1992 (1) TMI 286 - HC - Companies Law

Summary

Issues Involved:
1. Constitutional validity of the Company Law Board Members (Qualifications and Experience) Rules, 1989.
2. Legality of Section 10E(2) of the Companies Act, 1956.
3. Adequacy of the qualifications and experience required for members of the Company Law Board.
4. Judicial review of the Company Law Board's decisions.
5. Composition and selection process of the Company Law Board.
6. Term of office for members of the Company Law Board.

Issue-wise Detailed Analysis:

1. Constitutional Validity of the Company Law Board Members (Qualifications and Experience) Rules, 1989:
The petitioner challenged the constitutional validity of the Rules, asserting that the qualifications and experience prescribed for the members were inadequate. The court found that the Rules did not ensure the appointment of persons with adequate legal qualifications and experience, which was necessary for the quasi-judicial functions of the Company Law Board. The court emphasized the need for a balance of judicial and administrative expertise, referencing recommendations from the Joint Parliamentary Committee and the Sachar Committee.

2. Legality of Section 10E(2) of the Companies Act, 1956:
The petitioner sought a declaration that Section 10E(2) was illegal, void, and ultra vires the Constitution. The court upheld the constitutionality of Section 10E, noting that the creation of administrative tribunals and boards with specified and limited jurisdiction was permissible as long as judicial review by a competent court was available. The court cited the case of Minerva Mills Ltd. v. Union of India, emphasizing the importance of judicial review as a basic feature of the Constitution.

3. Adequacy of the Qualifications and Experience Required for Members of the Company Law Board:
The court scrutinized the qualifications specified in Rule 3, which included members of the Company Law Service, persons eligible to be Joint Secretaries, judicial officers, advocates, chartered accountants, and cost accountants. The court found that the Rules did not mandate the presence of judicial members or ensure that the Chairman had adequate legal training. The court highlighted the need for members to have sufficient legal knowledge and experience to handle the judicial and quasi-judicial functions of the Board.

4. Judicial Review of the Company Law Board's Decisions:
The court confirmed that the decisions of the Company Law Board were subject to judicial review. Section 10F of the Companies Act provided for appeals to the High Court on questions of law arising from the Board's decisions. Additionally, the court's writ jurisdiction under Articles 226 and 227 of the Constitution was not barred, ensuring judicial control over the Board's actions.

5. Composition and Selection Process of the Company Law Board:
The court criticized the composition and selection process outlined in Rules 4 and 5. The Selection Board, consisting of Secretaries to the Government of India, was deemed inadequate to ensure the independence and objectivity of the Board. The court recommended that the selection process should involve the Chief Justice of India or a similar independent mechanism to maintain the Board's credibility and independence.

6. Term of Office for Members of the Company Law Board:
Rule 10 prescribed a term of five years for members, with an age limit of 58 years for members and 60 years for the Chairman. The court found this provision arbitrary and potentially disincentivizing for well-qualified candidates. The court referenced the Supreme Court's observations in S.P. Sampath Kumar's case, suggesting that a longer tenure would be more appropriate to attract competent individuals.

Conclusion:
The court declared Rules 3, 4(1) and (3), and 5 of the Company Law Board Members (Qualifications and Experience) Rules, 1989, as arbitrary, unreasonable, and violative of Article 14 read with Article 13(2) of the Constitution. Rule 10 was also deemed ultra vires to the extent it fixed a five-year term. The court directed the respondents to reframe the Rules within nine months, ensuring that the new Rules provided for a balanced composition of judicial and administrative members and a credible selection process. The existing appointments were allowed to continue, but no new appointments were to be made until the Rules were reframed. The writ petition was allowed with no order as to costs.