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TMI Blog1979 (8) TMI 162X X X X Extracts X X X X X X X X Extracts X X X X ..... ment by trying to continue their control over the managed companies by entering into service agreements in various forms like secretary, consultant, or adviser or other such names. The legislature, then, considered in its wisdom to provide for scrutiny and regulation of such agreements to prevent their continuing control. Section 204A was added in the Act which conferred a power on the Central Govt. to regulate arrangements which have been or may have been entered into between the former managing agents or secretaries and treasurers or any associate of the managing agents or secretaries or treasurers. Section 204A reads as under : " Restrictions on the appointment of former managing agents or secretaries and treasurers to any office (1)Except with the previous approval of the ( a )company in general meeting, and ( b )Central Government, no company shall during a period of five years from the commencement of the Companies (Amendment) Act, 1974 (41 of 1974), appoint as secretary, consultant or adviser or to any other office, by whatever name called ( i )any individual, firm or body corporate who, or which, had at any time after the 15th day of August, 1960, been holdi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms and conditions as would, in its opinion, no longer render such terms and conditions of appointment prejudicial to the interests of the company'. ( d )As from such date as may be specified by the Central Government in the order aforesaid, the appointment referred to in clause ( a ) shall be regulated by the terms and conditions as varied by that Government. (3)For the purposes of this section, the expression 'appointment' includes re-appointment, employment and re-employment." Dalmia Cement (Bharat) Ltd. (hereinafter referred to as "the company") proposed to appoint one Shri T.H. Dalmia as an executive director of the company. He is an associate of the company's erstwhile managing agents, Hari Brothers Private Ltd., and is also a relative of Shri M.H. Dalmia, one of the directors of the company, being his brother. A special resolution under sections 204A and 314(1B) of the Act was passed at the 23rd annual general meeting of the shareholders of the company held on May 2, 1975. The shareholders accorded their approval under sections 204A and 314(1B) and other applicable provisions of the Act for the appointment of, and for the holding of the office of profit by Shri J.H. Dal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Constitution. The contention is that the power of the approval would depend upon the whim or caprice of the person occupying the relevant office in the Department of Company Affairs of the Central Govt., for, it would permit grant of approval in one case and refusal of the approval in another depending entirely on personal and not objective considerations. There is no merit in this submission. The law is fairly settled that an Act cannot be questioned as violating article 14 of the Constitution merely because it confers a certain amount of discretion on the executive and such discretion lends itself, in practice, to be exercised in a discriminatory manner. The discretionary power is not necessarily discriminatory. The possibility of the power being abused does not negative the existence of the power. The legislature has laid down and indicated the standard for the guidance of the Central Govt. in considering the applications submitted to it under section 204A of the Act. The legislature has not conferred any absolute or naked or arbitrary power but has controlled it by directing the Central Govt. to consider whether the terms and conditions of appointment are prejudicial to the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is or is not prejudicial to the interests of the company. Factual averments have been made in the writ petition supported by an affidavit to this effect. The company is a widely held public limited company, having about 10,000 shareholders, about 11% of the shares of which are held by nationalised insurance companies, nationalised banks, Unit Trust of India and other financial institutions. Since January, 1970, the company had four executive directors looking after different divisions and activities which have contributed to the satisfactory working results of the company. One of such executives, Shri A.H. Dalmia, designated as assistant executive director, resigned from the services of the company with effect from August 1, 1975, and the general manager (operations), a senior technical executive, the manager (iron ore. division) and the general manager (marketing) were already under superannuation and are on extension at present. It was under those circumstances and in view of the impending resignation of Shri A.H. Dalmia that the shareholders of the company passed a resolution to appoint Shri J.H. Dalmia as executive director with effect from August 1, 1975, subject to the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the same family. The factual position on the record is that the company has had four executive (and assistant executive) directors from the same family since January, 1970, with the approval of the shareholders pursuant to the provisions then existing. One of the assistant executive directors, namely, Shri A.H. Dalmia, was continued up to 31st July, 1975, with the approval of the Central Govt. under section 314(1B). The application of the company for the approval of the appointment of Shri J.H. Dalmia with effect from August 1, 1975, was a continuance of the arrangements of having four executive (including assistant executive) directors from the same family. The Central Govt. has not come forward with any material or justification either in the affidavit-in-opposition to the writ petition or by production of the original records as to how it is against the interests of the shareholders to continue to have four executive directors from one family when the company was having such four executive directors since January, 1970. So far as Shri J.H. Dalmia is concerned, the Govt. of India itself has recognised his ability by incorporating him as a member of the development council for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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