comply with the directions, the Reserve Bank may itself re-constitute the Board and remove or appoint any director/s. Such removal or appointment shall be deemed to have been duly made by the banking company itself. Such re-constitution or appointment or removal shall be final and not be called in question in any court. That is the combined effect of Sub-sections (5) and (6).
19. The scheme of the appointment and removal provisions of the Companies Act read with Section 10 A of the Banking Act, thus, implies that both provisions need to be complied with, though in case of a conflict between the two provisions, the provisions of Section 10A will have an overriding effect. For example, Section 255 of the Companies Act provides for retirement of not less than two thirds of the total number of directors of a public company by rotation and appointment thereof by a company in its annual general meeting, unless Articles provide for retirement of all directors at every annual general meeting. This provision in Section 255 (retirement and appointment of not less than two thirds) or the provision in Articles (retirement and appointment of all) would ordinarily apply so long as it is consistent with compliance of Sub-section (2) of Section 10A. To the extent of inconsistency Sub-section (2) will prevail, in which case consequences of Sub-sections (3), (4) and (5) will follow. Thus whilst retiring two-thirds or all of directors and appointing directors in their place, if the overall composition of the Board conforms with the requirements of Sub-section (2), nothing needs to be done under Section 10A. The removals and appointments are all under the Companies Act read with the Articles. But if the overall constitution does not conform with the requirements of Sub-section (2), steps will have to be taken under Sub-sections (3), (4) or (5), as the case may be. Whilst taking those steps, only those provisions of the Companies Act and Articles need to be followed which are consistent with Section 10A. As long as that is done, the re-constitution of the board and every appointment, removal made or election held therefor, is final and cannot be called into question in any court of law.
20. I am fortified in this view by a judgment of the Madras High Court in the case of T. S. Arumugham Vs. Lakshmi Vilas Bank Ltd. (1994) 80 Comp Cases Madras Page 814). In that case, the Petitioner, an employee of a scheduled bank, who was originally co-opted as a member of the board of directors of the respondent bank and subsequently elected as one of the directors by the shareholders of the bank, retired by rotation, but the general body at the annual general meeting decided not to fill up the vacancy. As a result, the vacancy caused by his retirement was not filled up. The petitioner filed a writ petition and applied for a writ of mandamus against the Reserve Bank to direct the respondent bank to fill up the vacancy. The Madras High Court held that the powers of Reserve Bank have to be exercised only under circumstances contemplated under Section 10A of the Banking Act and de hors that provision, the Reserve Bank has no authority to direct any appointment. The Court analysed the provisions of Section 10A visavis the provisions of appointment of directors under Section 256 of the Companies Act, and held as follows:
œThe company law is a self-contained code and the provisions of the company law shall be applicable to the first respondent-bank and in so far as the appointment of directors are concerned, the provisions of the Act shall prevail. Section 256 (3) of the companies Act provides that at the annual general meeting at which a director retires as aforesaid, the company may fill up the vacancy by appointing the retiring director or some other person thereto. However, in view of the fact that the provisions of the Banking Regulation Act are also applicable, such appointment of directors shall be consistent with the provisions contained under section 10 A of the Act. Even though the provisions contained under section 10 A of the Act specify the class of persons who should represent not less than two-thirds of the directors of the Company, such class of persons shall be appointed as contemplated under section 256 of the Companies Act. In other words, it may be said that the appointment of directors as contemplated under the provisions of section 256 of the Companies Act shall also consist of persons who shall have knowledge 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 agricultural and rural economy, co-operation or small-scale industry. Section 10 A of the Act further provides that where the Reserve Bank of India is of opinion that he composition of the board of directors of a banking company is such that it does not fulfill the requirements of subsection (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 such person from the office of director and with a view to complying with the provisions of sub-section (3) appoint a suitable person as a member of the board of directors, in the place of the person so removed whereupon the person so appointed shall be deemed to have been duly elected by the banking company as its director. From the above, it is manifest that if the composition of directors by the company does not fulfil the requirements of sub-section (2) of section 10A of the Act, the Reserve Bank has authority to direct them to reconstitute the board of directors so as to ensure that the requirements of the sub-section are fulfilled. In case the bank does not comply with the directions, the Reserve Bank has authority to remove the two directors and to appoint suitable persons so as to ensure that the requirement of sub-section (2) of section 10A of the Act are fulfilled.
That apart, the Reserve Bank of India has no authority to issue any direction to the banking company incorporated under the Companies Act with reference to the appointment of a person as one of the directors of the company.
The appointment of a director can be made only by following the procedure prescribed under section 256 of the Companies Act except to the extent that is provided under section 10A (4) of the Act. In the instant case, since the general body of the first respondent resolved not to fill up the vacancy caused as a result of the retirement of the writ petitioner, the Reserve Bank cannot issue any such direction unless a situation so warrants as contemplated under the provisions of section 35 A of the Act for the reason that a director could be appointed only by following the procedure prescribed under section 256 of the Companies Act.?
21. The learned Counsel for the Defendants contend that if Section 10A (6) is interpreted as only applying to appointments/removals under Section 10A (3) or (4) or (5) or only to directors who are necessary to make up the 51 % mandatory quota, a number of anomalous situations may arise. For example, assuming a bank is required to appoint only one director under Sub-section (3) so as to fulfill the requirement of Sub-section (2), i.e. 51% members of the Board possessing the stipulated qualifications, but appoints five directors who meet the qualifications in the same meeting, it would be difficult to say which of these directors comes within the 'protected' appointment under Sub-section (3). In another situation, supposing a bank elects ten directors, seven of which are specially qualified as per the requirements of Sub-section (2), there is no way of determining which directors come within the 51% of the Board members (six are required to make up 51%) and which get the protection from challenge. A further complication may arise if any vacancy in them is created before the expiry of the term and filled up. Would the person in the place of the œprotected? director get the protection or would the seventh director move one place up to become 'protected'? On the other hand, in a situation where a banking company having regard to the mandate of Sub-section (2) elects ten directors, six of whom meet the special qualifications, if one of the six resigns, a vacancy would have to be filled up under Sub-section (3). If the protection of Sub-section (6) is available only to an appointee who comes in under Sub-section (3), a peculiar situation may result “ only the additional director appointed in the place of the sixth director would be protected and not the other five.
22. A closer look at these so-called anomalous situations, in the light of the law discussed above, shows that there is nothing strange or anomalous about them. 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 re-constitution and provisions of Sub-sections (3), (4) and (5) come into play. The re-constitution 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. (In the case of appointment by the Reserve Bank under Sub-Section (5) there is a deeming fiction that the person so appointed was duly elected by the banking company as a director.) The expression 'duly made' envisages compliance with all the provisions of the Companies Act as well as Articles of the Company, which are consistent with the provisions of Section 10A, as explained above. Thus, even the 'protected' election, appointment and removal must comply with the provisions of the Companies Act and Articles which are so consistent. If not, such election, appointment or removal is open to challenge. This alone is the limited extent and meaning of the protection under Sub-section (6). Seen in this light, there is no anomaly in any of the situations suggested by the learned Counsel for the Defendants.
23. What now remains to be seen is, whether the appointments challenged in the present suit are made by the banking company under Sub-sections (3) or (4). As far as appointments of Defendant Nos. 7, 8 and 9 are concerned, in the first place, it is not the case of any of the Defendants that the appointment/s of any of them was/were by way of a re-constitution under Sub-sections (3) or (4) or for the purpose of fulfilling the requirements of Sub-section (2) of Section 10A. No evidence is led by the Defendants to that effect either. The examination-in-chief of the Group Executive Vice President and Company Secretary of Defendant No. 6 is silent on this aspect. There is no documentary evidence in this behalf either. The notices of appointment dated 17 April 2013 in the case of all three Defendants are in pursuance of Section 257 of the Companies Act and without reference to Section 10A of the Banking Act. The notice of the Ninth Annual General Meeting of Defendant No. 6 does not make any reference to Section 10A or compliance with requirements thereof. There was a poll conducted in the AGM and its result and the respective resolutions declared as passed are reflected in the minutes of meeting of the AGM. These minutes are silent on the appointments being under Sub-sections (3) or (4) or for compliance with the mandate of Sub-section (2). This applies equally to the appointments of Defendant Nos. 10 to 12, who were recommended by Defendant No. 1 and appointed by the Board of Directors purportedly in pursuance of Article 127A of Defendant No. 6. The recommendations of the HR Committee, the minutes of the Nominations and Governance Committee and the minutes of the Board of Directors of Defendant No. 6, in respect of their appointments, which are placed on record, do not indicate that these appointments were under Sub-sections (3) or (4) of Section 10A. There is, thus, no case of appointment of any of Defendant Nos. 7 to 12 being under Sub-sections (3) or (4) or having any protection of Sub-section (6).
24. Since I have come to the conclusion that these appointments were not made under Sub-sections (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 maintenability of the Suit only in the alternative, if the appointments of Defendant Nos. 7 to 12 were held to have been made under Sub-Sections (3) or (4). So also, the other questions, namely, whether the circulars of the Reserve Bank issued under Section 35 A 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.
25. It is next contended by the learned Counsel for the Defendants that the present suit, being a civil suit challenging the appointment of directors, is impliedly barred by the provisions of the Companies Act. The learned Counsel rely upon the judgments of Khetan Industries Vs. Manju Ravindraprasad (AIR 1995 Bombay Page 43), LIC Vs. Escorts (1986) 1 SCC Page 264), Kishore Y. Patil Vs. Patel Engineering (AIR 1992 Bombay Page 114), G.S. Bali Vs Babulal Jain (2000 (2) WLN Rajasthan Page 13). On the other hand, it is submitted by the learned Counsel for the Plaintiffs that the jurisdiction of the civil courts to consider a challenge to the appointment of directors is not ousted by the Companies Act. The learned Counsel relies upon the judgments of Santosh Poddar Vs. Kamalkumar Poddar (1992 (3) Bom. C.R. Page 310), Dwarka Prasad Agarwal Vs. Ramesh Chandra Agarwal (AIR 2003 SCC Page 2696), CDS Financial Services (Mauritius) Ltd. Vs. BPL Communication Pvt. Ltd. (2004) 121 Company Cases Page 374), V.N. Bhajekar Vs. K.M. Shinkar (1934) 36 Bom LR Page 483), ClaudeLila Parulekar Vs SaKal Papers (P) Ltd. (2005) 11 SCC Page 73), Satyavart Sidhantalankar Vs. The Arya Samaj (1945) 48 Bom LR Page 341), Sangramsinh P. Gaekwad Vs. Shantadevi P. Gaekwad (2005) 123 Comp Cases Supreme Court page 566), Star Tiles Works Vs. N. Govindan (AIR 1959 Kerala Page 254), Maharaja Exports Vs. Apparels Exports Promotion Council (1986) 60 Comp Cases 353 Delhi Page 361), Berar Trading Co. Ltd. Vs. Gajanan Gopalrao Dixit (1972) 42 Bom LR page 48), and Sarat Chandra Chakravarti Vs. T. Chandra Chatterjee (AIR 1924 Calcutta Page 982) in support of his contention.
26. 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. {see Dwarka Prasad Aggarwal's case (Supra)}. Where a statute does not expressly bar jurisdiction of a civil court, it is necessary to examine the particular statute and remedies provided thereunder to find out whether or not there is intendment to exclude jurisdiction. In that case it is necessary to see if the statute creates a special right or liability and provides for determination of that right or liability and further lays down that all questions about such right or liability shall be determined by the tribunals so constituted or courts so provided, and whether remedies normally associated with actions in civil courts are prescribed by the said statute or not. (See Dhulabhai Vs. State of Madhya Pradesh (AIR 1969 SC Page 78).
27. A 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 Aggrawal's Case (supra), the Supreme Court noted various High Court decisions and held that the civil court's jurisdiction is not completely ousted under the Companies Act. The Supreme Court noted the decision of the Kerala High Court in the case of R. Prakasam Vs. Shree Narayana Dharma Paripalana Vogam (50 Comp Cases Page 611), which construed Section 10 of the Companies Act. Section 10 talks about jurisdiction of 'Court'. It is to be read with the definition of 'Court' under section 2 (11) of the Companies Act. In R Prakasam's case (supra) the court observed that the Sections read together did not confer exclusive jurisdiction generally on the company court. Section 10 refers only to œthe court having jurisdiction under this Act?, i.e. where such jurisdiction is conferred by the Act, as under sections 107, 155, 163 (2), 237, 397, 425, etc. The Court held as follows:
In other words, the conferment of jurisdiction on œthe Court? is not under Section 10, but by other provisions of the Act like those enumerated above. If, on the other hand, Sections 2 (11) and 10 are construed as not only nominating the Courts, but also conferring exclusive jurisdiction on them the specific provisions in the other sections conferring jurisdiction on the court to deal with the matters covered by them will become redundant. It may be that where the Act specifies the Company Court as the Forum for complaint in respect of a particular matter, the jurisdiction of the civil Court would stand ousted to that extent. This depends, as already noticed, on the language of the particular provisions (like Sections 107, 155, 397 and others) and not on Sections 2 (11) and 10 ¦..?.
28. The Supreme Court also noted in Dwarka Prasad Agarwal's case (supra), the Delhi High Court decision in Maharaja Exports case (supra) holding as follows:
œUnlike some statutes, the Companies Act does not contain any express provision baring the jurisdiction of the ordinary civil Courts in matters covered by the provisions of the Act. In certain cases like winding-up of companies, the jurisdiction of civil Courts is impliedly barred.
Where a person objects to the election of Directors and claims a decree for declaration that he was one of the Directors, there is no provision which bars the civil Court either expressly or by implication, form trying such a suit.?
29. A Division Bench of our court in the case of Santosh Poddar (supra) laid down a similar proposition of law. In Santosh Poddar's case, the Plaintiffs had claimed a declaration that the first defendant had ceased to be a director and the Plaintiffs continued to be directors of the third defendant company. Construing the provisions of Section 2 (11) read with Section 10 of the Companies Act, the Division Bench held as follows:
From the provisions of the Companies Act we do not find anything by which we can infer that the jurisdiction of the Civil Court is ousted. The very fact that section 2 (11) is part of the definition clause under the Companies Act under which a Court is defined to mean the Court as prescribed under section 10 clearly shows that whenever the term 'the Court' is used in any section of the Companies Act, the term œCourt' will have to be interpreted with reference to Section 10. These sections will have no application where any general civil suit is filed. The definition clause is attracted only when resort is had to a proceeding under the Companies Act under a section which prescribes resort to a Court. Under the Companies Act powers are conferred not only on Court but also on other authorities like the Company Law Board, the Central Government and the Registrar. Where a power is vested by the Act in a Court, that Court has to be ascertained with reference to section 10. Beyond so specifying the Court competent to deal with such a matter, section 10 cannot be construed as investing the Company Court with jurisdiction over every matter which may arise in respect of a Company or as divesting Civil Courts of their jurisdiction.
In the present case although the irregularities in holding meetings or the holding or cesation of the office of a Director may have to be decided with reference to the Companies Act, that Act has not prescribed a forum where such a relief can be sought. In the absence of such prescription, the ordinary Civil Courts are competent to deal with such disputes. Hence the present suits were correctly filed originally in the City Civil Court.?
30. Another Division Bench of our Court in the case of CDS Financial Services case (supra), whilst deciding on the jurisdiction of a civil court to deal with a suit by minority shareholders against oppression and mismanagement, considered the dicta of the Supreme Court in Dhulabhai's case (supra) and in Ram Kumar Bhargava Vs. Union of India (AIR 1988 SC Page 752) regarding the principles of ousting of jurisdiction, and held as follows:
œFrom the above two decisions of the Supreme Court, it is clear that when there is no express provision excluding jurisdiction of the civil courts, such exclusion can be implied only in cases where a right itself is created and the machinery for enforcement of such right is also provided by the statute. If the right is traceable to general law of contract or it is a common law right, it can be enforced through civil court, even though the forum under the statute also will have jurisdiction to enforce that right. There is a plethora of decisions of the various High Courts including the decisions of the High Courts of Kerala, Andhra Pradesh, Madras, Punjab and Haryana, and Calcutta in favour of the view that these sections 397, 398 and 408 do not confer exclusive jurisdiction on the company court to grant reliefs against oppression and mismanagement. The scope of these sections is to provide a convenient remedy for minority shareholders under certain conditions and the provisions therein are not intended to exclude all other remedies. The suits by minority shareholders against oppression and mismanagement, have been time-honoured exception to the rule in Foss V. Harbottle (1843) 2 Hare 461) and in the absence of words expressly or impliedly barring them it cannot be said that sections 397, 398 and 408 of the Companies Act exclude jurisdiction of the ordinary courts.?
31. The Calcutta, Delhi and Kerala High Courts have also (in the cases noted above) held that in respect of matters provided under the Companies Act, the jurisdiction of civil courts is not taken away unless such jurisdiction is impliedly excluded in respect of any particular matter.
32. In the present case, we are dealing with appointments of directors which are alleged by the Plaintiffs to be ultra virus 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.
33. The judgment of a learned Single Judge of our Court in the case of Khetan Industries (supra), relied upon by the learned Counsel for the Defendants, considered the shareholders' rights to remove a director. The reliefs sought were to œremove the defendant nos. 3, 6 and 7 from the post of Directors? and œto appoint some other fit and proper persons as Directors?. This Court held that the scheme of the Act provided a detailed procedure for removal of directors and the matter being of internal management of the Company, a civil court could not interfere with it. Having regard to the law laid down by the Supreme court and reiterated by at least two Division Benches of our Court, as noted above, the proposition of law, rather broadly stated, in Khetan Industries' case ought to be read down in the context of that particular case and the reliefs claimed therein. It may, however, be noticed that even in Khetan Industries' case, the learned Single Judge noted the exceptions to the rule of internal management noted in Foss Vs. Harbottle (1843 2 Hare Page 461)which include œ an act which is ultra virus the company or illegal? and came to the conclusion that the case did not fall within these known exceptions. The other judgment of the learned Single Judge in the case of Patel Engineering Co. Ltd. (supra) considered whether the civil court or the Company Court has an inherent power to convene or conduct a company meeting by appointing a chairman or otherwise. The Court held that whilst Rule 9 of the Companies (Court) Rules can be invoked by the Company Court only under one or the other substantive provision of the Companies Act, the Civil Court cannot intervene to conduct a company meeting not in the manner prescribed by the Act or by the Articles of Association or override the same in exercise of its inherent powers. That case has no application to the facts of our case. The judgment of Rajasthan High Court in the case of G.S. Bali (supra), where the court refused to interfere with a decision of the trial court refusing to grant injunction to a director of the company who had grievances against other directors, was delivered on an interlocutory application and on a prima facie view of the law and facts of that case. The judgment does not contain any precedent for this court to follow.
34. In the result, the jurisdiction of this Court to entertain a challenge to the appointment of Defendant Nos. 7 to 12 as directors is not impliedly barred under the Companies Act.
35. 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.
36. The Notice of Motion may now be taken up by the Court for considering grant of interim relief to the Plaintiffs.