Interpreting the Companies Act in the right sense

Corporate law is changing quickly. Without fear of contradiction I would well say that many adjudicators in the state have less felicity with the said branch than that of others which are being dealt on a regular basis. The interpretation swings with the mindset of the judge. It goes back to the very fundamental question as to whether a court plays just a limited role of the wordsmith giving translative expression to legislative intent or does it play a dynamic role in leading the way to social justice by understanding the ethos of the times it operates in and accordingly adjusts the social agenda through the expressions of legislative intent.

Justice CV Nagarjuna Reddy while dealing with a matter relating to Tech Mahindra reiterated how a court can add meaning and purpose to the dead letter of law. While dismissing a company’s appeal filed by the Union of India, the judge dealt with what he felt a travesty of justice if Tech Mahindra was punished for the crimes by its earlier owners-Satyam.

Corporate law in India is governed by the Companies Act – which is not just a detailed self contained code but also a law dealing with substantial rights in the context of the corporate world. Understandably it is in tune with the western approach in the branch. However there are certain other laws that do not suit the larger picture and often governance (and its failure) is when the right hand does not know what the left hand is doing. Take for instance the law relating to Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act. It is designed to protect banking institutions that lend money to corporate institutions and ensure against its abuse. Unfortunately it has become an agency where banks think it to be convenient for money recovery. It has clipped its own wings on interpreting the law and often is seen as treading the path with the fear that if it is seen taking a stance in favour of the private citizen which would be assumed as an act of corruption. Interpretation of the law by the courts of record too have not helped. Courts have perceived the erring creditor as the indulgent one and have failed to swallow the economic implications. Thus on one hand, we have a policy to entertain loans and believe that they help to keep the economy going (a handout of our dependence on the Keynesian model) and on the other we seem to have a law that encourages the new ‘Corporate Kabuliwallahs’. Now the institutional doublespeak percolates to strict interpretation by the Debt Recovery Tribunals and also the courts of record.

The functionaries of Tech Mahindra were sought to be prosecuted for offences including “Failure to electronically upload the attachments to the profit and loss account along with the directors' report before the Registrar of Companies”. An application for compounding the offence was rejected by the company law board. The high court directed the board to reconsider the matter afresh. The court took note that life was infused into the company by the new management (Tech Mahindra) and that the company itself, even before it was reconstituted after its taking over, was not an accused in the criminal cases involving the fraud by its earlier directors. The court also said that the CBI, after investigation, found absolutely no role whatsoever by new company secretary.

Pointing to the action of Tech Mahindra as "Orphan Satyam Adopted", Justice Nagarjuna Reddy in his order said, “The new management which had taken over the company has stabilised the sinking ship and ensured that the company was pulled from the depths of darkness to its past glory. It would therefore be wholly inequitable to subject the revamped company to needless criminal prosecutions when it had gracefully decided to put a quietus to the vexing problem of prosecution. It would be a travesty of justice of the company after its revamp is subjected to persecution.”

This judgement is surely sensible and a step in the right direction. Not a tad surprise at all.