1990 (10) TMI 262 - HC - Companies Law

Summary

Issues:
Challenge to the Central Government's refusal to approve the appointment of the petitioner as managing director of the company, interpretation of provisions of section 269 of the Companies Act regarding approval of managing director appointments, validity of the appointment of the petitioner as managing director, and entitlement to draw salary.

Analysis:
The judgment concerns the challenge to the Central Government's refusal to approve the petitioner's appointment as managing director of the company. The petitioner filed an application seeking approval of the appointment, which was rejected by the first respondent despite the company providing an explanation. Subsequently, the review petition filed by the petitioner was also rejected. The final order rejecting the application was served after the expiry of the petitioner's appointment period as managing director. The crux of the issue lies in the interpretation of section 269 of the Companies Act, which mandates that the appointment of a managing director must be approved by the Central Government for it to have any effect.

The conflicting provisions of section 269 were analyzed by the court. Subsection (1) requires Central Government approval for the appointment to be effective, while subsection (5) states that if approval is not granted, the appointed individual must vacate the office upon communication of the decision, with a provision for fines if they fail to do so. The court delved into established canons of statutory interpretation to resolve the conflict. It concluded that subsection (5) prevails, indicating that the refusal of approval does not render the appointment ineffective, and the individual can continue as managing director by paying fines, irrespective of approval status.

Moreover, the court addressed the irregularities highlighted in the show-cause notice, emphasizing that even if these irregularities were committed, they could be addressed under provisions other than section 269 of the Companies Act. Noting that no proceedings had been initiated against the company or its subsidiary for these irregularities, the court found the findings based on such irregularities liable to be vacated. The matters related to these irregularities were pending before the Supreme Court, further supporting the argument that the findings were premature.

Consequently, the court declared that the petitioner had been validly appointed as the managing director and was entitled to draw salary for the disputed period. The original petitions were allowed, and the exhibits related to the rejection of the appointment were quashed, providing relief to the petitioner.