K.M.Madhusoodanan vs Reserve Bank Of India

P.B.SURESH KUMAR, J.

W.P.(C) 19758 of 2021

Admit.

Adv. Santhosh Mathew takes notice for respondent Nos. 2, 3, 8 and 9. Issue notice by speed post returnable in ten days to respondent Nos.1 and 4 to 7.

W.P.(C) No.20425 of 2021

Admit.

Adv. Santhosh Mathew takes notice for respondent Nos.2, 3, 9 and 10. Issue notice by speed post returnable in ten days to respondent Nos.1, 4 to 8 and 11 to 14.

Heard the learned Senior Counsel for the petitioners in the writ petitions and the learned counsel for the common respondents 2 and 3 in the writ petitions on the prayer for interim order.

Parties and documents are referred to in this order, unless otherwise mentioned, as they appear in W.P.(C) No.19758 of 2021.

The matters relate to the affairs of M/s Dhanlaxmi Bank Ltd. (the Bank), a listed private sector banking company incorporated under the Companies Act, 1956. The first petitioner is a shareholder of the Bank. It is stated that the Nomination and Remuneration Committee (the NRC) of the Bank constituted in terms of Section 178 of the Companies Act, 2013 (the Act), after conducting due diligence, has recommended to the Board of Directors of the Bank (the Board) to appoint petitioners 2 and 3 as the Directors of the Bank. It is the case of the petitioners that once the NRC of the Bank makes a recommendation, it is obligatory on the part of the Board to place the recommendation before the General Meeting of the Bank for appropriate decision. It is stated that since the Board has not acted upon the recommendation of the NRC to appoint petitioners 2 and 3 as Directors, they have given notice under Section 160 of the Act signifying their candidature as Directors of the Bank. The first petitioner also, in the meanwhile, gave notice under Section 160 of the Act signifying his candidature as a Director of the Bank. It is stated that it is obligatory on the part of the Board to place the notice given by the petitioners in the General Meeting of the Bank in terms of Section 160 of the Act. It is alleged by the petitioners that the Annual General Meeting of the Bank is scheduled to take place on 29.09.2021 and the petitioners are now informed that the Board has decided on 20.09.2021 not to place the notices issued by the petitioners under Section 160 of the Act in the ensuing Annual General Meeting of the bank or any adjournment thereof. Ext.P3 is the communication issued by the Secretary to the Board of the Bank to the first petitioner. The petitioners, in the circumstances, seek, among others, directions to respondents 2, 3 and 8 to place the notices issued by them under Section 160 of the Act, signifying their candidature as Directors of the Bank in the ensuing Annual General Meeting as provided for under Section 160 of the Act.

The petitioner in W.P.(C) No.20425 of 2021 is a former Director of the Bank. It is stated by the petitioner that since the NRC of the Bank has decided not to recommend his name for reappointment as Director of the Bank, he too gave notice signifying his candidature as Director of the Bank as provided for under Section 160 of the Act. It is alleged that he was also issued a communication by the Secretary to the Board informing that the Board has decided on 20.09.2021 not to place the notice issued by him under Section 160 of the Act in the ensuing Annual General Meeting of the bank or any adjournment thereof. Ext.P3 is the communication issued by the Secretary to the Board of the Bank to the petitioner. The petitioner seeks, among others, orders in the said writ petition quashing Ext.P3 communication.

In both the writ petitions, the petitioners pray 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, the petitioners also pray for a direction to the Bank to refrain from conducting the Annual General Meeting scheduled on 29.09.2021.

The learned Senior Counsel for the petitioners pressed for the interim order sought by the petitioners, pointing out that once notice in terms of Section 160 of the Act is given in accordance with the provisions therein, it is obligatory on the part of the Board to place the notice signifying their candidature as Directors of the Bank in the ensuing General Meeting of the Bank and the Board has no discretion to refuse to place the notice in the General Meeting. According to the learned Senior Counsel, the decision of the Board to refuse to place the notice issued by the petitioners in the Annual General Meeting is in negation of the said statutory provision which is intended to protect the interests of the shareholders of the Bank.

While the petitioners in W.P.(C) No.19758 of 2021 confine their relief mainly to a direction to the Bank to place the notice issued by them signifying their candidature as Directors of the Bank in the ensuing Annual General Meeting, the petitioner in W.P.(C) No.20425 of 2021 seeks larger reliefs concerning the governance of the Bank. In the context of the said larger reliefs, the learned Senior Counsel for the petitioner in W.P.(C) No.20425 of 2021 has submitted, placing reliance on the communication issued by the Reserve Bank of India to the Bank on 03.06.2021 that the Bank has had a chequered history on the governance issues, forcing the Reserve Bank to intervene at regular intervals. It was also submitted by the learned Senior Counsel that there are adverse reports concerning the functioning of the Board and Committees of the Bank, especially regarding lack of transparency in the selection of Directors by the NRC. It was pointed out by the learned Senior Counsel that the Bank was, therefore, advised by the Reserve Bank to ensure transparency in the nomination process and follow best corporate governance practices. It was also submitted by the learned Senior Counsel that in the circumstances, in terms of the said communication, the Reserve Bank has directed the Bank to expedite and complete the process of appointment of Directors in accordance with the best governance standards. It was also submitted that though the direction issued by the Reserve Bank dated 03.06.2021 has been considered by the Board and a decision was taken to expedite and complete the process of appointment of Directors by 31.07.2021, the Bank is yet to comply with the direction of the Reserve Bank and it is in the aforesaid background that the writ petitions have been filed.

The learned counsel for the Bank opposed the prayer of the petitioners for the interim order, pointing out that the writ petitions are not maintainable. It was argued by the learned counsel that the Bank being a private bank and not a statutory body or an instrumentality or an agency of the Government, it is not amenable to the writ jurisdiction of this Court. It was also pointed out by the learned counsel that the Bank is not one running on Government funding and its shareholding is held by private individuals. It was also submitted that the Bank does not discharge any statutory duty or public duty or positive obligation of public nature. It was also submitted by the learned counsel that the writ petitions do not contain any public law element to warrant invocation of the writ jurisdiction of this Court against the Bank and that the grievance raised by the petitioners in the writ petitions is purely private in nature. 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. In order to bring home the said contention, the learned counsel for the Bank has placed reliance on the decision of the Apex Court in Federal Bank Ltd. v. Sagar Thomas and Others, (2003) 10 SCC 733. The learned counsel has also relied on a Bench decision of this Court in Sulochana Gupta and Another v. RBG Enterprises Private Ltd., 2020 SCC Online Ker 4153. The learned counsel has also argued that the petitioners have effective alternative remedies for redressal of their grievances elsewhere and there is no pleading in the writ petition as to why they have not invoked the alternative remedies available to them.

The learned Senior Counsel for the petitioners took strong exception to the submission made by the learned counsel for the Bank that the writ petitions are not maintainable. Placing reliance on the decision of the Apex Court in Sagar Thomas relied on by the learned counsel for the Bank, the learned Senior Counsel for the petitioner in W.P.(C) No.20425 of 2021 submitted that even private bodies are amenable to the writ jurisdiction, in cases where it is necessary to compel such private bodies to enforce any statutory obligation or such obligations of public nature casting positive obligation upon them. According to the learned Senior Counsel, though the Bank is a private body, the cases on hand are cases where it is necessary to compel the Bank to enforce its statutory obligation as also obligations of public nature.

As regards the contention raised by the learned counsel for the Bank as to the maintainability of the writ petition, it is to be mentioned that it is now trite that a writ petition can be entertained even against a private body when it becomes necessary to compel such body to enforce any statutory obligation or such obligations of public nature. The said proposition has been reiterated by the Apex Court in Sagar Thomas also. Though a counter affidavit has been filed by the Bank in W.P.(C) No.19758 of 2021, the Bank does not have a case in the counter affidavit that it is not obliged to place the notices given by the petitioners in terms of Section 160 of the Act before the General Meeting. 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 communication issued by the Reserve Bank of India in this regard dated 03.06.2021 is part of the records. In the light of the provision contained in Section 35A of the Banking Regulation Act, 1949, the communication aforesaid can only be construed as one issued in public interest. In other words, the writ petitions are instituted for enforcing obligations of public nature as well. I do not, therefore, find any substance prima facie, in the contention raised by the learned counsel for the Bank as to the maintainability of the writ petitions.

In the light of the discussion aforesaid, having regard to the peculiar facts of this case, I deem it appropriate to pass an interim order directing the Bank to refrain from concluding the Annual General Meeting scheduled for today. Ordered accordingly. It is made clear that this order will not preclude the Bank from transacting the businesses included in the agenda for the meeting. Needless to say that after transacting the businesses included in the agenda for the meeting, the meeting shall be adjourned to a day after one month. The Bank would be free to issue appropriate communication to the Securities and Exchange Board of India concerning the businesses transacted in the Annual General Meeting.