9911796707
TMI Blog1980 (8) TMI 158X X X X Extracts X X X X X X X X Extracts X X X X ..... ited company later on and by any standard is a public company of good standing and has had commendable growth. Its total income for the financial year 1975-76 was Rs. 61 crores, for 1976-77 Rs. 69 crores, for 1977-78, Rs. 102 crores and for 1978-79 Rs. 143 crores. Its profit after tax for the financial year 1975-76 was Rs. 116 crores, for 1976-77, Rs. T58 crores, for 1977-78, Rs. 3.00 crores and for 1978-79 Rs. 9 15 crores. The company has been paying dividends regularly varying from 9 per cent, to 22 per cent, per annum ever since it became a public limited company in 1955. The figures of total managerial remuneration paid to the highest paid whole-time director of the first petitioner at a percentage of the net profits in accordance with the provisions of the Companies Act, 1956, hereinafter referred to as the Act, for the financial years ending on 31st October of each year has been as follows : 31-10-77 31-10-78 31-10-79 (i) Percentage of total managerial remuneration 3.7 5.5 1.5 (ii) Maximum percentage of remuneration to any whole-time director 0.95 1.34 0.35 Prior to November 1, 1977, the company's business consisted mainly of manufacture of jeeps, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mission at half per cent, not exceeding Rs. 35,700 per annum. Before making these appointments the company had obtained the approval of the financial institutions, i.e., the Industrial Development Bank of India, the Life Insurance Corporation of India and the Industrial Credit and Investment Corporation of India, from which three institutions the company had received long-term loans of substantial amounts. These three institutions had approved the appointment of petitioners Nos. 4, 5 and 6 as executive directors on the terms mentioned above. By an application dated November 28, 1978, addressed to the respondents, the company applied for approval of the appointment of the three petitioners as executive directors of the said company on the aforesaid terms in view of the provisions of section 269 of the Act. All the relevant information required was sent along with the application. On April 23, 1979, the shareholders of the company, in a general meeting, unanimously approved the appointment of petitioners Nos. 4, 5 and 6 as executive directors of the company and on the terms on which they were appointed. It is contended on behalf of the petitioners, and not disputed by the respondents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... originally given in respect of provident fund and superannuation fund but did not make any change in the remuneration already sanctioned. In effect, therefore, the prayer stood rejected. In the meanwhile the company had also made an application to the respondent for grant of approval to the re-appointment of its chairman, Mr. Keshub Mahindra, as chairman and whole-time director, for a fresh term of five years from August 1, 1979, on the same terms and conditions which were applicable to him prior to August 1, 1979. By a letter dated July 26, 1979, the Central Govt. approved the re-appointment of Mr. Keshub Mahindra as chairman and director fixing his salary at Rs. 5,000 per month plus commission and perquisites. The salary was reduced by this approval from Rs. 10,000 per month which he had been drawing since 1964 to Rs. 5,000. The said letter also did not contain any reasons. By its letter dated August 21, 1979, the company requested the respondent to reconsider its decision contained in the said letter dated July 26, 1979. It was, inter alia, pointed out: (i)that the sanctioned remuneration was 47 per cent, less than the remuneration approved by the respondent in 1964, with reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entral Govt. in its Dept. of Company Affairs on November 9, 1978-See [1978] 48 Comp Cas (St.) 232. A copy of these guidelines has been produced on record and is marked as Ex. A-2. These guidelines, inter alia, lay down, amending the earlier guidelines of November, 1969, that the Government has the power to fix the remuneration of inanaging/whole-time directors and managers of a company and that while giving approval to appointments and remuneration the provisions of section 637AA are to be kept in view and the Central Govt. would have regard to the "public policy relating to the removal of disparities in income". It is further laid down in para. 4 of the said guidelines as under : "The case for reduction of ceilings: The Central Government have carefully reviewed the entire question of managerial remuneration in the context of socio-economic objectives of State Policy and the need of establishing a co-relation in managerial remuneration at comparable levels of responsibility in Government, public sector undertakings and public limited companies. In this connection, the recommendations of the Study Group on Wages, Income and Prices (Bhoothalingam Committee), whose report was publis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... five years be ordered to be approved in accordance with law. By way of return to the rule nisi obtained by the petitioners the respondent has filed the affidavit of Mr. C. Khushaldas, a director in the Dept. of Company Affairs of the Ministry of Law, Justice and Company Affairs. He has denied that the impugned circular dated November 9, 1978, is arbitrary, discriminatory or violative of articles. 14 and 19 of the Constitution. He disputes that the said guidelines place any unreasonable or arbitrary restrictions on the fundamental rights of the board of directors of the company or its shareholders. He has referred to the aims and objects of enacting section 637AA of the Act as follows (See 42 Comp. Cas. (St.) 245, clause 36): "This clause is intended to make it clear beyond doubt that the Central Government has power to adopt an administrative ceiling within the statutory ceiling fixed by sections 309 and 198 of the Companies Act, 1956, in regard to managerial remuneration. The High Court of Delhi has also suggested an amendment of the Act in case it is intended to give effect to any such administrative ceilings within the statutory ceilings. This amendment has accordingly been p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isparity in the income of a class of persons as compared with others. In formulating the guidelines, no statutory provisions have been overlooked. In fact, all considerations applicable to sections 637A and 637AA of the Act have, inter alia, been cumulatively assessed before the guidelines were finalised and issued. The guidelines do not place any fetter on the powers conferred by the Act on the Company Law Board or on the Central Government. The provisions contained in the circular relating to ' expatriates ' and ' persons possessing high or rare skills are neither vague nor arbitrary". In para. 7 of his affidavit it is admitted by Mr. Khushaldas that the impugned guidelines were the basis of the impugned orders issued with regard to petitioners Nos. 4, 5 and 6 and Mr. Keshub Mahindra. However, the letters conveying the impugned orders do not state that the impugned guidelines were the basis on which orders were issued by the Central Govt. A rejoinder was filed on behalf of the petitioners to the counter-affidavit filed on behalf of the respondent. After reiterating what has been said in the petition it has been pointed out that the impugned guidelines are applicable only to pub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are said to have been issued in conformity with the directive principles of State policy contained in the Constitution, the recommendations of the aforesaid two Committees and "the view of several cross-sections of enlightened public opinion". In other words, it is not disputed that the impugned guidelines were issued in consequence of the Government policy. It. has not been specifically said that there was any public policy. With regard to the Bhoothalingam Committee and the Sachar Committee the petitioners have placed on record a communication dated October 6, 1979, received by the first petitioner from the respondent that the remuneration of Mr. Keshub Mahindra had been scaled down from Rs. 10,000 to Rs. 5,000 per month "having regard to the facts and circumstances of the case including the present policy of the Central Government". The same was the stand of the respondent with regard to the remuneration sanctioned for petitioners Nos. 4, 5 and 6. It is in this context, therefore, that a point arises for consideration as to whether public policy, Government policy and public interest would be synonymous terms. The relevant portion of article 38 of the Constitution contained in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e be exercisable by him, and includes a director occupying the position of a managing director, by whatever name called : Provided that the power to do administrative acts of a routine nature when so authorised by the board such as the power to affix the common seal of the company to any document or to draw and endorse any cheque in the account of the company in any bank or to draw and endorse any negotiable instrument or to sign any certificate of share or to direct registration of transfer of any share, shall not be deemed to be included within substantial powers of management : Provided further that a managing director of a company shall exercise his powers subject to the superintendence, control and direction of its board of directors". Section 198(1) reads as under: "The total managerial remuneration payable by a public company or a private company which is a subsidiary of a public company, to its directors and its managing agent, secretaries and treasurers or manager in respect of any financial year shall not exceed eleven per cent, of the net profits of that company for that financial year computed in the manner laid down in sections 349, 350 and 351, except that the .re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... articles of the company, or by a resolution or, if the articles so require, by a special resolution, passed by the company in general meeting and the remuneration payable to any such director determined as aforesaid shall be inclusive of the remuneration payable to such director for services rendered by him in any other capacity; Provided that any remuneration for services rendered by any such director in any other capacity shall not be so included if- (a)the services rendered are of a professional nature, and (b)in the opinion of the Central Government, the director possesses the requisite qualifications for the practice of the profession". Sub-section (3) of section 309 lays down that a director, who is either in the whole-time employment of the company or a managing director, may be paid remuneration either by way of a monthly payment or at a specified percentage of the net profits of the company or partly by one way and partly by the other provided that except with the approval of the Central Govt. such remuneration shall not exceed five per cent, of the net profits for one such director and if there is more than one such director, ten per cent, for all of them together. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ictions as it may think fit to impose and may, in the case of contravention of any such condition, limitation or restriction, rescind or withdraw such approval, sanction, consent, confirmation, recognition, direction or exemption". Section 637AA was enacted as a consequence of a judgment of this court and reads as under : "637AA. Notwithstanding anything contained in section 198, section 309 or section 637A, the Central Government may, while according its approval under section 269, to any appointment or to any remuneration under section 309, section 310, section 311 or section 387, fix the remuneration, of the person so appointed or the remuneration, as the case may be, within the limits specified in this Act, at such amount or percentage of profits of the company, as it may deem fit and while fixing the remuneration, the Central Government shall have regard to- (a)the financial position of the company; (b)the remuneration or commission drawn by the individual concerned in any other capacity, including his capacity as a sole selling agent; (c)the remuneration or commission drawn by him from any other company; (d) professional qualifications and experience of the individual c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gaming or wagering contract, or, what is relevant here, the assisting of the King's enemies, are all undoubtedly unlawful things; and you may say that it is because they are contrary to public policy they are unlawful; but it is because these things have been either enacted or assumed to be by the common law unlawful, and not because a judge or court have a right to declare that such and such things are in his or their view contrary to public policy. Of course, in the application of the principles here insisted on, it is inevitable that the particular case must be decided by a judge; he must find the facts, and he must decide whether the facts so found do or do not come within the principles which I have endeavoured to describe-that is, a principle of public policy, recognised by the law, which the suggested contract is infringing, or is supposed to infringe". Therefore, it is very difficult to say precisely what is public policy. Nevertheless it is something quite distinct from government policy and on that count one could have no doubts. The distinction between Government policy and public policy can more readily be understood if one takes a few examples. It would be public pol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ines. The contention of the petitioner was that the Company Law Board, to which the power of approval had been delegated, in granting approval to the appointment of managing directors could not, pursuant to the administrative policy of the Government, impose a condition that the total remuneration of each managing director by way of commission and salary shall not exceed Rs. 1,20,000 per annum. It was contended that the sanction for the fixing of the remuneration had to be given in accordance with the provisions of sections 198, 269(1) and 309 of the Act and not pursuant to an administrative policy. This court held that a study of the scheme of the Companies Act showed that the Legislature had itself occupied the entire ground relating to the fixation of the remuneration of the managing director. It has left nothing to be done regarding such remuneration by the Government or the Board except when the remuneration was to be enhanced above the statutory limits under the provisos to sections 198(4) and 309(3). Any condition regarding remuneration which is contrary to the provisions of sections 198 and 309 could not be germane to section 269 inasmuch as the Legislature had exhaustively ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w the power is to be exercised. Section 637AA starts with a non obstante clause purporting to exclude the strict connotation of section 198 or section 309 or section 637A and so, gives a flexibility to governmental action. This flexibility given by Parliament is not, however, absolute. In terms, the latter portion of section 637AA lays down that the Central Govt. is to fix the remuneration " within the limits specified in this Act, at such amount or percentage of profits of the company, as it may deem fit". The further guideline given to the Central Govt. by section 637AA in fixing the remuneration is mandatory for the section lays down that the Central Govt. shall (emphasis supplied) have regard to : "(a) the financial position of the company; (b) the remuneration or commission drawn by the individual concerned in any other capacity, including his capacity as a sole selling agent; (c) the remuneration or commission drawn by him from any other company; (d) professional qualifications and experience of the individual concerned; (e) public policy relating to the removal of disparities in income". Therefore, the Central Govt. cannot fix the remuneration of the person concerned n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sugar Mills Ltd. would apply. This theoretical aspect need not be commented upon inasmuch as it is clearly the stand of the respondent in its correspondence with the first petitioner that the remuneration has been fixed keeping in view "the present policy of the Central Government" and at best the administrative instructions contained in the impugned guidelines. Though it has been said in the affidavit that the impugned guidelines were issued keeping the provisions of section 637A in view, the respondent seems to forget that the manner of the exercise of the power under section 637A has been clearly delineated by Parliament by section 637AA. Therefore, the existence of a public policy was a sine qua non before taking a decision as to how the disparities in income were to be reduced. Further, in considering individual applications it was the duty of the Central Govt. not only to take into consideration the guidelines formulated but also the factors set out in clause (a) to (d) of section 637AA. Indeed, one may well say that the ratio of the decision of the Supreme Court in Upper Doab Sugar Mills Ltd.'s case [1977] 47 Comp Cas 173, could well be attracted in respect of approvals to ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
