City Bank Limited and others Vs. Bangladesh Bank and others

City Bank Limited and others (Petitioners)

Vs.

Bangladesh Bank and others (Respondents)

Supreme Court

Appellate Division

(Civil)

Present:

Mustafa Kamal CJ

Bimalendu Bikash Roy Choudhury J

AM Mahmudur Rahman J

Mahmudul Amin Choudhury J   

Judgment

July 12, 1999.

The Financial Institution Act 1993 (XXVII of 1993), Section 3

The Constitution of Bangladesh, 1972, Article 27

The embargo on banks, insurance companies and other financial institutions to nominate its directors on the Board of a financial institution is based on a reasonable classification. It appears to be the policy of the legislature that directors of capital-generating institutions should not be allowed to flock together in a financial institution to control and monopolize the capital market……..(15)

Lawyers Involved:

Rokanuddin Mahmud, Senior Advocate, instructed by Sharifuddin Chaklader Advocate-on- Record — For the Petitioners.

Not represented — the Respondents.

Civil Petition for Leave to Appeal No. 656 of 1999.

(From the judgment and order dated March 25, 1999 passed by the High Court Division, Dhaka in Writ Petition No. 4375 of 1997).

Judgment:

       Mustafa Kamal CJ.- Petitioner No. 1, the City Bank Limited, and its Directors petitioner Nos. 2 and 3 have preferred this petition for leave to appeal from the judgment and order dated 25-3-99 passed by a Division Bench of the High Court Division in Writ Petition No. 4375 of 1997 discharging the Rule Nisi.

2. Respondent No. 6, Industrial Development Leasing Company Bangladesh Limited, a non-banking financial institution was constituted under the laws of Bangladesh pursuant to a shareholders agreement dated 26-5-85 consisting of various shareholders of whom petitioner No. 1, the City Bank Limited, is one of the major shareholders. The agreement dated 26-5-85 was amended on 2-4-86 providing that out of 9 directors of respondent No. 6, petitioner No. 1 shall nominate and appoint two directors. Petitioner Nos. 2 and 3, Director and Managing Director respectively of petitioner No. 1 company, are acting as Directors of respondent No. 6 as the nominees of petitioner No. 1 company.

3. Section 25(3) of the Arthik Protisthan Ain, 1993 provides that notwithstanding anything contained in any other law for the time being in force, a person is not eligible for appointment as a director of a financial institution if he is already a director of a bank or insurance company or any other financial institution. Section 48 of the said Act provides that Bangladesh Bank in consultation with the Government of Bangladesh by a notification in the official gazette may declare that any or all provisions of the said Act is or are not applicable to any particular or all financial institution (s) generally or for a specific period. The Arthik Protisthan Ain, 1993 came into force on 16-8-93, but respondent No. 6 as being governed by Chapter V of Bangladesh Bank Order, 1972 (President’s Order No 127 of 1972) which did not contain any such provision.

4. By a notification in the official gazette on 28-5-95 the Bangladesh Bank in consultation with the Government in exercise of its power under section 48 of the Arthik Protisthan Ain, 1993 declared generally and without specifying any time limit that the provision of section 25(3) of the said Act will not be applicable to a director of a financial institution who has been so nominated by the Government, bank, insurance company or any other financial institution as their representative.

5. Petitioner No. 1 company received a letter dated 28-5-97 from respondent No. 6 forwarding therewith a Bangladesh Bank letter dated 27-4-97 contending that the nominees of the petitioner company in the Board of respondent No. 6 fall with the mischief of section 25 (3) of the said Act and requesting the petitioner company to replace them.

6. The petitioners then came to know of the impugned notification dated 23-10-96 issued by respondent No. 1 Bangladesh Bank under the signature of respondent No. 3-Deputy Governor thereof revoking the notification dated 28-5-95 granting the directors nominated by banks, insurance companies and other financial institutions exemption from the application of Section 25(3).

7. The petitioners then challenged the notification dated 23-10-96 and the Memo dated 27-4-97 issued by respondent No. 1 under the signatures of respondent Nos. 3 and 4 and also prayed for a declaration that section 25(3) of the Financial Institution Act should be declared ultra virus the Constitution.

8. In their affidavit-in-opposition respondent Nos. 1-3 defended the impugned notification asserting that in revoking the exemption Bangladesh Bank did not make any discrimination.

9. Before the High Court Division the petitioners did not press the ground that section 25(3) is ultra virus the Constitution. The High Court Division found that there has been no discrimination in revoking the exemption and therefore discharged the Rule Nisi.

10. Mr. Rokanuddin Mahmud, learned Counsel for the petitioners, submits that the impugned judgment was passed long two months after the hearing and in the process all, the arguments of the learned Advocate for the petitioners were lost. His main submission is that section 25(3) has taken away the right of a corporate entity to be represented by its own directors. A corporate body like a banking company which has a major share holding interest in respondent No. 6 company cannot but be represented by nominees. A corporate body is not a natural person but an artificial person. As the Government is represented in the Board of Directors of a particular company by an individual so a banking company is represented by its directors to represent the bank which has a share holding interest in the other company. Petitioner Nos. 2 and 3 do not have any personal shares in respondent No. 6 company. It is petitioner No. 1 company which has shares in the said company. Section 25(3), therefore, cannot have any manner of application where a corporate shareholder nominates a director to the Board of a financial institution to represent it. It is only proper and legal that petitioner No. 1 company is represented by its own directors in the Board of respondent Nos.6 Company as under the law the directors of a company are the proper and lawful persons to represent it. If any other construction and interpretation are given to section 25(3) then it deprives petitioner No. 1 company of its right to nominate its directors to the Board of respondent Nos.6 company. A different interpretation of section 25(3) will bring about an unreasonable restriction on the power of petitioner No. 1 company to choose its directors to represent it in the Board of a financial institution like respondent No. 6.

11. From the language employed in section 25(3) of the Arthik Protisthan Ain, 1993 we do not find any indication whatsoever that it applies to individual directors and not to nominee directors. The bar is absolute and it covers both types of directors, that is the reason why a notification had to be issued under section 48 exempting the nominee-directors of the Government, bank, insurance companies and other financial institutions from the mischief of section 25(3). After the withdrawal of that exemption, there is a revival of section 25(3) with all its rigours and petitioner Nos. 2 and 3 cannot escape from the consequence of the withdrawal of exemption.

12. We do not see how section 25(3) imposes restriction on a shareholder bank, insurance company or any other financial institution to put its nominee on the Board of a financial institution like respondent No. 6. Mr. Rokanuddin Mahmud did not lay his hands on any provision of any law that a banking company can only be represented by its directors on the Board of any other company in which the said institution has a shareholding interest. Even if such a provision is available in the Companies Act, 1994, section 3 of the Arthik Protisthan Ain, 1993 explicitly provides that this Act will have an over riding effect on any other existing law.

13. It will be for the petitioner No. 1 company to devise ways and means as to how and in what manner it will nominate its directors on the Board of respondent No. 6 company. But in view of the express provisions in section 25(3) the petitioner No. 1 company cannot continue to retain petitioner Nos. 2 and 3 as directors of respondent No. 6 company.

14. Mr. Rokanuddin Mahmud next submits that when all other corporate institutions like non- banking, non-insurance companies and non financial institutions have and do enjoy the right to be represented by its directors in a financial institution petitioner No. 1 company cannot be deprived of the right of representation by its directors which will be a discriminatory act.

15. We are of the opinion that the embargo on banks, insurance companies and other financial institutions to nominate its directors on the Board of a financial institution is based on a reasonable classification. It appears to us to be obvious that the legislative policy is to exclude the same set of persons to manage, control, regulate and monopolize the policy-making functions of capital- generating financial institutions, A textile manufacturing company is generating goods and it may not be immoral from the point of view of financial policy to allow the directors of such a company’ to be represented on the Board of a financial institution in which the textile manufacturing company may have a share holding interest. But it appears to be the policy of the legislature that directors of capital-generating institutions should not be allowed to flock together in a financial institution to control and monopolize the capital market.

16. We, therefore, do not find any substance in the submissions made by Mr. Rokanuddin Mahmud.

Accordingly, the petition is dismissed.

Ed.

Source: 51 DLR (AD) (1999) 262