TMI Blog2016 (2) TMI 583X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, had no right to be continued as Managing Director, unless a special resolution was passed by the Company. There is no question therefore of the retrospective application of the provision. Since Section 196(3)(a) would apply prospectively, whoever attains the age of 70 after the Amendment Act came into force would cease to function as Managing Director by operation of statute. In the present case, prior to 2013 Amendment Act, appointment after the age of 70 years was not permissible subject to proviso but after the Amendment Act came into force, this was added as disqualification for further continuation of a person after he attained the age of 70 years. In a case therefore where the appointment is already made and thereafter eligibility criteria is changed then, in that event, it could be said that the vested right is created in a person who is already appointed prior to the amendment and additional eligibility criteria could not be applied retrospectively. However, in a case where additional disqualification is added to the Section then in such a case, after disqualification is incurred after his initial appointment, he would cease to continue as Managing Director since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1st Defendant- Company. On 1st August, 2012 the 2nd Defendant was reappointed as Chairman and Managing Director of the 1st Defendant-Company for a period of further five years till 2017 and the Plaintiff was appointed as Joint Managing Director of the 1st Defendant-Company. 5. On 1st April 2014, Companies Act was amended and by the Amendment Act of 2013, a new clause was introduced in Section 196(3)(a). By virtue of the said amendment vide sub-clause (3)(a), additional disqualification was added to the disqualifications which already existed in the said provision namely a Managing Director could not be appointed or continued after he had attained the age of 70 years. The said amendment admittedly came into force on 01/04/2014. Defendant No.2 was appointed for a period of five years as MD on 01/08/2012, prior to the amendment. The contention of the Plaintiff is that in view of the incorporation of the said clause in section 196(3)(a), Defendant No.2 could not continue as MD and, therefore, he has sought an order of injunction, restraining him from functioning or continuing to exercise his powers as Chairman and MD of the 1st Defendant-Company. 6. On the other hand, it was cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpanies (Amendment) Act, 1988, no appointment of a person as a managing or whole-time director or a manager in a public company or a private company which is a subsidiary of a public company shall be made except with the approval of the Central Government unless such appointment is made in accordance with the conditions specified in Parts I and II of Schedule XIII (the said Parts being subject to the provisions of Part III of that Schedule) and a return in the prescribed form is filed within ninety days from the date of such appointment. 12. Part-I of Schedule XIII of the Companies Act reads as under:- SCHEDULE XIII (See sections 198, 269, 310 and 311) CONDITIONS TO BE FULFILLED FOR THE APPOINTMENT OF A MANAGING OR WHOLE-TIME DIRECTOR OR A MANAGER WITHOUT THE APPROVAL OF THE CENTRAL GOVERNMENT PART I APPOINTMENTS No person shall be eligible for appointment as a managing or whole-time director or a manager (hereinafter referred to as managerial person) of a company unless he satisfies the following conditions, namely:- (a)........ (b)......... (c) he has completed the age of 25 years and has not attained the age of 70 years: Provided that wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. The legislative intent in introducing section 196(3)(a) is quite clear. Obviously, the intention was to change the earlier position by providing that the person who has been appointed as Managing Director before he was 70 years old is prohibited from continuing as Managing Director once he has attained the age of 70. The Apex Court in Rama Narang vs. Ramesh Narang and Others(1995) 2 SCC 513 had an occasion to interpret Section 267 of the Companies Act. The Apex Court in the said case was called upon to decide the question whether the Managing Director was liable to be removed upon his conviction and sentence by Additional Sessions Judge, Delhi notwithstanding the admission of the appeal by the Delhi High Court and notwithstanding the stay granted by the Delhi High Court to the order of conviction and sentence. The Apex Court in para 10 of the said judgment has examined the said question and has observed as under:- 10. The above resume would show that the principal question which falls for our determination is whether the appellant is liable to be visited with the consequence of Section 267 of the Companies Act notwithstanding the interim order passed by the Delhi High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as stated hereinabove but sub-section (2) thereof, inter alia, provides that the disqualification shall not take effect for thirty days from the date of sentence and if an appeal is preferred during the pendency of appeal till seven days after the disposal of the appeal. This benefit is not extended in the case of a Managing Director. The Companies Act has, therefore, drawn a distinction between a Director and a Managing Director; the provisions in the case of the latter are more stringent as compared to that of the former. And so it should be because it is the Managing Director who is personally responsible for the business of the Company. The law considers it unwise to appoint or continue the appointment of a person guilty of an offence involving moral turpitude to be entrusted or continued to be entrusted with the affairs of any company as that would not be in the interests of the shareholders or for that matter even in public interest. As a matter of public policy the law bars the entry of such a person as Managing Director of a company and insists that if he is already in position he should forthwith be removed from that position. The purpose of Section 267 is to protect the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the judgment in Rama Narang (supra) would not apply to the present case. We also do not find force in the submission of Mr. Seervai, the learned Senior Counsel for Respondent No.2 that Section 196(3)(a) would not apply to the Managing Directors who had been appointed before 01/04/2014 (which is the date on which the the amended section 196(3)(a) was brought into force) as it would otherwise retrospectively affect the vested right of such Managing Directors and, secondly, that there is presumption against legislation operating retrospectively. 17. In our view, Mr. Aspi Chinoy, the learned Senior Counsel appearing on behalf of the Appellant has correctly submitted that the amended Section as a matter of public policy contains mandatory prohibition/bar against any Company from continuing the Managing Director in employment once he has attained the age of 70 years. The language of section 196(3)(a) is plain, simple and unambiguous and it applies to all the Managing Directors who have attained the age of 70 years and the Section does not make any distinction between the Managing Directors who have been appointed before 01/04/2014 and those after 01/04/2014. The moment therefore M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on the earlier Judgment of the Apex Court in Trimbak Damodhar Rajpurkar vs. Assaram Hiraman Patil1962 Suppl 1 SCR 700. In the said case, the Apex Court was called upon to consider the question as to whether the amendment made to section 5 of the Bombay Tenancy and Agricultural Lands Amendment Act could be said to be retrospective because its operation took within its sweep existing rights. In the said case five judges Bench of the Apex Court held that Section 5 had no retrospective operation. The Apex Court, in the said case of P. Suseela (supra), relied upon the observations made by the Apex Court in Trimbak Damodhar Rajpurkar (supra), which read as under:- In this connection it is relevant to distinguish between an existing right and a vested right. Where a statute operates in future it cannot be said to be retrospective merely because within the sweep of its operation all existing rights are included. As observed by Buckley L.J. in West v. Gwynne [(1911) 2 Ch 1 at pp 11, 12] retrospective operation is one matter and interference with existing rights is another. If an Act provides that as at a past date the law shall be taken to have been that which it was not, that Act I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from his tenant. It was observed in that judgment that a notice under Section 34(1) is merely a declaration to the tenant of the intention of the landlord to terminate the tenancy; but it is always open to the landlord not to carry out his intention. Therefore, for the application of the restriction under sub-section 2(a) on the right of the landlord to terminate the tenancy, the crucial date is not the date of notice but the date on which the right to terminate matures; that is the date on which the tenancy stands terminated . (Emphasis supplied) The Apex Court then observed in para 15 of its judgment in P.Suseela (supra) as under:- 15. Similar is the case on facts here. A vested right would arise only if any of the appellants before us had actually been appointed to the post of Lecturer/Assistant Professors. Till that date, there is no vested right in any of the appellants. At the highest, the appellants could only contend that they have a right to be considered for the post of Lecturer/Assistant Professor. This right is always subject to minimum eligibility conditions, and till such time as the appellants are appointed, different conditions may be laid down at different ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 267. Since a new clause was added as further disqualification for appointment or continuation as Managing Director of the Company, it would operate not only at the stage of appointment but also would operate in the case of a person who has already been appointed and attained the age of 70 years and such a person, therefore, by virtue of disqualification, had no right to be continued as Managing Director, unless a special resolution was passed by the Company. There is no question therefore of the retrospective application of the provision. Since Section 196(3)(a) would apply prospectively, whoever attains the age of 70 after the Amendment Act came into force would cease to function as Managing Director by operation of statute. Ratio of the said judgments therefore on the retrospective application, which have been relied upon by the learned Senior Counsel appearing on behalf of Respondent No.2 viz. in K.S. Paripoornan vs. State of Kerala and others(1994) 5 SCC 493 (paras 64-68), Commissioner of Income Tax, U.P. vs. M.S. Shah Sadiq and Sons(1987) 3 SCC 516 (Para 15), J.S. Yadav vs. the State of Uttar Pradesh and another(2011) 6 SCC 570 (paras 20-24 and 28-29) and other judgments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was placed on a Circular issued by Government of India, Ministry of Industry (Department of Company Affairs), in the context of the Companies (Amendment) Act, 1988 clarifying that the conditions specified in Schedule XIII Part-1 of the 1956 Act were required to be satisfied only at the time of appointment. It further observed that if the appointee, after appointment, did not satisfy any of the said conditions, it would not debar the person concerned from continuing in office for the full tenure of his appointment. Secondly, reliance was also placed on Schedule-V of 2013 Act which is also in pari materia with Schedule XIII of 1956 Act which speaks about the conditions to be fulfilled for the appointment of managing or full time Director or Manager without the approval of the Central Government. It was submitted that Clause (c) of Schedule-V of 2013 Act is exactly the same as Section 196(3)(a) and therefore it was submitted that Section 196(3)(a) would apply only in cases of appointment. 24. In our view, again, the said submission is without any substance. As mentioned hereinabove, prior to the amendment, section 196(3)(a) was a part of section 269 which mentioned the eligibilit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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