1980 (4) TMI 236 - HC - Companies Law

Managing director - Approval of Government for appointment, Power of Central Government to accord approval etc., subject to conditions, Power of Central Government to fix a limit with regard to remuneration

Issues Involved:
1. Legality of guidelines issued by the Govt. of India.
2. Whether the refusal to approve the terms proposed is contrary to law, arbitrary, and unreasonable.
3. Nature of the functions exercised by the Govt. of India-whether administrative or quasi-judicial.
4. Compliance with the guidelines of 1969.

Detailed Analysis:

1. Legality of Guidelines Issued by the Govt. of India:
The guidelines issued on November 11, 1969, were challenged for being illegal and in violation of the Companies Act. The guidelines prescribed an upper ceiling limit on managerial remuneration, which was argued to be inconsistent with the statutory provisions. The court noted that the guidelines were administrative instructions of a general character and not in conformity with the law. It was held that the guidelines circumscribed the statutory provisions and unduly narrowed down the discretion that the law provided. The court concluded that the guidelines were illegal, void, and required to be struck down.

2. Whether the Refusal to Approve the Terms Proposed is Contrary to Law, Arbitrary, and Unreasonable:
The petitioners argued that the refusal to approve the terms proposed was arbitrary and unreasonable. The court stated that the proposal needed to be examined in accordance with the relevant provisions of the Companies Act. It was emphasized that the terms proposed should be scrutinized based on objective facts and relevant legal provisions. The refusal itself was not inherently contrary to law if the examination was done lawfully. The court could not examine the terms in light of the relevant sections as the objective facts were not before it, leaving it to the Govt. of India to reconsider the terms proposed.

3. Nature of the Functions Exercised by the Govt. of India-Whether Administrative or Quasi-Judicial:
The court examined whether the functions exercised by the Govt. of India were administrative or quasi-judicial. It was held that the functions under section 269(3) of the Companies Act were quasi-judicial in nature. The court referred to the Supreme Court's decision in Rampur Distillery and Chemical Co. Ltd. v. Company Law Board, which held that the Central Government must act judicially and its satisfaction must be objective. The court concluded that the Govt. of India must exercise its discretion in a quasi-judicial manner, taking into account objective facts and providing reasons for its decisions. The failure to provide a reasoned order rendered the decision arbitrary and necessitated its setting aside.

4. Compliance with the Guidelines of 1969:
The petitioners contended that the proposed terms were well within the guidelines of 1969. However, the court, having already declared the guidelines illegal, did not find it necessary to consider this argument in detail. It was reiterated that the guidelines interfered with the judicial or quasi-judicial discretion of the Central Government and were therefore void and ultra vires.

Conclusion:
The court declared the guidelines dated November 11, 1969, illegal as they contravened the provisions of the Companies Act. The impugned order dated January 28, 1978, was quashed. The Govt. of India was directed to decide the application for the re-appointment of petitioner No. 2 afresh, providing a proper opportunity for being heard and passing a speaking order. The rule was made absolute with costs.

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