Babubhai Vaghela, former senior manager at IOC, says general statutory rule allowing the executive to approve mergers of government entities goes against fundamental principle of separation of powers
The proposed merger of Maharashtra Elektrosmelt (MEL) with Steel Authority of India (SAIL) is illegal and must be cancelled, according to renowned RTI activist Babubhai Vaghela.
Mr Vaghela, who was senior manager of Indian Oil Corporation (IOC) in Ahmedabad, has asked the Union government to cancel the merger, citing several judicial precedents. He has alleged that the general statutory rule (GSR) 238, of 2nd February 1978, that allows the executive to approve mergers, goes against the principle of the separation of powers.
On a similar issue on Tuesday, the Madras High Court upheld the principle of separation of power and granted an interim stay on a provision in the National Green Tribunal Act for appointment of some officials. Ruling on a PIL, a division bench said that allowing executives to play a judicial role exceeding their powers, would be contrary to the spirit of the Constitution, was against the principle of separation of powers and would nullify the purpose of fair administration of justice.
The general statutory rule 238 was issued by the government of India about a year ago in the case of the merger of IOC subsidiary Bongaigaon Refinery & Petrochemicals (BRPL) with its parent company. The rule empowers the Ministry of Corporate Affairs (MCA) to hear and approve mergers of government entities under sections 391-394 of the Companies Act 1956.
The case of the merger of Maharashtra Elektrosmelt with SAIL is to be heard before the Ministry of Corporate Affairs on 8th March.
Mr Vaghela said, "GSR 238 is against the constitutional scheme of separation of powers and has been legally challenged. Even a senior advocate of M/s Amarchand Mangaldas, representing IOC and BRPL was convinced about it, during the hearing of the IOC-BRPL merger petition by Jitesh Khosla, then joint secretary of MCA." Mr Vaghela, who was an objector in the hearing, had requested Mr Khosla to refer the jurisdiction issue for legal scrutiny.
Mr Vaghela also claims that SAIL did not send any notification to its shareholders about the annual general meeting where the decision on the merger was taken. Thus, the decision taken should be declared null and void. He has also requested the Vigilance Commission to investigate why shareholders do not receive requisite notifications. Many PSUs, including Oil and Natural Gas Corporation, he says, do not communicate matters to their shareholders.
Replying to his objection, Anirudh Das, advocate representing SAIL, said that since Mr Vaghela neither attended the meeting, nor voted on the proposal, his objection to the decision was not valid. Mr Das has also claimed that the required communication was sent by Speed Post and that the company has the receipt of the delivery by post.
Mr Vaghela, however, dismissed the argument by the advocate saying, "I did not receive the communication to attend the shareholders meeting, said to have been called by the MCA and, therefore, the question of my attending or not attending, and voting or not voting, does not arise. Papers said to have been despatched on 22nd February 2011 have, till the time of writing (this message), are not received. Knowing the extent of corruption prevalent in the government, tall claims of transferor or transferee company; Ministry of Steel or PMO cannot be taken at face value."
The Maharashtra Elektrosmelt share last traded on 17th February 2011 at a price of Rs298, marginally up from its 52-week low of Rs270 a couple of days earlier. SAIL closed 0.82% lower at Rs157.40 on the Bombay Stock Exchange today, while the benchmark Sensex closed 0.23% up at 18,489 points after a volatile trading session.
Inside story of the National Stock Exchange’s amazing success, leading to hubris, regulatory capture and algo scam
Fiercely independent and pro-consumer information on personal finance.
1-year online access to the magazine articles published during the subscription period.
Access is given for all articles published during the week (starting Monday) your subscription starts. For example, if you subscribe on Wednesday, you will have access to articles uploaded from Monday of that week.
This means access to other articles (outside the subscription period) are not included.
Articles outside the subscription period can be bought separately for a small price per article.
Fiercely independent and pro-consumer information on personal finance.
30-day online access to the magazine articles published during the subscription period.
Access is given for all articles published during the week (starting Monday) your subscription starts. For example, if you subscribe on Wednesday, you will have access to articles uploaded from Monday of that week.
This means access to other articles (outside the subscription period) are not included.
Articles outside the subscription period can be bought separately for a small price per article.
Fiercely independent and pro-consumer information on personal finance.
Complete access to Moneylife archives since inception ( till the date of your subscription )
There is an erroneous assumption that company law matters require
certain specialized skills which are lacking in Judges. There is also an
equally erroneous assumption that members of the civil services, (either a
Group-A officer or Joint Secretary level civil servant who had never handled
any company disputes) will have the judicial experience or expertise in
company law to be appointed either as Judicial Member or Technical
Member. Nor can persons having experience of fifteen years in science,
technology, medicines, banking, industry can be termed as experts in
Company Law for being appointed as Technical Members. The practice of
having experts as Technical Members is suited to areas which require the
assistance of professional experts, qualified in medicine, engineering, and
architecture etc.
Lastly, we may refer to the lack of security of tenure. The short term of three
years, the provision for routine suspension pending enquiry and the lack of
any kind of immunity, are aspects which require to be considered and
remedied.
56. We may now tabulate the corrections required to set right the defects
in Parts IB and IC of the Act :
(i) Only Judges and Advocates can be considered for appointment as
Judicial Members of the Tribunal. Only the High Court Judges, or Judges
who have served in the rank of a District Judge for at least five years or a
person who has practiced as a Lawyer for ten years can be considered for
appointment as a Judicial Member. Persons who have held a Group A or
equivalent post under the Central or State Government with experience in
the Indian Company Law Service (Legal Branch) and Indian Legal Service
(Grade-1) cannot be considered for appointment as judicial members as
provided in sub-section 2(c) and (d) of Section 10FD. The expertise in
Company Law service or Indian Legal service will at best enable them to be
considered for appointment as technical members.
(ii) As the NCLT takes over the functions of 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 inGroup A post or persons holding the post of Joint Secretary or equivalent post in Central or State Government, being qualified for appointment asMembers of Tribunal is invalid.
(iv) A `Technical Member' presupposes an experience in the field to
which the Tribunal relates. A member of Indian Company Law Service who
has worked with Accounts Branch or officers in other departments who
might have incidentally dealt with some aspect of Company Law cannot be
considered as `experts' qualified to be appointed as Technical Members.
Therefore Clauses (a) and (b) of sub-section (3) are not valid.
(v) The first part of clause (f) of sub-section (3) providing that any person
having special knowledge or professional experience of 15 years in science,
technology, economics, banking, industry could be considered to be persons
with expertise in company law, for being appointed as Technical Members
in Company Law Tribunal, is invalid.
(vi) Persons having ability, integrity, standing and special knowledge and
professional experience of not less than fifteen years in industrial finance,
industrial management, industrial reconstruction, investment and
accountancy, may however be considered as persons having expertise in
rehabilitation/revival of companies and therefore, eligible for being
considered for appointment as Technical Members.
(vii) In regard to category of persons referred in clause (g) of sub-section
(3) at least five years experience should be specified.
(viii) Only Clauses (c), (d), (e), (g), (h), and later part of clause (f) in sub-
section (3) of section 10FD and officers of civil services of the rank of the
Secretary or Additional Secretary in Indian Company Law Service and
Indian Legal Service can be considered for purposes of appointment as
Technical Members of the Tribunal.
(ix) Instead of a five-member Selection Committee with Chief Justice of
India (or his nominee) as Chairperson and two Secretaries from the Ministry
of Finance and Company Affairs and the Secretary in the Ministry of Labour
and Secretary in the Ministry of Law and Justice as members mentioned in
section 10FX, the Selection Committee should broadly be on the following
lines:
(a) Chief Justice of India or his nominee - Chairperson (with a casting vote);
(b) A senior Judge of the Supreme Court or Chief Justice of High Court - Member;
(c) Secretary in the Ministry of Finance and Company Affairs - Member; and
(d) Secretary in the Ministry of Law and Justice - Member.
(x) The term of office of three years shall be changed to a term of seven
or five years subject to eligibility for appointment for one more term. This is
because considerable time is required to achieve expertise in the concerned
field. A term of three years is very short and by the time the members
achieve the required knowledge, expertise and efficiency, one term will be
over. Further the said term of three years with the retirement age of 65 years
is perceived as having been tailor-made for persons who have retired or
shortly to retire and encourages these Tribunals to be treated as post-
retirement havens. If these Tribunals are to function effectively and
efficiently they should be able to attract younger members who will have a
reasonable period of service.
(xi) The second proviso to Section 10FE enabling the President and
members to retain lien with their parent cadre/ministry/department while
holding office as President or Members will not be conducive for the
independence of members. Any person appointed as members should be
prepared to totally disassociate himself from the Executive. The lien cannot
therefore exceed a period of one year.
(xii) To maintain independence and security in service, sub-section (3) of
section 10FJ and Section 10FV should provide that suspension of the
President/Chairman or member of a Tribunal can be only with the
concurrence of the Chief Justice of India.
(xiii) The administrative support for all Tribunals should be from the
Ministry of Law & Justice. Neither the Tribunals nor its members shall seek
or be provided with facilities from the respective sponsoring or parent
Ministries or concerned Department.
(xiv) Two-Member Benches of the Tribunal should always have a judicial
member. Whenever any larger or special benches are constituted, the
number of Technical Members shall not exceed the Judicial Members.
57. We therefore dispose of these appeals, partly allowing them, as
follows:
(i) We uphold the decision of the High Court that the creation of National
Company Law Tribunal and National Company Law Appellate Tribunal and
vesting in them, the powers and jurisdiction exercised by the High Court in
regard to company law matters, are not unconstitutional.
(ii) We declare that Parts 1B and 1C of the Act as presently structured, are
unconstitutional for the reasons stated in the preceding para. However, Parts
IB and IC of the Act, may be made operational by making suitable
amendments, as indicated above, in addition to what the Union Government
has already agreed in pursuance of the impugned order of the High Court.