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2016 (2) TMI 583 - BOMBAY HIGH COURT

2016 (2) TMI 583 - BOMBAY HIGH COURT - TMI - Effect of amendment of the Companies Act in 2013 - Appointment of M.D. - whether, after the amendment of the Companies Act in 2013 which was brought into force with effect from 01/04/2014, any Managing Director who was appointed prior to the Amendment Act i.e. before 01/04/2014 would have a right to continue to act as Managing Director after his attaining the age of 70 years without special general resolution being passed by the Company in its general .....

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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. .....

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pointed 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 the disqualification would operate as cesession or discontinuation to work as Managing Director. In our view, the learned Single Judge has failed to note this distinction betwee .....

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fillment of the proviso. On the other hand, if he was already appointed prior to 1-4-2014 when he was below the age of 70 years, on account of operation of statute, disqualification, whenever incurred after the Amendment Act, would operate automatically, subject to proviso i.e. special resolution being passed by the Company. Appeal allowed. - APPEAL (L) NO.632 OF 2015, NOTICE OF MOTION (L) NO.434 OF 2015, SUIT (L) NO.146 OF 2015, NOTICE OF MOTION (L) NO.2250 OF 2015 - Dated:- 8-2-2016 - V. M. KA .....

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d order, the learned Single Judge dismissed the Notice of Motion taken out by the Plaintiff and refused to grant an order of injunction, restraining Respondent No.2/Original Defendant No.2 from functioning or continuing to exercise his powers as Chairman and Managing Director of the 1st Defendant- Company. 2. Brief facts which are relevant for the purpose of deciding this appeal are as under:- 3. For the purpose of convenience, parties shall be referred to as Plaintiff and Defendant . 4. Appella .....

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t 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 01/08/2 .....

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could not operate retrospectively. The learned Single Judge accepted the contention of Defendant No.2 and dismissed the Notice of Motion. Hence, the appeal. 7. We have heard both the learned Senior Counsel at length. 8. The short question which falls for consideration before this Court is : whether, after the amendment of the Companies Act in 2013 which was brought into force with effect from 01/04/2014, any Managing Director who was appointed prior to the Amendment Act i.e. before 01/04/2014 w .....

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is an undischarged insolvent, or has at any time been adjudged as an insolvent, (b) suspends, or has at any time suspended, payment to his creditors, or makes, or has at any time made, a composition with them; or (c) is, or has at any time been convicted by a Court of an offence involving moral turpitude. 10. Prior to the Amendment Act of 2013, Section 267 provided that certain persons could not be appointed as Managing Directors and no Company shall continue the appointment or employment of any .....

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in section 269(2). Section 269 (2) of the Companies Act reads as under:- 269. Appointment of managing or whole-time director or manager to require Government approval only in certain cases.- (1) …....... (2) On and from the commencement of the Companies (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 Go .....

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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 where - (i) he has not completed the age of 25 years, but has attained the age of majority; .....

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lution passed by the Company in its general meeting. Thus, by the amendment, the eligibility criteria was introduced as a disqualification. 14. This position changed after the amendment in 2013. Section 196(3) provided disqualification for appointment as well as for continuation of a person as Managing Director. The said section 196(3) not only incorporated three disqualifications which were mentioned in Section 267 for a person to be appointed as MD viz. (a) a person who is an undischarged inso .....

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No company shall appoint or continue the employment of any person as managing director, whole-time director or manager who - (a) is below the age of twenty-one years or has attained the age of seventy years: Provided that appointment of a person who has attained the age of seventy years may be made by passing a special resolution in which case the explanatory statement annexed to the notice for such motion shall indicate the justification for appointing such person; (b) is an undischarged insol .....

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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 Hig .....

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appellant's appeal against his conviction and sentence by the Additional Sessions Judge, Delhi. As we have said earlier the factum of his conviction and the imposition sentence is not in dispute. Section 267 of the Companies Act, to the extent it is relevant for our purposes, may be set out:- 267. No company shall, after the commencement of this Act, appoint or employ, or continue the appointment or employment of any person as its managing or wholetime Director who- (a) * * * (b) * * * (c) .....

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onviction by a court of an offence involving moral turpitude shall be appointed or employed or continued in appointment or employment by any company as its managing or whole-time Director in 1990 after his conviction on 22-12- 1986. On the plain language of Section 267 of the Companies Act, the Company had, in making the appointments, committed an infraction of the mandatory prohibition contained in the said provision. The section not only prohibits appointment or employment after conviction but .....

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incurred by any person either generally or in relation to any company or companies specified in the notification to be published in the Official Gazette. Such a power is, however, not available in the case of a Managing Director. Secondly, Section 283 of the Companies Act provides that the office of a Director shall become vacant if convicted and sentenced as stated hereinabove but sub-section (2) thereof, inter alia, provides that the disqualification shall not take effect for thirty days from .....

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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 t .....

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the case of a Managing Director who runs the affairs of the company and remains in overall charge of the business carried on by the company. Such a person must be above board and beyond suspicion. (Emphasis supplied) In our view, ratio of the said judgment would squarely apply to the facts of the present case. The Apex Court has therefore held that the language in which the provision is couched is plain, simple and unambiguous and does not admit of more than one meaning viz that after the commen .....

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e proviso viz that the Company has to continue his appointment by a special resolution and, secondly, that the resolution must state the reason why the continuation is necessary. The said disqualifications which are mentioned in clauses (a) to (d) cannot be fractured or split or dissected to mean that disqualifications (b) to (d) would operate instantly but clause (a) viz appointment or continuation of Managing Director beyond the age of 70 years would operate in a different manner than the rema .....

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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 retrospectivel .....

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ot make any distinction between the Managing Directors who have been appointed before 01/04/2014 and those after 01/04/2014. The moment therefore Managing Director attains the age of 70 years, disqualification mentioned in Section 196(3) (a) would operate immediately. In our view, it is not open now to alter its clear terms by a process of interpretation for excluding the Managing Directors appointed prior to 01/04/2014 from the purview of prohibition contained in Section 196(3). The disqualific .....

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of Respondent No.2, in support of his submission, had relied on the judgment in P. Suseela and Ors. vs. University Grants Commission and Ors. 2015(3) SCALE 726. His submission was that section 196(3)(a) would not operate to affect the vested right of Managing Director before 01/04/2014. In the said case, facts were as under:- In the said case, constitutional validity of the University Grants Commission Regulations, 2009 under which NET/SLET was to be the minimum eligibility condition for recruit .....

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ions laid down would not apply to M.Phil and Ph.D. degrees awarded prior to 31/12/2009. However, by subsequent judgment dated 06/01/2014, the said Regulations were upheld by the Allahabad High Court. In the Apex Court, a submission was made that the said Regulations should not be given retrospective effect so as not to prejudicially affect the interest of any person to whom such Regulations may be made applicable. The Apex Court then observed that it was necessary to make distinction between the .....

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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. .....

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o the ambit and scope of the Act, and not as to the date as from which the new law, as enacted by the Act, is to be taken to have been the law. . These observations were made in dealing with the question as to the retrospective construction of Section 3 of the Conveyancing and Law of Property Act, 1892 (55 & 56 Vict. c. 13). In substance Section 3 provided that in all leases containing a covenant, condition or agreement against assigning, underletting, or parting with the possession, or disp .....

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kley, L.J., this construction did not make the Act retrospective in operation; it merely affected in future existing rights under all leases whether executed before or after the date of the Act. The position in regard to the operation of Section 5(1) of the amending Act with which we are concerned appears to us to be substantially similar. A similar question had been raised for the decision of this Court in Jivabhai Purshottam vs. Chhagan Karson [Civil Appeal No.153 of 1958 decided on 27-3- 1961 .....

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the amending Act was no more than this that it imposed a new and additional limitation on the right of the landlord to obtain possession 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 termin .....

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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 times. Merely because an additional eligibility condition in the form of NET test is laid down, it does not mean that any vested right of the appellants is affected, nor .....

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elied on the judgment of the Apex Court in P. Suseela (supra) and in para 9 observed that the observations of the Apex Court in para 15 of the said judgment would be applicable to the facts of the present case. The learned Single Judge observed that since the second Defendant was already a Chairman and Managing Director of the 1st Defendant when he turned 70, the 2013 Act could not operate as an immediate termination of his appointment, as that would give a retrospective application to the 2013 .....

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sted right was created in any of the Appellants. It held that, at the most, the Appellants could contend that they have a right to be considered for the post of Lecturer/Assistant Professor and, secondly, it held that this would not mean that Regulations laying down such minimum eligibility criteria would be retrospective in operation. 21. In our view, the learned Single Judge has erred in holding that ratio of the said judgment is applicable to the facts of the present case. It has to be borne .....

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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 th .....

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the present case. In J.S. Yadav (supra), facts were that the appellant was a member of the State Human Rights Commission. The provision requiring seven years' experience as a District Judge was brought into force after his appointment. The Apex Court held that he had vested right to complete his tenure. In our view, ratio of the said judgment would not apply to the facts of the present case. A distinction will have to be made between addition of eligibility criteria to the existing provision .....

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t, 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 the disqualification would operate as cesession or discontinuation to work as Managing Director .....

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the General Clauses Act 1897 will not be applicable in the present case. 23. The last submission made by Mr. Seervai, the learned Senior Counsel for Respondent No.2 was that executive interpretation of the said section supported the interpretation placed by the Respondent No.2 on Section 196(3)(a). Reliance 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 conditi .....

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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 eligib .....

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