Apparel Export Promotion Council vs All India Garment Exporters ...
2012 Latest Caselaw 515 Del

*        IN THE HIGH COURT OF DELHI AT NEW DELHI

                                     Date of decision: 25th January, 2012

+                            LPA No. 356/2011

%        APPAREL EXPORT PROMOTION COUCIL            ....Appellant
                     Through: Mr. Krishan Venugopal, Sr. Adv.
                              with Mr. Gaurav Ray, Adv.

                                  Versus

         ALL INDIA GARMENT EXPORTERS COMMON
         CAUSE GUILD & ORS.                         ..... Respondents
                      Through: Mr. Suhail Dutt, Sr. Adv. with
                               Mr. Sankalp Goswami, Adv. for R-1&2.
                               Mr. Saquib, Adv. for R-4.

CORAM :-
HON'BLE THE ACTING CHIEF JUSTICE
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW
                                JUDGMENT

RAJIV SAHAI ENDLAW, J.

1. This intra-Court appeal impugns the judgment dated 18th January,

2011 allowing W.P.(C) No. 5093/1998 preferred by the respondents no.1 to

3 herein and quashing the "Regulations of Membership" of the appellant to

the extent the same were held to be inconsistent with the Exim Policy; the

appellant has also been restrained from making any amendments to its

Articles of Association creating a classification of exporters into "Member

Exporters" and "Registered Exporters". Notice of this appeal was issued and

vide interim order dated 8th April, 2011 the operation of the judgment of the

learned Single Judge stayed. A counter affidavit has been filed by the

respondents no.1&2/writ petitioners and by the respondent no.4 Union of

India. Additional documents as well as additional affidavit have also been

filed by the respondents no.1&2/writ petitioners. The counsels have been

heard. Written submissions have also been filed and perused.

2. The crux of the controversy is whether the appellant which is a

Company incorporated under Section 25 of the Companies Act, 1956 is

entitled to have two kinds of memberships as aforesaid. The only difference

in the rights of the two kinds of members is that while the "Member

Exporters" have a right to elect and to be elected as office bearers of the

appellant, the "Registered Exporters" have no such right.

3. The respondent no.1/writ petitioner is a Body/Association of

Exporters, though members of the appellant but having neither voting rights

nor right to be elected. They are hereinafter called non-voting members.

Their grievance in the writ petition was that they were being deprived of

occupying the position of office bearers of the appellant or of electing the

office bearers of the appellant and which right was confined to only

approximately 10% of the members of the appellant, who are herein after

called the voting members.

4. The Learned Single Judge allowed the writ petition having the effect

of removing such classification of membership and vesting the right of

voting and hence of being in management in all the members of the

appellant. As per the "Regulations of Membership" of the appellant, struck

down by the learned Single Judge, to become a voting member of the

appellant, the exporter was required to have exports of the minimum value

of `20 lacs for the previous three years. Needless to state that the

respondents/writ petitioners are exporters who do not fulfill the said criteria.

Their contention was/is that laying down such a criteria to become a voting

member creates a small caucus which has appropriated the management of

the affairs of the appellant unto itself.

5. The learned Single Judge has allowed the writ petition holding/on the

ground:-

A. that Clause 5(a) of the Articles of Association (AOA) of

the appellant permits any person who is an exporter of

garments whether manufacturer exporter or merchant

exporter or otherwise interested in the actual export of

garments to become a member of the appellant and thus

does not permit classification of members into voting

members and non-voting members;

B. that appellant owes its existence to the Exim Policy

which provides for formation of Export Promotion

Council (EPC); appellant is recognized by the

Government as the EPC for garments; the Exim Policy

also requires all exporters to become members of such

EPC and the appellant thus has to abide by the Exim

Policy and the Rules & Regulations of the appellant have

to be in accordance with the Exim Policy; the said Policy

does not envisage two kinds of members, voting and

non-voting, of EPC;

C. that para 13.7 of the Exim Policy requires an EPC to

ensure democratization of its members and democratic

elections of its office bearers. Restriction by the

appellant of the right of participation in election to 10%

only of its members is not democratic;

D. Regulations of the appellant creating such classification

were thus held ultra vires the Exim Policy, unreasonable

and violative of Article 19(1)(g) of the Constitution.

6. The senior counsel for the appellant has contended:-

a. that the appellant does not owe its existence to the Exim

Policy and is not a creature of the Exim Policy. The

appellant was incorporated on 22 nd February, 1978 by

leading garment exporters associations while the Foreign

Trade (Development & Regulation) Act came into force

much thereafter in the year 1992 and the Exim Policy

1997-2002 issued for the first time in the year 1997. The

Government though had encouraged the formation of the

appellant, was not involved in the same;

b. that the doctrine of ultra vires cannot apply to the

Memorandum or Articles of Association of the appellant

which are only required to comply with the Companies

Act;

c. that there is no compulsion on the appellant to function

as an EPC and the appellant is required to comply with

the Exim Policy only so long as wanting to function as

an EPC thereunder but not otherwise;

d. that even as per the Exim Policy as amended in March,

2000, all EPCs are required to conform to the Model

Bye-Laws which were prescribed and which Model Bye-

Laws permit classification into voting and non-voting

members and of fulfillment of minimum prescribed

exports to be eligible to become a voting member of an

EPC;

e. that the appellant is not a monopolistic body as perceived

by the Learned Single Judge as the quota regime ended

in the year 2005 and the appellant no longer grants

export entitlement/quotas to various exporters of

garments. The appellant is now performing the function

mainly of promoting export of readymade garments by

giving inputs to the Government in framing and

implementing the Policies and in implementing the Exim

Policy to enable exporters of garments to avail benefits

thereof;

f. that the functioning of the appellant is otherwise

autonomous and as per its Memorandum and Articles of

Association. The amended Exim Policy in para 13.5

requires the EPCs to be autonomous and regulate their

own affairs;

g. that the Exim Policy though prior to the amendment in

March, 2000, made financial assistance from the

Government to EPC dependent on democratization of the

membership and democratic elections of office bearers

on a regular basis but post amendment on 31 st March,

2000 had done away with the requirement of

democratization of membership and holding of

democratic elections by the EPC. Rather the Model Bye-

Laws themselves provided for two classes of members

i.e. voting members and non-voting members and

prescribed achievement of export performance during

the previous three years of `25 lacs, since amended to

`1 crore;

h. that the appellant had framed its Membership

Regulations (which have been struck down by the

Learned Single Judge) in accordance with the Model

Bye-Laws prescribed under the amended Exim Policy;

i. that the Government itself had with effect from 31 st

March, 2000 deliberately repealed the requirement of

democratization in the EPCs from the Exim Policy and

which shows that it was not the requirement of the Exim

Policy;

j. that the learned Single Judge erred in deciding the matter

on the basis of the affairs as prevailing at the time of

filing of the writ petition in the year 1998 and not

noticing the amendments aforesaid of the year 2000;

k. that the respondents/writ petitioners had not challenged

the amendments of the year 2000 to the Exim Policy or

the Model Bye-Laws for EPCs prescribed thereunder;

that the membership regulations of the appellant in-sync

with the said Model Bye Laws could thus not be

quashed;

l. that under para 2.64 of the Handbook of Procedures,

2009-14 even a prospective/potential exporter with no

exports at all is entitled to become a member of an EPC

and if such a member were to be also given voting rights,

it has the potential of the management of the appellant

vesting in the hands of those who have neither any

experience nor knowledge of the garment exports

industry and which is neither feasible nor could be the

purport of the Government or the Exim Policy;

m. that a Constitution Bench of the Supreme Court in P.V.

Sivarajan v. Union of India AIR 1959 SC 556 has

upheld the criteria of minimum export performance even

for the right to export as a reasonable classification for

deciding who are to be permitted to export a particular

product;

n. that the other EPCs are having the same terms;

o. that the classification of members is a reasonable one

having reasonable and rational nexus to the object of

ensuring that EPCs provide the necessary support to the

Central Government in framing and implementing the

Exim Policy in their respective sectors or industries;

p. that the appellant over the years has acquired huge assets

including valuable immovable properties and the same

cannot be vested in non-serious exporters who may,

upon removal of classification of membership and which

classification has been quashed, come into control

thereof;

q. that the appellant otherwise does not discriminate in any

manner between voting and non-voting members and in

any case functions under the watchful eye of Director

General Foreign Trade, Government of India. Thus there

is no question of violation of the Fundamental Right

under Section 19(1)(g) of the Constitution;

r. that else the functioning of the appellant is democratic

and exclusion of exporters not achieving the prescribed

targets from management does not make it any less

democratic;

s. that the appellant is neither owned nor controlled or

substantially financed by the Government and its entire

income and expenditure is borne out of membership

subscription and the Council fee received from its

members and the surplus amounts are re-utilized in

improvement and development of garment industry.

7. The respondent no.4 Union of India in its counter affidavit supports

the case of the appellant in entirety. It has also pleaded that with the end of

the quota regime in the year 2005 the requirement for an exporter to

register with the EPC in order to avail export benefits has also ended and it

is not even compulsory for garment exporter to register with the appellant

to export garments and get benefits under the Exim Policy and the

judgment of the learned Single Judge on the situation which though existed

at the time of filing of the writ petition in the year 1998 but has since

changed is not correct. Union of India has supported the dual membership

as aforesaid of EPCs.

8. The senior counsel for the respondents/writ petitioners besides

supporting the judgment of the Learned Single Judge contended:-

i. that once an exporter is registered as a member of EPC

he cannot be denied participation in management or in

electing the management;

ii. though the prerogative of restricting membership may be

available to a Company incorporated under Section 25 of

the Companies Act but upon the appellant being

recognized as an EPC, it cannot so restrict its

membership;

iii. reference is made to paragraphs of Exim Policy and

Handbook of Procedures to claim a right of membership

which it is contended has to be full membership and not

a non-voting membership. There cannot be two criteria

for membership, one under the Companies Act and

another under the Exim Policy;

iv. that the appellant before the Learned Single Judge had

not relied on the amendments of the year 2000 or on the

Model Bye-Laws or the amendment in its Regulations in

terms thereof;

v. that the Model Bye-Laws are also subject to the Exim

Policy notified from time to time and which also entitles

the exporters to full membership of EPC irrespective of

their export performance. Reference is made to Pramod

Chopra v. Apparels Export Promotion Council ILR

(1984) I Delhi 717 holding such a classification to be in

violation of Article 14 of the Constitution of India;

vi. that the expression "Associate Member" in the Articles

of Association refers to prospective exporters who have

not yet started exporting and does not relate to exporters

who are already exporting;

vii. P.V. Sivarajan (supra) relied upon by the appellant is

distinguished by contending that such a classification

therein was upheld for being in pubic interest; it is

contended that the classification made by the appellant is

against the public interest in as much as it creates a

caucus.

9. The senior counsel for the appellant in rejoinder has controverted that

the amendments of the year 2000 were not argued before the Learned Single

Judge. Reliance is placed on the order dated 8th May, 2002 on the file of the

Learned Single Judge permitting amendment to the Articles of Association

of the appellant to bring the same in conformity with the Model Bye-Laws,

subject to the outcome of the writ petition. It is also contended that the

judgment in Pramod Chopra (supra) is in a Suit and thus cannot be said to

be a judgment in rem.

10. As would be obvious from aforesaid, the judgment of the Learned

Single Judge impugned before us is in the context of the situation as

prevailing at the time of filing of the writ petition i.e. the year 1998. Suffice

it is to state that the subsequent changes of the year 2000 knock off the basis

laid in the writ petition for the relief claimed and granted by the learned

Single Judge. No purpose however would be served in our pronouncing on

the correctness or otherwise of the judgment of the Learned Single Judge on

the situation prevailing at the time of filing of the writ petition and which

now no longer prevails.

11. What stares one in the face is that notwithstanding the amendment of

the year 2000 knocking off the basis of the relief claimed by the

respondents/writ petitioners and expressly providing for classification of

voting and non-voting members, the respondents/writ petitioners did not

take any steps whatsoever for challenging the said amendment of Exim

Policy. We are unable to agree with the contention of the senior counsel for

the respondents that the said amendments are of no avail. The amendments

to the Exim Policy, doing away with the requirement of democratization and

holding of democratic elections on a regular basis in the EPCs and

providing for Model Bye-Laws of EPCs creating classification of voting and

non-voting members have to be read along with Exim Policy providing for

an exporter to become a member of EPC. Once the Model Bye- Laws

provide for two kinds of membership, a right to membership can be read

only as a right to non-voting membership till the member qualifies to

become a voting member. The Exim Policy has to be read as a whole. The

challenge by the respondents/writ petitioners at the time of filing of the writ

petition to such classification, even if maintainable when the writ petition

was filed, in the light of the amendments, does not survive.

12. We otherwise also find merit in the creation of such a classification. It

has been observed in the recent past that attempt is made to snatch the

management and control of bodies having considerable sway over

professions, industries, businesses, away from the serious practitioners

thereof and in the hands of those not really interested in the betterment of

the persons for whose benefits such Bodies have been created. In the present

case, the appellant as also stated by the respondents/writ petitioners

themselves, is not only flush with funds but also in ownership of valuable

immovable properties. The danger of some persons not really interested in

developing export of garments hijacking the management and control of the

appellant to get hold of its funds and properties is a real one and not

imaginary. The modus operandi of such hijackers is well known. They gain

control of management though through democratic process of election but

by securing memberships to such bodies of those only interested in voting.

It is not disputed before us that even an intending exporter is eligible to

become a member of the appellant. If the voting rights and the management

of the appellant is open to all those who may not actually be exporting

garments but may claim to be intending to export garments and/or who may

have done minimal exports only for the sake of becoming members, the

possibility of the management of the appellant passing on to the hands of

such persons cannot be ruled out.

13. The professional bodies as the Bar Associations which though not

rich, exercise considerable control over the affairs of Advocates have also in

the recent past witnessed such a trend and which led to the Supreme Court

Bar Association imposing a condition of members exercising voting rights

in other Bar Associations being not entitled to exercise such rights in the

Supreme Court Bar Association and which condition has withstood the legal

challenge in Supreme Court Bar Association v. B.D. Kaushik

MANU/SC/1116/2011. It was held that enrolment of Advocates not

practicing regularly in the Supreme Court was inconsistent with the aim and

object of the Association. It was further held that the right to vote is neither

absolute right nor a Fundamental Right nor a common law right but is

purely statutory right governed by the statute, rules & regulations; the right

to contest an election and to vote can always be restricted and/or abridged if

statute/ rules & regulations prescribe so. It was yet further held that

limitations /restrictions on exercise of right to vote and contest the election

do not amount to changing the aims and objects of an Association. The

concepts of "Associate Member" without voting rights and of placing

restrictions on the right to vote were upheld. It was yet further held that

restriction on the right to vote provided with the avowed object of better

welfare and convenience of regular practitioners directly concerned with the

day-to-day affairs is Constitutional and valid. Reference was made to

Damyanti Naranga v. Union of India (1971) 1 SCC 678 and Zoroastrian

Coop. Housing Society Ltd. v. District Registrar, Coop. Societies (Urban)

(2005) 5 SCC 632 to reiterate that the right to form an association

necessarily implies that persons forming associations have also the right to

continue to be associated with only those whom they voluntarily admit in

the association and to exclude others. The doctrine of internal management

and of a member of an association having no rights except those given to

him by the Rules and Regulations and/or by the Bye-Laws of the

Association was also invoked.

14. Even prior thereto, in Sudha v. President, Advocates' Association,

Chennai MANU/SC/1138/2010, the Supreme Court had upheld prescription

of eligibility conditions for exercise of voting rights and to contest the

election notwithstanding being a member of the Association.

15. In view of the judgements supra, the restriction of voting rights and

right to participate in election, in the Rules and Regulations of the appellant

have to be necessarily upheld and the judgement of learned Single Judge

cannot be sustained. We are of the opinion that if no such restrictions were

to be placed or were to be held to be bad, the possibility of a rival

industry/trade snatching away the management of an EPC to destroy the

same also cannot be ruled out.

16. The appeal accordingly succeeds and is allowed. The judgment of the

Learned Single Judge is set aside and the writ petition of the

respondents/writ petitioners is dismissed. However, since it appears that the

appellant at the time of arguments before the Learned Single Judge did not

highlight the amendments of the year 2000 which have gone unnoticed, no

order as to costs.

RAJIV SAHAI ENDLAW, J

ACTING CHIEF JUSTICE

JANUARY 25, 2012 „pp‟