Concept of Public Interest and Its Impingement on Company Law :
The expression “public interest” is an elusive abstraction; it means general welfare of the society or “regard for social good” and pervades interest of the general public in matters where regard for the social good is of the first moment.
A thing is said to be in public interest where it is or can be made to appear to be contributive to the general welfare rather than to the special privileges of a class, group or individual. In common parlance, it is assumed to denote the interest to the community or nation as a whole as well as the State Government, which represents it. “The expression i s not capable of precise definition and has not a rigid meaning, and is elastic and takes its colours from the statute in which it occurs, the concept varying with the time and state of society and its needs. Thus, what is „public interest‟ today may not be so considered a decade later. In any case, the expression cannot be considered in vacuum but must be decided on the facts and circumstance”. [Per Chief Justice Mahajan in State of Bihar vs. Kameshwar, A.I.R. 1952 SC 252].
Since the concept of public interest is bound to undergo frequent changes with a change in our social, political and economic values, no hard and fast definition can be and actually has been, laid down by the Act. Whatever furthers the general interests of the community as opposed to the particular interest of the individual (a company formed and registered under the Act is a legal person) is to be considered as “public interest”, i.e., an interest in which the community is directly and vitally concerned. A survey of the provisions of the Act would reveal the truth of the statement that the concept of public interest has been making rapid in -roads into the Indian Company Law, e.g., Sections 396, 397, 398, 408 etc.
A survey of the provisions of the Act would reveal the truth of the statement that concept of “public interest” has been making rapid in roads into the Indian Company Law:
(i) Section 396, as you have seen earlier, empowers the Central Government to provide for compulsory amalgamation of companies (notwithstanding anything contained in sections 394 and 395) into a single company in the public interest . It may be noted that the expression “national interest” was used in 1956. The Amendment Act of 1960 brought the substitution of “public interest‟ for “national interest‟ into effect. The Indian Companies Act, 1913 contained no provisions similar to those of section 396. Therefore, the Companies Act, 1956, made such provision in the Company Law for the first time.
(ii) There may be a case where a transfer of shares in a company has taken place or is likely to take place and, as a result thereof a change in the composition of the Board of directors is likely to take place; and further such a situation (in the CLB‟s opinion) may be prejudicial to the public interest. In such a case, the CLB is empowered, under sections 250(3) and (4) to impose restrictions on such transfers e.g. the voting rights in respect of such shares shall not be exercisable for the period specified not exceeding three years or the resolution approving the transfer of such shares should shall not have effect unless confirmed by the CLB. Thus, the Amendment Act of 1960 has extended the provisions of section 250 in public interest also.
(iii) Under section 397, the member of a company has given the right to file an application to the Company Law Board for appropriate relief where the affairs of the company are being conducted, inter alia, in a manner prejudicial to public interest provided the requirements of section 399 are fulfilled.
(iv) Under section 398, the shareholder company can file an application to the Company Law Board for relief in cases (a) where the affairs of the company are being conducted in a manner prejudicial to public interest.
(v) Under section 408, the Central Government is empowered to appoint such number of persons as the Company Law Board may, by order in writing specify being necessary to hold office as directors in the company to effectively safeguard public interest (besides the interest of the company or its shareholders). Such an order may be made on a reference made to it by the Central Government or on an application of not less than 100 members of the company or of the members holding 1/10th of the total voting power therein.
(vi) Under section 394(1) of the Companies Act, 1956, the Court has been empowered: (a) to refuse its sanction to any compromise or arrangement in connection with a scheme for the amalgamation of a company which is being wound up, with another company where it receives a report from the Registrar that the affairs of the company have been conducted inter alia in a manner prejudicial to public interest; and (b) to refuse the dissolution of any transferor company under clause (iv) of section 394(1) where it receives a report from the Official Liquidator (on security of the books and papers of the company) that the affairs of the company have been conducted, inter alia in a manner prejudicial to public interest.
(vii) The office of public trustee has been set up so as to enable him to take over the voting rights of shares and debentures held in trust from their trustees to be exercised in such manner as he may determine (sections 153A and 153B). The object of this was to ensure that voting powers attaching to funds held in trust for the company or the public were exercised to promote the public interest and not to further those of private individuals who had formed tax – free trusts ostensibly for “public motives‟.
The Central Government is empowered to state a case against managerial personnel to the Company Law Board under section 388B where the circumstances suggest the company is or has been conducted and managed by such person in a manner which is likely to cause or has caused serious injury or damage to the interests of trade, industry or business to which such company pertains {vide} Amendment Act of 1988.