Andhra Pradesh High Court - Amravati
Kuchipudi Srinivasa Rao, vs The State Of Andhra Pradesh, on 5 January, 2023
Bench: M.Ganga Rao, V Srinivas
HONOURABLE SRI JUSTICE M. GANGA RAO
AND
HONOURABLE SRI JUSTICE V. SRINIVAS
Writ Petition No.27894 of 2022
ORDER: :(order as per Hon'ble Justice M.Ganga Rao,J)
The petitioners three in number are the Directors of the
Minority shareholders of the 2nd respondent - Andhra Pradesh
Heavy Machinery & Engineering Limited filed this writ petition to
issue a writ of mandamus declaring the action of the 2nd
respondent in carrying out the amendment to Article 101 (3) of the
Articles of Association of the 2nd respondent company proposing to
reduce the number of Directors representing the minority
shareholders other than Singareni Collieries Company Limited -
the 3rd respondent and Andhra Pradesh Industrial Development
Corporation - the 4th respondent from three (3) Directors to one (1)
Director even before bifurcation of the 2nd respondent company
which is included in the IXth Schedule Institutions under the
Andhra Pradesh Reorganization Act, 2014 vide Extraordinary
General meeting scheduled to be held on 05.09.2022 as being
illegal, arbitrary, violative of the provisions of Section 53 and 68 of
the A.P. Reorganization Act, 2014 and in violation of the Expert
Committee Report headed by Dr.Sheela Bhide, IAS dated
15.3.2018 and consequently to set aside the proposal to amend
the Article 101 (3) of the Articles of Association of the 2nd
respondent company to reduce the number of Directors
representing other than SCCL (3rd respondent ) and A.P.Industrial
Development Corporation (4th respondent) from three (3) to one (1)
as illegal.
2. The case of the petitioner is that the Andhra Pradesh Heavy
Machinery Engineering Limited (for brevity 'APHMEL') was
established on 01st September, 1976 as a subsidiary unit of
Andhra Pradesh Industrial Development Corporation (for brevity
'APIDC'), a Government of Andhra Pradesh undertaking. The land
for the establishment of the said company was acquired from the
local farmers of Kondapalli. They were promised of employment in
the company so established as well as industrial development in
the region. Initially, the share capital was collected from the local
farmers also and allotted shares to approximately 42,000
residents of Krishna District where the company is located.
Subsequently, the 2nd respondent company was registered as a
'sick industrial undertaking' by Board of Industrial and Financial
Reconstruction (BIFR), New Delhi under BIFR Case No.627/1992
As part of the reviving sick industrial undertaking, the 1st
respondent State Government among other reliefs, has sanctioned
transfer of shares of the APHMEL - 2nd respondent vide
G.O.Ms.No.201 Industries & Commerce (IFR-I) Department dated
21.8.1997. In view of transfer of shares as per G.O.Ms.No.201
dated 21.8.1997, the 3rd respondent SCC Ltd., has become major
share holder and took over the 2nd respondent company as its
subsidiary company. Accordingly, the composition of Board of
Directors has been approved by the amendment of Articles of
Association of the company while transferring majority
shareholding to the SCC Ltd., to protect the interest and rights of
the minority shareholders. The share capital of the 2nd
respondent company is R.17.27 crores.
3. As per the provisions of the Andhra Pradesh Reorganization
Act, 2014, the 2nd respondent company was included at Sl.No.34
in the IXth schedule to the A.P. Reorganization Act, 2014. The
procedure for apportionment of the assets and liabilities of the
State owned company such as the 2nd respondent company has to
be taken up in accordance with the provisions of Section 53 and
68 of the Reorganization Act, 2014. As per the said provisions,
the 1st respondent Government constituted an Expert Committee
vide G.O.Ms.No.223 dated 30.5.2014 for demerger of the
Government Corporations and companies in IXth Schedule of A.P.
Reorganization Act. The Committee submitted its report on
03.03.2018.
4. The 2nd respondent company after deliberations regarding its
demerger first came up in the Board meeting held on 22.12.2016
and the same issue was taken up in detail during 205th Board
meeting held on 18.01.2017. The SCCL which is the major
shareholder in the 2nd respondent Company was represented by
five (5) Directors, APIDC was represented by one (1) Director and
other public shareholders were represented by three (3) Directors
and in the said meeting the proposal submitted were approved
with 5 : 4 majority. The above said proposal was placed before the
Expert Committee for demerger as approved in the Board meeting.
The petitioners along with Directors of APIDC having informed the
Expert Committee that they opposed the above proposal in the
Board meeting held on 18.1.2017 on the ground that the 2nd
respondent company which is included in IXth Schedule to A.P.
Reorganization Act, 2014 should be entirely allotted to the State of
Andhra Pradesh as per the Section 53 of the A.P. Reorganization
Act, 2014, since all its assets are located in the Residuary State of
Andhra Pradesh.
5. Pursuant to the above Board meeting, Extraordinary General
Meeting of the 2nd respondent company was convened on
25.3.2017 at 4.00 PM at Singareni Women's Degree College,
Kothagudem. On 25.3.2017, there was no sufficient quorum for
conducting the Extraordinary General Meeting and it was
adjourned to 01.04.2017. In the Extraordinary General Meeting
conducted on 01.04.2017, it was resolved to confirm that APHMF
continues as a subsidiary to SCCL by virtue of holding 81.54% of
the total equity share capital under Section 2 sub section 87 (i) of
the Companies Act, 2013 even after bifurcation of the State of
Andhra Pradesh under the A.P. Reorganization Act, 2014. The 2nd
respondent has placed the above proposal before the Expert
Committee on 19.4.2017 for its approval and recommendation.
The Director representing APIDC and Directors representing the
other public shareholders other than SCCL have opposed the said
proposal and requested the Committee that the 2nd respondent
Company should be allotted to the State of Andhra Pradesh in its
entirety, since the registered office and factory are situated in
Kondapalli, Krishna District of Andhra Pradesh. It was also
brought to the notice of the Expert Committee that the reason for
conducting the Extraordinary General Meeting at Kothagudem
was to avoid participation of private shareholders, who are nearly
42,000 members in number and who are residing in and around
Krishna District.
6. The 2nd respondent company again conducted a Board
meeting on 04.09.2017 for approval of demerger proposal and the
same was placed before the Expert Committee for its approval on
31.01.2018. The Expert Committee after examining all the
aspects submitted the recommendation. The 2nd respondent
company without considering the recommendations of the Expert
Committee and bifurcation of the 2nd respondent company as per
the procedure under the provisions of A.P. Reorganization Act,
2014 issued the impugned notice dated 23.6.2022 intimating the
conduct of the Board of Directors meeting to be held on
30.6.2022. In the said meeting, one of the subjects was to make
amendments to the Memorandum of Articles of Association of the
2nd respondent company. The main amendment which is being
proposed was amendment to Article 101 (3) of the Articles of
Association. The existing and proposed clause under Article 101
(3) is as follows:
Existing clause Proposed clause
Article 101 (3) - Subject to the Article 101 (3) - Subject to the
provisions of the Act, so long as provisions of the Act, so long as
the SCCL and their successors the SCCL and their successors
and APIDC and their successors and APIDC and their successors
continue to hold the highest continue to hold the highest
and second highest amount of and second highest amount of
the paid-up share capital the paid-up share capital
respectively among all the respectively among all the
shareholders, 3 (three) Directors shareholders, the shareholders
shall be elected, who shall be other than SCCL and APIDC
liable to retire by rotation, by have the right to nominate for
the shareholders other than appointment of 1 (one) Director,
SCCL and APIDC who shall be liable to retire by
rotation.
The proposed change is contrary to the provisions of Section 53
and 68 of the A.P. Reorganization Act, 2014 and the Expert
Committee report.
7. The 2nd respondent filed its counter stating that the Board of
Directors in its 226th meeting held on 12.03.2022 has apprised for
alteration of the present articles of association of the company
prepared at the time of the incorporation in accordance with the
provisions of the Companies Act, 1956 and some amendments
were made to it from time to time as per the need. Now in view of
the Companies Act, 2013, which has replaced the Companies Act,
1956 and the existing Articles of Association needs to be amended
to brought the same in line with the provisions of the Companies
Act, 2013 and there are some inconsistencies which needs to be
removed. The Board in its 227th meeting held on 30.6.2022
recommended the proposal to make the consequential changes
removing the inconsistencies and bringing the Articles of
Association of the Companies in line with the provisions of the
Companies Act, 2013 for sanction of Members in the
Extraordinary General Meeting through Special Resolution in
accordance with the provisions of Section 14 and other applicable
provisions of the Companies Act, 2013. As per the Board
Resolution, the action of convening the Extraordinary General
Meeting on 05.09.2022 was initiated and accordingly, notice of
Extraordinary General Meeting was issued intimating the date of
the schedule of meeting on Monday i.e., 5th day of September,
2022 at 3.00 P.M through video conferencing (VC)/Other Audio
Visual Means (OAVM) for which purpose the Registered Office of
the Company shall be deemed to be the venue and the
proceedings of the extraordinary general meeting shall be deemed
be made there at, to transact the following business:
"Special business: Item No.1
To alter Memorandum of Association of the Company to
replace the sections of Companies Act 1956 with the new
sections in the Companies Act, 2013:
To consider and if thought fit, to pass the following
resolution as Special Resolution:
"Resolved that pursuant to the provisions of Section 13
and other applicable provisions of the Companies Act
2013, the sanction be and is hereby accorded for altering
the Memorandum of Association of the Company as
brought out in Annexure 1 to the Notice for replacing the
sections of Companies Act 1956 with the new sections of
the Companies Act, 2013".
Item No.2
To alter, removing inconsistencies and bringing Articles of
Association of Company in line with the Companies Act
2013:
To consider and if thought fit, to pass the following
resolution as Special Resolution:
"Resolved that pursuant to the provisions of Section 14
and other applicable provisions of the Companies Act
2013, the sanction be and is hereby accorded for
alteration of the Articles of Association of the Company as
brought out in Annexure 2 to the Notice for effecting
consequential changes, removing inconsistencies and
bringing Articles of Association of the Company in line
with the Companies Act 2013".
8. The 2nd respondent/Company is fully empowered to alter the
articles of association, including composition of Board of Directors
with the approval of the General Body Meeting. The proposal
being moved is no way affects the rights of the minority
shareholders as it is only to bring the power of nomination of
Directors on the Board apportioned to the share holding and to
bring the strength of the Board of Directors to the level of
functioning of the Company. The alteration of the articles of
association of the 2nd respondent Company by exercising the
power under the provisions of Article 14 of the Companies Act,
much less, altering the composition of the Board of Directors does
not amount to violation of Expert Committee Report. The Expert
Committee under the A.P. Reorganization Act, 2014 nor any order
from the Ministry of Home or Corporation Affairs
restrict/bar/embargo of such proposal. The petitioner's Directors
are elected/nominated by the minority shareholders having 11.84
value of shareholding in the 2nd respondent Company to appoint
three (3) Directors. As per the shareholding, they are entitled only
one (1) Director. As per Clause 101 (3) of the Articles of
Association of the 2nd respondent Company, they are entitled to
nominate three (3) Directors which is more their weightage as per
the shareholding ratio, but whereas the SCC Ltd., has 82%
shareholding and has power to appoint only five (5) Directors on
the Board. The total strength of the 2nd respondent Board is ten
(10) as per the provisions of the Companies Act. The highest
shareholder have control over the company and it is the basic
fundamental issue for the organization of the company under the
Companies Act. The proposal is not for depriving the shareholders
other than SCC Ltd., and APIDC. The other
shareholders/minority shareholders are entitled to nominate one
(1) Director as per their shareholding ratio. The alteration of
composition of the Board of Directors does not amount to violation
of the Expert Committee Report nor provisions of the A.P.
Reorganization Act, 2014.
9. The writ petition is not maintainable as cause of action of
altering the proposed articles of association or to reconstitute
Board of Directors is taken by the 2nd respondent Company by
exercising the powers under Section 14 of the Companies Act,
2013 and the remedy is before the National Company Law
Tribunal. Hence, the writ petition is not maintainable. The writ
petition is devoid of merits and is liable to be dismissed.
10. On considering the pleadings and submissions of the
counsel, the points that arise for consideration of this Court is
thus:
(1) Whether the 2nd respondent's action by way of impugned
notice to alter the Articles of Association of the 2nd
respondent Company to reduce the composition of Board
of Directors of the Company by exercising the power
under Section 14 of the Companies Act, 2013, would
violate the provisions of the Section 53 and 68 of the A.P.
Reorganization Act, 2014;
(2) Whether the writ petition is maintainable before this
Court when the alternative remedy is provided under the
provisions of Section 101 of the Companies Act, 2013
before the National Company Law Tribunal.
11. Point No.1:
We, having considered the facts and circumstances of the
case, submissions of the counsel and perused the record placed
before this court that the 2nd respondent Company was
established on 01.09.1976 as a subsidiary unit of APIDC, a
Government of Andhra Pradesh undertaking at Kondapalli of
Andhra Pradesh. Approximately, about 42,000 shares were
allotted to the local farmers (appears to be in lieu of land
acquisition compensation) and residents of the Krishna District,
where the Company is functioning. Subsequently, the 2nd
respondent Company went on liquidation, on which 2nd
respondent was registered with Sick Industrial Undertaking with
the Board of Industrial Financial Reconstruction (BIFR), New Delhi
vide BIFR.Case No.627/1992. As a part of revival of sick
industrial undertaking, the 1st respondent Government has
authorized the 2nd respondent Company, to transfer the shares of
the 2nd respondent as per G.O.Ms.No.201 dated 21.8.1997 which
is as follows:
"(viii) to transfer the existing shares of face value of
Rs.362.50 lakhs as well as an amount of Rs.127.77 lakhs
(totaling to Rs.490.27 lakhs) to be converted as Andhra
Pradesh Industrial Development Corporation (APIDC)
equity in Andhra Pradesh Heavy Machinery & Engineering
Ltd and transfer the shares to Singareni Collieries
Company Ltd at a nominal price of Rs.1/-(one) and to
adjust the balance consideration of Rs.489.27 lakhs
against the dues of the Andhra Pradesh Industrial
Development Corporation to Government of Andhra
Pradesh on account of loans of Rs.282.50 lakhs
outstanding in the books of accounts along with interest @
11%, 12% and 12% respectively upto 31.3.1986."
In view of transfer of shares, the SCC Ltd (Singareni Collieries
Company Ltd) took over the 2nd respondent Company as its
subsidiary company. The composition of Board of Directors has
been approved by amending articles of association of the 2nd
respondent Company. The share capital of the 2nd respondent
Company is Rs.17.27 Crores and share holding pattern of the
Company is:
" (i) Singareni Collieries Company Limited - 81.54%
(ii) AP Industrial Development Corporation - 5.76%
(iii) Government of Andhra Pradesh - 0.86%
(iv) Other Shareholders (Public) - 11.84%"
12. In view of the enactment of the A.P. Reorganization Act,
2014 during bifurcation of the Composite State of Andhra Pradesh
into State of Andhra Pradesh and State of Telangana, both the 2nd
respondent as well as the 3rd respondent Company are included in
the IXth Schedule of the A.P. Reorganization Act, 2014. The 2nd
respondent Company has to be administered as per the provisions
of the Companies Act, 2013 and its operations are governed by the
provisions of Section 68 of the A.P. Reorganization Act, 2014 and
for distribution of assets and liabilities of the 2nd respondent is
governed by Section 53 of the A.P. Reorganization Act, 2014. The
provisions reads thus:
"53. Assets and liabilities of State undertakings.--
(1) The assets and liabilities relating to any commercial
or industrial undertaking of the existing State of Andhra
Pradesh, where such undertaking or part thereof is exclusively
located in, or its operations are confined to, a local area, shall
pass to the State in which that area is included on the
appointed day, irrespective of the location of its headquarters:
Provided that where the operation of such undertaking
becomes inter-State by virtue of the provisions of Part II, the
assets and liabilities of--
(a) the operational units of the undertaking shall be
apportioned between the two successor States on location
basis; and
(b) the headquarters of such undertaking shall be
apportioned between the two successor States on the basis of
population ratio.
(2) Upon apportionment of the assets and liabilities, such
assets and liabilities shall be transferred in physical form on
mutual agreement or by making payment or adjustment
through any other mode as may be agreed to by the successor
States.
68. Provisions for various companies and corporations.--
(1) The companies and corporations specified in the
Ninth Schedule constituted for the existing State of Andhra
Pradesh shall, on and from the appointed day, continue to
function in those areas in respect of which they were
functioning immediately before that day, subject to the
provisions of this section.
(2) The assets, rights and liabilities of the companies
and corporations referred to in sub-section (1) shall be
apportioned between the successor States in the manner
provided in section 53.
Thereafter, the 1st respondent constituted an Expert Committee in
consonance with the provisions of the A.P. Reorganization Act,
2014 vide G.O.Ms.No.223 dated 30.5.2014 for demerger of
Government Corporations and Companies in IXth Schedule of the
A.P. Reorganization Act, 2014. The Committee consists of the
following Members:
(i) Dr Sheela Bhide, IAS (Rtd.) - Chair Person
(ii) Shri K.V.Rao - Member
(iii) Shri K. Narasimha Murthy - Member
The demerger of the 2nd respondent Company first came up in the
meeting held on 22.4.2016. After deliberations, it was deferred.
The same issue was taken up in detail during 205th Board meeting
on 16.1.2017. The 3rd respondent company being a major share
holder was represented by five (5) Directors, APIDC was
represented by one (1) Director and other shareholders were
represented by three (3) Directors. The proposals were approved
with 5:4 majority:
"(i) That APHMEL is a subsidiary of SCCL under Section
2 (87) (i) of the Companies Act, 2013 by virtue of the fact
that 81.54% of its shares are held by SCCL and therefore
there is no need for demerger of APHMEL.
(ii) The only issue to be decided upon is apportionment
of 0.86% shares capital amounting to Rs.14,90,100/- held
by erstwhile Government of Andhra Pradesh between the
successor States of Andhra Pradesh and Telangana in the
ratio of 58.32 : 41.68 as mentioned in the Act i.e.,
allocation of 86,903 equity shares to the present
Government of Andhra Pradesh and 62,107 equity shares
to the Government of Telangana in APHMEL.
The approved proposal of the Board was placed before the Expert
Committee for demerger. The petitioners along with Directors of
APIDC informed to the Expert Committee that they oppose the
demerger resolution in the Board meeting held on 18.1.2017 on
the ground that the 2nd respondent Company is included in the
IXth Schedule of the A.P. Reorganization Act, 2014. As per
Section 53 of the A.P. Reorganization Act, 2014, the entire assets
and liabilities of the Company are to be allotted to the State of
Andhra Pradesh as its assets are located in the Residuary State of
Andhra Pradesh. However, the 3rd respondent company convened
meeting on 25.3.2013 at Singareni Women's Degree College,
Kothagudem and the Extraordinary General Meeting is adjourned
to 01.04.2017 due to lack of sufficient quorum. Accordingly, the
Extraordinary General meeting was conducted on 01.04.2017 and
passed the following resolution:
"Resolved that pursuant to the provisions of the
Companies Act, 2013 and Rules made thereunder and
other applicable Statutes, the Managing Director of the
Company be and is hereby authorized to submit the
proposal to the Expert Committee/ Government
/appropriate authority under the Andhra Pradesh
Reorganization Act, 2014 for seeking apportionment of
0.86% equity of Andhra Pradesh Heavy Machinery and
Engineering Limited amounting to Rs.14,90,100/- held by
erstwhile Government of Andhra Pradesh between the
successor States of Andhra Pradesh and Telangana in the
ratio of 58.32 : 41.68 mentioned in the said Act i.e.,
allocation of 86,903 equity shares to the present
Government of Andhra Pradesh and 62,107 equity shares
to the Government of Telangana being the only issue to be
resolved under the Andhra Pradesh Reorganization Act,
2014 with respect to Andhra Pradesh Heavy Machinery
and Engineering Limited. Further, resolved to confirm
that the operations of the Andhra Pradesh Heavy
Machinery and Engineering Limited have been spread all
over India as it supplies/extends to various coal
companies and other companies throughout India."
The 2nd respondent Company continues to be a subsidiary of SCC
Ltd., by virtue of its holding on 81.54% of the equity share capital
under Section 2 sub Section 87 (i) of the Companies Act, 2013,
even after bifurcation of the State of Andhra Pradesh under the
provisions of A.P. Reorganization Act, 2014. The Expert
Committee in the meeting held on 19.4.2017 opined as follows:
" (i) APHMEL Management should have made every
effort to ensure that all the Board Directors were in a
position to attend this very important meeting by
ascertaining a date convenient for all Directors as is the
usual practice in other companies.
(ii) the Expert Committee firmly believes that the
rights of the minority shareholders (about 42,000 in
number) must be protected under law;
(iii) An opportunity must be given to the minority
shareholders to participate in the EGM (Extraordinary
General Meeting) where such an important item affecting
the future of the ownership of the Company is placed in
the agenda for; and
(iv) Meetings of the Board and EGM should be held
at a place which is accessible for all the shareholders.
Expert Committee directed M.D. APHMEL that the
Demerger Proposal should be finalized strictly as per
Section 53(1) of the AP Reorganization Act, 2014 and re-
submitted after following all due processes.
Again, the 2nd respondent Company conducted Board meeting on
04.09.2017 for approval of the demerger proposal and the same
was placed before the Expert Committee for its approval on
31.8.2018. The Expert Committee after examining all the aspects
laid the following recommendations:
"Recommendations of the Expert Committee:
M/s. AP Heavy Machinery and Engineering Limited
which finds place at Serial No.34 in Schedule IX of the AP
Reorganization Act, 2014, appears as a distinct and
separate entity from M/s.Singareni Collieries Limited
which is at Serial Number 7 in Schedule IX. Therefore,
the proposal for bifurcation of M/s. APHMEL has to be
necessarily prepared only as per the provisions of Sections
68 and 53 of AP Reorganization Act, 2014.
In the case of APHMEL, since all the assets and
liabilities are located in the residuary State of Andhra
Pradesh, the undertaking shall pass on to the residual
State of Andhra Pradesh in its entirety in terms of Section
53 (1) of the AP Reorganization Act. Hence, M/s.APHMEL
need not go through the process of demerger."
13. Sri N. Ashwani Kumar, learned counsel for the petitioner
would contend that in view of the provisions of Section 53 and 68
of the A.P. Reorganization Act, 2014 and appointment of the
Expert Committee for division of the assets and liabilities as per
the provisions of Section 53 and 68 of the A.P. Reorganization Act,
2014, the alteration of the composition of the Board of Directors
by amendment to clause 101 (3) of the Article of Association and
attempts of the 2nd respondent Company having majority
shareholders and considering the nomination of five (5) Directors
or making attempts to demerger of the 2nd respondent company
with the 3rd respondent Company contrary to the provisions of
Section 53 and 68 of the A.P. Reorganization Act, 2014 and all
such actions have to be taken only with the approval of the
Central Government. The 2nd respondent Company in the name of
alteration of the composition of the Board of Directors would not
reduce the size of the Board of Directors to the disadvantage of the
minority shareholders who are all the way opposing the demerger
of the 2nd respondent Company.
14. Sri V. Surender Reddy, learned counsel appearing for the 2nd
respondent while reiterating the averments of the counter would
contend that the 2nd respondent Company has power and
authority under the provisions of the Section 14 of the Companies
Act, 2013 to alter the clause 101 (3) of the Articles of Association
of the 2nd respondent Company to meet the requirements and
functioning of the company as per the provisions of Companies
Act, 2013. As the clauses of the existing Articles of Association
are not in accordance with the provisions of the Companies Act,
2013, which replaced the Companies Act, 1956, it needs to be
altered in line with the provisions of the Companies Act, 2013.
The earlier allocation of three (3) Board of Directors out of ten (10)
to the minority shareholders who are having 11.84 shareholding is
disproportionate to their shareholding ratio in the Company. The
power to nominate three (3) Directors by the minority
shareholders is not in accordance with their weightage as per their
shareholding ratio and it needs to be altered and they should be
given power to nominate only one (1) Director in place of three (3)
Directors. Accordingly, a proposal to amend Clause 101 (3) of the
Articles of Association of the 2nd respondent Company is brought
by way of notice to call for the Extraordinary General Meeting and
it is accordingly convened. No specific cause arises for the
petitioners to approach this Court and obtain an interim order
staying the proceedings in pursuance of the issuance of notice for
calling Extraordinary General Meeting, which is illegal and
arbitrary.
15. No doubt, the 2nd respondent Company has power under the
provisions of Section 14 of the Companies Act, 2013 to alter the
clauses of Articles of Association of the 2nd respondent company
and to bring the Articles of Association in line with the provisions
of Companies Act, 2013. But, in the peculiar circumstances arose
in view of bifurcation of the State of Andhra Pradesh as per the
provisions of the A.P. Reorganization Act, 2014, the provisions of
Section 53 and 68 of the A.P. Reorganization Act, 2014 would
attract for managing the affairs of the 2nd respondent company,
especially with the Directors nominated by the majority
shareholders. Even after inclusion of the 2nd respondent and 3rd
respondent Companies in the IXth schedule of the A.P.
Reorganization Act, 2014, the 2nd respondent could not alter the
composition of the Directors of the Company to that of one (1)
Director instead of three (3) Directors to the minority shareholders
other than the SCC Ltd., and APIDC, which could not be allowed
in the light of the attempts that are being made by the 3rd
respondent SCC Ltd., for passing resolutions for demerger of the
2nd respondent company contrary to the report of the Expert
Committee submitted, having consulted the Expert Committee for
all its administration for altering the Articles of Association,
especially composition of the Directors of the 2nd respondent
Company, without approval of the Ministry of Home or Corporate
Affairs amounts to violation of the provisions of the Section 53 and
68 of the A.P. Reorganization Act, 2014. Accordingly, the Point
No.1 is answered.
16. Point No.2:
In view of inclusion of the 2nd respondent Company and 3rd
respondent company in the IXth schedule of the A.P.
Reorganization Act, 2014, the division of the Assets of both the
companies is governed by the A.P. Reorganization Act, 2014. The
Expert Committee has been constituted for that purpose. The
Expert Committee has taken a decision not to take any action or
resolutions which affects the division of the assets. Now, under
the guise of alteration of the Articles of Association exercising the
powers under the provisions of Section 14 of the Companies Act,
2013 and in view of the attempts made by the 3rd respondent
Company for altering the composition of the Board of Directors,
especially reducing the nomination of the Directors by the
shareholders other than SCC Ltd., and APIDC, from the minority
shareholders to that of the one (1) Director instead of three (3)
Directors allotted in the existing Articles of Association and it will
give unbridled power to the 3rd respondent Company to act
through its majority nominated Directors of five (5) in the
Company to take decision disadvantage to the minority
shareholder, which certainly affects the division of assets and
liabilities as per the provisions of Section 53 of the A.P.
Reorganization Act, 2014. In our considered opinion, the
alteration of Memorandum of Articles of Association is in violation
of the provisions of Section 68 of the A.P. Reorganization Act,
2014. In the ordinary circumstances, the 2nd respondent
company has certainly has power to alter the Articles of
Association under Section 14 of the Companies Act, but not in the
present circumstances when the 2nd respondent and 3rd
respondent Companies are included in the IXth schedule of the
A.P. Reorganization Act, 2014 and at present, there is no exigency
to alter the composition of Directors of the Company nor shown
any reason to resize the Board of Directors. The existing Board is
not in contravention of any provisions of the Companies Act,
2013, which needs to be brought in line with the provisions of the
Companies Act, 2013. Hence, the contention of the learned
counsel for the 2nd respondent Sri V. Surender Reddy that the 2nd
respondent Company has exercised its power under Section 14 of
the Companies Act, 2013 and proposed to alter the constitution of
the Board of Directors along with alteration of other clauses of
Articles of Association to bring in line with the provisions of the
Companies Act, 2013 and since the cause of action arise under
the provisions of the Section 14 of the Companies Act, 2013, the
petitioners have to approach the National Company Law Tribunal
(NCLT) constituted under the provisions of the Companies Act, are
unsustainable, as the 2nd and 3rd respondents Companies are
included in IXth schedule of the A.P. Reorganization Act, 2014. In
support of his contention, he relied on the decision of the Apex
Court in the case of Union of India Vs. R. Gandhi, President,
Madras Bar Association1 and emphasized on Para-120 (ii) which
reads thus:
1 (2010) 11 SCC 1
" (ii) As NCLT takes over the functions of the High
Court, the members should as nearly as possible have the
same position and status as High Court Judges. This can
be achieved, not by giving the salary and perks of a High
Court Judge to the members, but by ensuring that
persons who are as nearly equal in rank, experience or
competence to High Court Judges are appointed as
members. Therefore, only officers who are holding the
ranks of Secretaries or Additional Secretaries alone can be
considered for appointment as technical members of the
National Company Law Tribunal. Clauses (c) and (d) of
Sub-section (2) and Clauses (a) and (b) of Sub-section (3)
of Section 10FD which provide for persons with 15 years
experience in Group A post or persons holding the post of
Joint Secretary or equivalent post in the Central or the
State Government, being qualified for appointment as
Members of Tribunal, are invalid."
He also placed reliance on the judgment of the Hon'ble Supreme
Court in the case of Madras Bar Association Vs. Union of India2.
There is no dispute with regard to the principle laid down in the
decision having bearing in mind the facts of the case. As the 2nd
and 3rd respondent companies are included in the IXth schedule of
the A.P. Reorganization Act, 2014, the impugned action of the 2nd
respondent Company proposing to amend the existing clause 101
(3) of its Articles of Association, thereby altering the composition of
the Board of Directors is contrary to the provisions of Section 53
and 68 of the A.P. Reorganization Act, 2014. The petitioners have
got every right to approach this Court for the relief sought for in
this writ petition. The Hon'ble Supreme Court in the case of
2 (2015) 8 SCC 583
Maharastra State Board of WAKF Vs Shaikh Yusuf Bhai Chawla
and others3, held as under:
" These decisions which were impugned could not
have been adjudicated by the Tribunal under Section 6 of
the Act. The second aspect which we cannot ignore is that
as held by this Court, Article 226 confers a jurisdiction or
a power on the High Courts. It is a power under the
Constitution. While it may be true that a statute may
provide for an alternate forum to which the High Court
may relegate the party in an appropriate case, the
existence of an alternate remedy by itself cannot exclude
the jurisdiction of the High Court under the Constitution.
No doubt, it has been a self-imposed restraint which is
fairly faithfully adhered to by the High Courts and it is
largely a matter of discretion. We find that there are dicta
which has held that on the basis of an alternate remedy, a
writ petition is not maintainable. We would understand
that the position to be that a constitutional remedy cannot
be barred or excluded as when the High Court exercises
its power under Article 226, it cannot be a case of lack of
inherent jurisdiction. No doubt, when High Courts stray
outside the limits with reference to certain principles as
have been laid down in the decision which we have
referred to, it can be corrected. Another factor which is to
be borne in mind is that in a case where the High Court
has entertained a matter and the matter comes for hearing
in this Court in the jurisdiction under Article 136, our
woes are compounded by the long passage of time as is
demonstrated by the facts of this case. The judgment of
the High Court was rendered in the year 2011. This Court
is hearing the matter after more than a decade. It is
nearly two decades after the filing of the writ petitions that
this Court is hearing the matter."
In view of the special circumstances of the case and as held in the
above referred decision, this Court entertaining the writ petition
3 2022 Live Law (SC) 1003
could not be said to be without jurisdiction. Accordingly, the
Point No.2 is answered.
17. In view of the above discussion, the Writ Petition is allowed.
The impugned notice insofar as proposing to amend the clause
101 (3) of the Articles of Association of the 2nd respondent
Company to alter the existing composition of the Board of
Directors alone is set aside. There shall be no order as to costs.
As a sequel thereto, miscellaneous petitions, if any, pending
shall stand closed.
____________________
M. GANGA RAO, J
________________
V. SRINIVAS, J
Date: .01.2023
CSR
HONOURABLE SRI JUSTICE M. GANGA RAO
AND
HONOURABLE SRI JUSTICE V. SRINIVAS
W.P.No.27894 OF 2022
DT: .01.2023
CSR
