Case: Snowcem India Limited &amp; Others Vs. Union of India &amp; Others

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 or has failed to repay its deposit or interest or redeem its debentures on due date or pay dividend.14.We have heard learned counsel for the parties at some length regarding validity and legality of the said 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, 1956.15.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 these small investors do not receive either the principal or interest and consequently, their children may not be provided education and/or medical treatment affecting their families fundamental rights guaranteed under article 21 of the Constitution. Therefore, if at all there is violation of article 21, it is the violation of fundamental right under article 21 of the children and their parents.16.Similarly, we are unable to comprehend how the amendment of section 274(1)(g) violates the petitioners fundamental rights guaranteed under article 19(1)(g) of the Constitution. This amendment does not debar the petitioners from carrying on any business, trade or occupation, only that the persons have been rendered incapable of becoming directors in other companies. Perhaps, this amendment became imperative in view of a large number 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.17.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.18.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 the company; it is only the directors that are rendered incapable of functioning as directors for certain period. The amendment has been carried out primarily to ensure that directors of the company should discharge their obligation properly. They should be more vigilant and careful and ensure that investors do not lose their lifetime savings.19.This would also, to some extent, ensure that the directors should not take loan and see that no loan, more than their liability to repay, is taken.20.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.21.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 boards of assisted companies, etc.22.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.23.The petitioners have placed reliance on the judgment of the Calcutta High Court in Writ Petition No. 199 of 2003 in Duncan Industries Ltd. The court passed ad interim order because the bondholders gave their consent for restructuring of the repayment schedule and the Ministry of Finance also gave their approval for restructuring the repayment schedule and extended time to make payment to the bondholders till December 31, 2010. The facts of that case are not applicable to the facts of the present case.24.It may be pertinent to mention that this Court in Cricket Club of India Ltd. v. Madhav L. Apte 1975 (45) Comp Cas 574, by the judgment dated August 30, 1974, had upheld the provisions of section 274(3) of the Companies Act, 1956.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]14.We have heard learned counsel for the parties at some length regarding validity and legality of the said 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, 1956.15.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 these small investors do not receive either the principal or interest and consequently, their children may not be provided education and/or medical treatment affecting their families fundamental rights guaranteed under article 21 of the Constitution. Therefore, if at all there is violation of article 21, it is the violation of fundamental right under article 21 of the children and their parents.16.Similarly, we are unable to comprehend how the amendment of section 274(1)(g) violates the petitioners fundamental rights guaranteed under article 19(1)(g) of the Constitution. This amendment does not debar the petitioners from carrying on any business, trade or occupation, only that the persons have been rendered incapable of becoming directors in other companies. Perhaps, this amendment became imperative in view of a large number 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.17.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 anysee no force in the submission of the petitioners that the section does not make any discrimination between director andor executive anddirector. Once any person becomes a director, it is his primary duty to ensure that there is proper governance and investors money is protected.21.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 thedirectors 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 boards of assisted companies, etc.22.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.23.The petitioners have placed reliance on the judgment of the Calcutta High Court in Writ Petition No. 199 of 2003 in Duncan Industries Ltd. The court passed ad interim order because the bondholders gave their consent for restructuring of the repayment schedule and the Ministry of Finance also gave their approval for restructuring the repayment schedule and extended time to make payment to the bondholders till December 31, 2010. The facts of that case are not applicable to the facts of the present case.