1964 (12) TMI 58 - HC - Companies Law

Summary

Issues Involved:
1. Validity of the Central Government's order dated March 24, 1962, under sub-section (4) of section 89 of the Companies Act, 1956.
2. Power of the Central Government to revoke an exemption granted under sub-section (4) of section 89.
3. Interpretation of sections 87 to 90 of the Companies Act, 1956, and their impact on voting rights.
4. Application of section 21 of the General Clauses Act to the power of exemption under section 89(4) of the Companies Act, 1956.

Detailed Analysis:

1. Validity of the Central Government's Order Dated March 24, 1962:
The petition challenges the validity of the Central Government's order dated March 24, 1962, which rescinded an earlier exemption order granted to the petitioner company under sub-section (4) of section 89 of the Companies Act, 1956. The order of rescission was based on the opinion that the exemption was no longer required in the public interest.

2. Power of the Central Government to Revoke an Exemption Granted Under Sub-section (4) of Section 89:
The main contention of the petitioners is that there is no power under sub-section (4) of section 89 of the Act for the Central Government to revoke or withdraw an exemption once granted. The petitioners argue that the obligations under sub-sections (1), (2), and (3) of section 89 are time-bound and once the time limit specified in sub-section (1) expires, no power to revoke the exemption exists. The respondents, however, argue that the power to grant an exemption includes the implied power to withdraw it, relying on sections 14 and 21 of the General Clauses Act.

3. Interpretation of Sections 87 to 90 of the Companies Act, 1956:
Sections 87 to 90 of the Companies Act, 1956, relate to voting rights and the kinds of share capital. Section 87 ensures that every shareholder holding equity share capital has voting rights proportional to their share of the paid-up equity capital. Section 89 mandates that companies reduce voting rights in excess of those specified in section 87 within one year from the commencement of the Act. Sub-section (4) of section 89 allows the Central Government to exempt companies from these requirements if it is in the public interest or the interest of the company, shareholders, or creditors. Section 90 protects voting rights attached to shares issued before the commencement of the Act, except as otherwise provided in section 89.

The court emphasized that the obligations under sub-sections (1) and (3) of section 89 are fresh obligations created by the Act, and the exemption under sub-section (4) must relate to these obligations. The exemption cannot be withdrawn after the period of one year specified in sub-section (1) as it would create new obligations by executive action, which is not permissible.

4. Application of Section 21 of the General Clauses Act:
The respondents argue that section 21 of the General Clauses Act, which allows the power to issue notifications, orders, rules, or bye-laws to include the power to rescind them, applies to the power of exemption under section 89(4). However, the court, relying on the Supreme Court's observations, held that the application of section 21 depends on the context, subject matter, and scheme of the Act. The court found that applying section 21 to the power of exemption under section 89(4) would be repugnant to the scheme and object of the Companies Act, which aims to protect voting rights and ensure fair management of companies.

Conclusion:
The court concluded that the Central Government does not have the power to revoke an exemption granted under sub-section (4) of section 89 of the Companies Act, 1956, once the period of one year specified in sub-section (1) has expired. The impugned order dated March 24, 1962, was declared invalid and of no effect. A mandamus was issued against the respondents, restraining them from enforcing the order of revocation. The petition was allowed, and the respondents were ordered to pay the costs of the petitioner company.