Sitaram Singhania vs State of Orissa and Others

R.N. Misra, J.—This application under Articles 226 & 227 of the Constitution of India asks for a writ of certiorari to quash the order made

by opposite party No. 4, the referee under Regulation 37 (2) of the Orissa State Financial Corporation, General Regulations in an election dispute.

The material facts may be given in brief. The Orissa State Financial Corporation (opposite party No. 2) has been established under the State

Financial Corporation Act (63 of 19511 (hereinafter referred to as the Act). Section 4(3) of the Act provides that the shares of the Corporation

are to be distributed among;

(a) the State Government;

(b) the Reserve Bank;

(c) Scheduled banks. Insurance Companies; investment trusts, co-operative banks or other financial institutions; and

(d) parties other than those referred to in clauses (a), (b) and (c)

as the State Government with the approval of the Central Government would direct. The petitioner who is an individual and opposite party No. 5

which is a company incorporated under the Companies Act are admittedly share-holders of the category under Clause (d). The Corporation

(opposite party No. 2) has a Board of Directors as envisaged u/s 10 of the Act. It has a total strength of ten members. The directors are of three

categories. The Managing Director is appointed by the State Government in consultation with the Reserve Bank. There are three classes of

nominated directors, (i) three to be nominated by the State Government; (ii) one to be nominated by the Reserve Bank; and (iii) one by the

Industrial Financial Corporation of India. The remaining four directors are of elected category. Of them three are elected in the prescribed manner

by the parties referred to in Clause (c) of Sub-section (3) of S. 4 and one is elected in the prescribed manner from among themselves by the

parties referred to in Clause (d) of Sub-section (3) of Section 4 of the Act. The last category is in terms of Section 10(e) of the Act.

When a vacancy arose in the Board of Directors for the category u/s 10(e) of the Act election took place. Opposite Party No. 3 is admittedly

not a share-holder in his personal capacity representing opposite party No. 5, the company, a share-bolder, stood as a candidate and got elected.

The petitioner disputed the eligibility of opposite party No. 3 to represent in the Board the category of share-holders within the meaning of Section

4(3)(d) of the Act.

Under the provisions of the Act a set of rules have been made by the State Government known as the Orissa State Financial Corporation (Voting

Rights) Rules. 1956 incorporating exercise of powers vested u/s 47 of the Act. The Board of Directors of the Corporation in exercise of powers

vested u/s 48 of the Act have framed a set of Regulations. When the election dispute was raised, the State Government in terms of Regulation 37

appointed as referee opposite party No. 4 and the said referee by his decision, now impugned by this petition, held that the election dispute was

liable to be dismissed. The present writ petition challenges the decision of the referee and asks us to quash it. We are also required to Pass

consequential directions and orders.

Mr. Roy for the petitioner reiterates before us that opposite party No. 3 not being a share-holder of the Corporation did not have the basic

qualification to represent the body of shareholders contemplated u/s 4(3)(d) of the Act and as a nominee of a share-holder-company opposite

party No. 3 was not entitled to be in the Board of Directors of the Corporation.

Opposite parties 3 and 5 who mainly contest this proceeding challenge this stand of the petitioner and contend that the election has been rightly

held and there is no merit in the writ petition.

The real question which requires determination in this case is as to whether opposite party No. 3 who is admittedly not a share-holder of the

Corporation is entitled to represent the body of share-holders of the Corporation within the meaning of Section 4(3)(d) of the Act as

representative of a share-holder company. Section 10(e) is to the following effect:

The Board of directors shall consist of the following, namely-

x x x x x

(e) one director elected in the prescribed manner from among themselves by the parties referred to in Clause (d) of Sub-section (3) of Section 4

who are share-holders of the Financial Corporation.

The true meaning of the aforesaid provision seems to be that from among the share-holders of the Corporation coming within the category of

Section 4(3)(d) of the Act, one director shall be nominated from among themselves. Mr. Roy contends that the use of the words ''from among

themselves'' leaves no room for doubt that the person to be elected must himself be a share-holder. Mr. Mohanty for the contesting opposite

parties contends that as the Company is a shareholder and the Company as such cannot be in the Board of Directors, it can only be represented

by a duly authorised nominee of the Company. Opposite Party No. 3 answers that requirement and as such there can be no objection against his

election. This aspect of the matter requires closer examination as the fate of the petition depends upon the correct conclusion on this facet of the

dispute.

There is no dispute at the Bar that a company can be the share-holder in the Corporation u/s 4(3)(d) of the Act. Mr. Roy. however, contends

that a director u/s 10(e) of the Act must have been a share-holder himself and according to him opposite Party No. 3 not being a share-holder was

not eligible to be chosen as a director. u/s 253 of the Companies Act (1 of 1956) a body corporate is not entitled to be appointed as a director

and only an individual can be so appointed. S. 616 of the Companies Act in Clause (d) provides-

The provisions of this Act shall apply:--

x x x x x

(d) to any other company governed by any special Act for the time being ill force, except in so far as the said provisions are inconsistent with the

provisions of such Act.

There is no dispute that a Corporation set up under the Act is essentially a company as denned under the Companies Act and in the absence of

any inconsistency. in terms of Section 616(d) of the Act, the prohibition u/s 253 of the Companies Act would apply for the purposes of the

Corporation. Section 46B of the Act which was incorporated by an amendment with effect from 1-10-1956 provides :

The provisions of this Act and of any rules or orders made thereunder shall have effect notwithstanding anything inconsistent therewith contained in

any other law for the time being in force or in the memorandum or articles of association of an industrial concern or in any other instrument having

effect by virtue of any law other than this Act, but save as aforesaid, the provisions of this Act shall be in addition to, and not in derogation of any

other law for the time being applicable to an industrial concern.

It thus appears clear that the bar u/s 253 of the Companies Act is saved and extended to the Corporation by Section 46-B.

If a Corporation is appointed director it will certainly lead to a lot of inconvenience. Mr. Roy concedes that the provision u/s 253 of the

Companies Act was new and seems to have been adopted out of experience. There is nothing in Section 10(e) which compels us to take a

different view. We are, therefore, inclined to accept the contention of Mr. Mohanty that in the scheme u/s 10(e) of the Act, the reference to a

director Is to an individual and not to a body corporate.

The referee has found that the authorisation of opposite party No. 3 on behalf of opposite party No. 5 is in order.

Mr. Roy does not challenge that finding. It would, therefore, follow that once it is found that the director under S. 10(e) for the Corporation is

necessarily an individual and not a company, in view of absence of challenge in the method of authorisation, we must accept opposite party No. 3

as duly authorised on behalf of opposite party No. 5.

It is quite possible that the category of share-holders under S. 4(3)(d) of the Act may be only companies. In that event, if we accept the

contention of Mr. Roy, there would be no scope for the companies to be represented u/s 10(e) of the Act. We would accordingly not adopt such

an interpretation which will render the scheme in the Act unworkable.

The only conclusion on the basis of the aforesaid discussion is that the decision reached by the referee is in accordance with law and is not

open to challenge. We decline to interfere in the matter. The writ petition stands dismissed. We would, however, direct both Parties to bear their

own costs.

Panda, J.

I agree.