SAURASHTRA CEMENT LTD Vs. UNION OF INDIA

JUDGEMENT

(1.) The petitioners have challenged the constitutional validity of Section 274(1)(g) of the Companies Act, 1956 as amended by the Companies (Amendment) Act, 2000 with effect from December 13, 2000 [hereinafter referred to as the said 'Act']. The petitioners have also prayed for a declaration that the said provisions are ultra vires the Constitution of India more particularly Article 14 thereof.

(2.) The petitioner No.1 is a Company incorporated and registered under the Companies Act, 1956, and petitioner No.2 is a shareholder of the petitioner No.1 Company. Petitioner No.1 Company is incurring losses and is unable to redeem debentures on due date, i.e., 30th September 2003 (1st installment). Considering the provision of Section 274(1)(g) of the Act, the Directors of the petitioner company would stand disqualified for being appointed as Directors in another companies after 29th September 2004 and therefore the Company has preferred the present Special Civil Application challenging the vires of Section 274(1)(g) of the Companies Act. Section 274 of the Companies Act reads as under;

(3.) It is submitted that Section 274(1)(g) of the Act is violative of fundamental rights guaranteed to the petitioners under Constitution of India and is not in consonance with the objects and purpose of the said Act, and ultra vires thereof. It is submitted that Section 274(1)(g) of the Act was inserted by the Companies (Amendment) Act, 2000 with effect from 13.12.2000 and the Statement of Objects and Reasons while introducing the said amendment was as a measure of good corporate governance and management and as a measure for protection for investors. The Statement of Objects and Reason, while introducing the above amendment to the extent it is relevant for the purpose of petition, according to the petitioners, reads as under;