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TMI Blog1992 (1) TMI 286X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 of the Companies (Amendment) Act (53 of 1963), with effect from January 1, 1964, only to be amended in some parts by the Companies (Amendment) Act No. 41 of 1974 and by Act No. 46 of 1977 and by the Companies (Amendment) Act, 1988. Since the Rules, however, have been framed only in Notification No. G.S.R. 740( e ), dated 4th August, 1989, we may take notice of the two sections 10E and 10F with all the amendments therein. Section 10E runs as follows: "Section 10E. Constitution of Board of Company Law Administration. (1) As soon as may be after the commencement of the Companies (Amendment) Act, 1988, the Central Government shall, by notification in the Official Gazette, constitute a Board to be called the Board of Company Law Administration. (1A) The Company Law Board shall exercise and discharge such powers and functions as may be conferred on it, by or under this Act or any other law, and shall also exercise and discharge such other powers and functions of the Central Government under this Act or any other law as may be conferred on it by the Central Government, by notification in the Official Gazette under the provisions of this Act or that other law. (2) The Company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Code. (5) Without prejudice to the provisions of sub-sections (4C) and (4D), the Company Law Board shall in the exercise of its powers and the discharge of its functions under this Act, or any other law be guided by the principles of natural justice and shall act in its discretion (6) Subject to the foregoing provisions of this section, the Company Law Board shall have power to regulate its own procedure". Viewed in the historical perspective, until the Companies (Amendment) Act, 1974, came into existence, there existed a Board of Company Law Administration which functioned as a delegate of the Central Government. The 1974 Amendment, however, introduced a substantial change with respect to the powers that hitherto were exercised by the courts under sections 17,18,19, 79, 141 and 186 of the Act and empowered the Board to exercise the powers under these sections instead of the courts exercising the power. The Amendment Act of 1988, however, has established an independent Company Law Board to exercise the judicial and quasi-judicial functions besides the powers already statutorily vested in the Board by the Amendment Act of 1974. The Joint Committee of Parliament ( See [1974] 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company Affairs, it would be necessary to frame rules for recruitment and conditions of service of the persons appointed as members of the Company Law Board by a presidential notification under article 309 of the Constitution of India, read with the relevant section of the Companies Act dealing with the constitution of the Company Law Board, as in the case of the Income-tax Appellate Tribunal. We are also anxious to see that suitable qualifications are prescribed for recruitment as members of the Company Law Board. 16.10 Under rule 3(2)( ii ) of the Income tax Appellate Tribunal (Recruitment and Conditions of Service) Rules, 1963, the Assistant Com missioners of Income-tax, who are members of the Indian Revenue Service and who have served for at least three years as such are eligible to be appointed as accountant members. The rules also provide for induction of the members of the Central Legal Service as judicial members of the Tribunal. Besides, the rules also permit direct recruitment of practicing lawyers and accountants or members of the Judicial Service. In the case of the Department of Company Affairs, there exists a specialised service, namely, the Central Company Law Serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and Boards is available to the person affected by the decision of such Tribunals/Boards, it cannot be said that the mechanism of the Tribunal/Board in lieu of the courts is any way unconstitutional or invalid. What has been guaranteed under our Constitution is that there is to be an independent mechanism of judicial review of every State action and as long as such independent mechanism is available, creation of Tribunals and Boards of a specified and limited jurisdiction cannot be questioned. The oft-quoted observations of Bhagwati J., as he then was, in the case of Minerva Mills Ltd, v. Union of India, AIR 1980 SC 1789, 1825-26 : "I am of the view that if there is one feature of our Constitution which, more than any other, is basic and fundamental to the maintenance of democracy and the rule of law, it is the power of judicial review and it is unquestionably, to my mind, part of the basic structure of the Constitution. Of course, when I say this I should not be taken to suggest that effective alternative institutional mechanisms or arrangements for judicial review cannot be made by Parliament. But what I wish to emphasise is that judicial review is a vital principle of our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstitution. The High Courts can exercise the power of superintendence under article 227 of the Constitution. That no appeal has been provided against any decision on facts by the Company Law Board cannot be a ground to say that any fundamental error has been committed by the Legislature. Judicial review as understood in our country is the same as in the United Kingdom. While judicial review is confined to interference in the cases of errors of law, jurisdiction, unreasonableness, violation of principles of natural justice, right of appeal on facts is distinguished from this form of judicial review. Something unlawful done will be undone by way of judicial review. Interference in the erroneous findings of fact is permissible only when a right of appeal is granted by a statute. In S.P. Sampath Kumar v. Union of India, AIR 1987 SC 386, the Supreme Court has said (at page 389): "The basic and essential feature of judicial review cannot be dispensed with but it would be within the competence of Parliament to amend the Constitution so as to substitute in place of the High Court, another alternative institutional mechanism or arrangement for judicial review provided it is not le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e conclusion of the enquiry. Such jurisdiction may depend upon the fulfillment of some condition precedent or upon the existence of some facts. Such a fact is collateral to the actual matter which the deemed court or the tribunal has to try. This determination whether it exists or not, is logically prior to the determination of the actual question. A decision as to the collateral fact, thus, is necessary before jurisdiction to decide such questions, which fall for decision by the authority concerned, are decided". The above observation has been made by the Full Bench of the Patna High Court after reiterating the view expressed by the House of Lords in O'Reilly v. Mackman [1982] 3 All ER 1124, which reads thus (at page 1129) : "It was this provision that provided the occasion for the landmark decision of this House in Anisminic Ltd. v. Foreign Compensation Comviissioner [1969] 1 All ER 208 ; [1969] 2 AC 147, and particularly the leading speech of Lord Reid, which has liberated English public law from the fetters that the courts had, theretofore, imposed on themselves so far as determinations of inferior courts and statutory tribunals were concerned, by drawing esoteric d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 74 of 66 Comp Cas): "But, like all principles evolved by man for this regulation of the social order, the doctrine of binding precedent is circumscribed in its governance by perceptible limitations, limitations arising by reference to the need for readjustment in a changing society, a readjustment of legal norms demanded by a changed social context. This need for adapting the law to new urges in society brings home the truth of the Holmesian aphorism that 'the life of the law has not been logic, it has been experience4', and again when he declared in another study that 'the law is forever adopting new principles from life at one end', and 'sloughing off old ones at the other. Explaining the conceptual import of what Holmes had said, Julius Stone elaborated that it is by the introduction of new extra-legal propositions emerging from experience to serve as premises, or by experience-guided choice between competing legal propositions, rather than by the operation of logic upon existing legal propositions, that the growth of law tends to be determined. Legal compulsions cannot be limited by existing legal propositions, because there will always be, beyond the frontiers of the exist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been committed and to alter the rule of evidence and criminal procedure obtaining under the general law at the time when the offences were committed with the manifest intention to do away with the prohibition under the general law of certain kinds of evidence, was put into challenge. The Privy Council said (at page 290): "As has been indicated already, legislation ad hominem which is thus directed to the course of particular proceedings may not always amount to an interference with the functions of the judiciary. But in the present case their Lordships have no doubt that there was such interference ; that it was not only the likely but the intended effect of the impugned enactments ; and that it is fatal to their validity. The true nature and purpose of these enactments are revealed by their conjoint impact on the specific proceedings in respect of which they were designed and they take their colour, in particular, from the alterations they purported to make as to their ultimate objective, the punishment of those convicted. These alterations constituted a grave and deliberate incursion into the judicial sphere".... Specifically speaking about the bar of jurisdiction of the civ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts next in order of priority. Article 124 provides that there shall be a Supreme Court of India, article 214 provides that there shall be a High Court for each State, article 231(1) provides that Parliament may by law establish a common High Court for two or more States or for two or more States and a union territory while Chapter VI of Part VII of the Constitution provides by articles 233 and 234, for the district courts and courts subordinate thereto. To complete the picture, article 236( a ) defines a "district judge" to include the judge of a city civil court, additional district judge, joint district judge, assistant district judge, chief judge of a small cause court, chief presidency magistrate, additional chief presidency magistrate, sessions judge, additional sessions judge and assistant sessions judge. Finally, article 237 empowers the Governor to apply the provisions of Chapter VI and any rules made thereunder to any class or classes of Magistrates. The Constitution having provided so completely, and copiously for a hierarchy of courts, it is urged that it is impermissible to Parliament to create a court or a class of courts which does not fall within or fit in that schem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lal Chhagganlal ( P. ) Ltd. v. Municipal Corporation of Greater Bombay, AIR 1974 SC 2009, said (at page 2040) : "... whenever a special machinery is devised by the Legislature entrusting the power of determination of disputes to another authority set up by the Legislature in substitution of regular courts of law, one should not react adversely against the establishment of such an authority merely because of a certain predilection for the prevailing system of administration of justice by courts of law. In the context of the need for speedy and expeditious recovery of public premises for utilisation for important public uses, where dilatoriness of the procedure may defeat the very object of recovery, the special procedure prescribed by the two Acts was held not to be really and substantially mere drastic and prejudicial than the ordinary procedure of a civil court. The special procedure prescribed by the two Acts, it was observed was not so substantially and qualitatively disparate as to attract the vice of discrimination". Speaking separately in two Division Bench judgments of the Patna High-Court in K.P. Verma v. State of Bihar [1986] PLJR 1036 and Avadhesh Kumar Sing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inspection of registers and returns or directing copies thereof be sent forthwith to the person requiring it (section 163(6)); to decide as to whether rights of requisitionists to get their resolution circulated to shareholders is being abused to secure needless publicity for defamatory matter and to order company's costs on an application to be paid in whole or in part by the requisitionists (section 188(5)); to pass an order directing immediate inspection of minute books or directing a copy thereof be sent forthwith to the person requiring it (section 196(4)) ; to pass an order directing that a copy of the balance-sheet and auditor's report demanded be furnished forthwith to persons concerned ( section 219(2)) ; to decide as to whether the right of auditors to get their representations circulated and read out at meeting is being abused to secure needless publicity for defamatory matter and to order company's costs on an application to be paid in whole or in part by the retiring auditors (section 225(3), proviso ) ; to decide as to whether the right of a director to get his representation circulated and read out at meetings is being abused to secure needless publicity for defamat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjudicatory mechanism and the litigants, who hitherto were entitled to move the courts thus may get a feeling that the decision making process might be affected by reason of dependence upon the executive (see Avadhesh Kumar Singh v. State of Bihar [1988] PLJR 269 and Kalika Kuar alias Kalika Singh v. State of Bihar [1990] 1 BLJR 51. So long as the rules were not framed one had no reason to think that the executive Government in exercise of its subordinate legislative powers conferred by sub-section (2A) of section 10E of the Act read with clause ( a ) of sub-section (1) of section 642 of the Companies Act, frame such rules which shall be diluting the legal standards and principles and instead of meeting the standard of justice cause degradation that would deprive the litigants of the same standard of justice that they receive at the hands of the courts. The rules speak of various things including qualifications and age limit for appointment of members and Chairman of the Board. Rule 3 reads as follows : "3. Qualifications and age limit for appointment of members. (1) A person shall not be qualified for appointment as a member unless he- ( i )is, or has been, a m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no obligation that there shall be one or more than one judicial member in the Board or that the Chairman of the Board shall be one who would be adequately trained in the role of a judge. If there is any class of employees, who appeared to qualify better than other candidates falling under other categories of rule (3), they are members of the Company Law Service who held or is found to hold a post in supertime grade or selection grade in that service and have got the eligibility to be appointed to a post in the grade of Joint Secretary to the Government of India. Akin to their category are people falling under clause ( ii ) of sub-rule (1) of rule 3, i.e , persons who are eligible to be appointed as Joint Secretary to the Government of India, under the Central Staffing Scheme or any other post under the Central Government carrying a scale of pay which is not less than that of Joint Secretary to the Government of India. In other cases there is a mention that they should possess adequate knowledge of and experience in dealing with the problems relating to commerce, industry, economics, taxation or law. There is no such requirement with respect to the members of the Company Law Servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... art of the machinery of administration, for which the Government must retain a close and continuing responsibility. Thus, for example, tribunals in the social service field would be regarded as adjuncts to the administration of the services themselves. We do not accept this view. We consider that tribunals should properly be regarded as machinery provided by Parliament for adjudication rather than as part of the machinery of administration. The essential point is that in all these cases Parliament has deliberately provided for a decision independent of the Department concerned ... and the intention of Parliament to provide for the independence of tribunals is clear and unmistakable". "To make tribunals conform to the standard which Parliament thus had in mind, three fundamental objectives were proclaimed: openness, fairness and impartiality". We have not referred to the recommendations of the Franks Committee for we have in our case the two recommendations which appear to certain similar concerns and recommend that persons having adequate legal qualifications and experience are appointed as members of the Company Law Board to discharge its quasi-judicial powers and that in any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ledge of and experience in dealing with the problems relating to commerce, industry, economics, taxation or law", show that there may be one who is acquainted with the company law affairs or law as such, but there may be another in this category, who never had any knowledge or experience in dealing with the problems relating to law. The words "problems relating to commerce, industry, economics and taxation or law" are so wide and vague that any experience in the affairs of the company law may not at all be necessary to qualify under this category. The qualification or eligibility for the post of Chairman is that the candidate should be a person who is eligible to be appointed as an Additional Secretary to the Government of India. Nothing has been brought on the record of this case and nothing besides the materials on the record has been shown to us to know who are eligible to be appointed as an Additional Secretary to the Government of India. To a pointed question by the court whether a person eligible to be appointed as additional secretary must also be a person who possesses some knowledge of law or experience in dealing with the problems relating to law, particularly company law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 97 to 407 of the Company Law but not enough to inspire confidence like a person who had been a judge of a High Court or a person who is qualified for appointment as judge of a High Court and the first, i.e. , a person who is eligible to be appointed as an Additional Secretary to the Government of India without having any working experience even of the kind the other category personnel may acquire. The Supreme Court observed in S.P. Sampaih Kumar's case, AIR 1987 SC 386, 390 : "... we cannot afford to forget that it is the High Court which is being supplanted by the Administrative Tribunal and it must be manned as to inspire confidence in the public mind that it is a highly competent and expert mechanism with judicial approach and objectivity". Of course, the Supreme Court said that there was no intention to cast any reflection on the members of the Civil Services because (at page 390). "fortunately, we have, in our country, brilliant civil servants who possess tremendous sincerity, drive and initiative and who have remarkable capacity to resolve and overcome administrative problems of great complexity. But what is needed in a judicial tribunal which is intended to suppla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have already noticed that a right of appeal against the decision of the Board to the High Court is provided for and besides the High Court's powers under articles 226 and 227 are not impaired or affected. Yet, the powers hitherto exercised by the High Court are transferred to the Board and then the Board is packed with members, who need not have any judicial experience at all. Appointment of such persons as members of the Board without due weightage to the judicial experience and selection by a Board consisting of the Secretaries to the Government of India will not only undermine the faith of the litigants but will also create doubts as to the efficacy, objectivity and independence and effectiveness of the Board. In the long period of about six scores of years, the litigants in this countty, as noticed by the Supreme Court in S.P. Sampath Kumar's case, AIR 1987 SC 386, have seasoned themselves to look up to the High Court as the unfailing protector of their persons, property and honour. Disciplined, independent and trained judges well versed in law and working with all openness in an unattached and objective manner have ensured dispensation of justice over the years. According t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecommended by the Chief Justice of India or to follow a particular selection procedure in this behalf, that is to say, take the opinion of one or more hon'ble Judges of the Supreme Court or a Board consisting of the hon'ble Judges of the Supreme Court and the hon'ble Chief Justices and Judges of the High Courts as members, as well as some other highly independent persons, the selection will not be conducive to independence of the Board. The Secretaries may not carry a sense of obligation to the executive for having been appointed members of the Selection Board but their selections would always be doubted for the reason that it is generally accepted that public servants carry and obey the orders of the political executive and that one or the other of them does not carry a sense of obligation will be a matter that will require probe. In the words of the Supreme Court in S. P. Sampath Kumar's case, AIR 1987 SC 386, there can be no doubt that the power of appointment and promotion vested in the executive can have prejudicial effect on the independence of the Chairman, Vice-Chairman and Members of the Administrative Tribunal. If such power is absolute and unfettered, we reiterate, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase, AIR 1987 SC 386. Speaking about similar provision in the Administrative Tribunals Act, the Supreme Court has said (headnote): "Section 8 prescribes the term of office and provides that the term for Chairman, Vice-Chairman or members shall be of five years from the date on which he enters upon his office or until he attains the age of 65 in the case of Chairman or Vice Chairman and 62 in the case of members, whichever is earlier. The retiring age of 62 or 65 for the different categories is in accord with the pattern and fits into the scheme in comparable situations. We would, however like to indicate that appointment for a term of five years may occasionally operate as a disincentive for well-qualified people to accept the offer to join the Tribunal. There may be competent people belonging to younger age groups who would have more than five years to reach the prevailing age of retirement. The fact that such people would be required to go out on completing the five-year period but long before the superannuation age is reached is bound to operate as a deterrent. Those who come to be Chairman, Vice-Chairman or members resign appointments, if any, held by them before joining the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of any such officer opting to go out to a post other than the service to which he belongs, his lien will exist only until the new appointment and unless such appointment is a deputation or appointment in a foreign service under the rules. The moment the appointment to the new service or post is made permanent or substantive, the lien in the original service shall cease. Realising this perhaps that appointment of officers belonging to some of the services which gave to the candidates eligibility under rule 3 quoted above, in the advertisement issued for recruitment as members of the Board, it is said : "Persons selected, if already in Government service, will be treated as on deputation and others will be on contract basis". It is extremely doubtful whether such a promise in the advertisement would save the lien of the officers who are selected and appointed as members of the Board. Statutory rules governing the service conditions can be modified, altered or rescinded only by the rules made in this behalf. Executive discretion can be no substitute for a statute. Executive discretion can be used only when there is no statute occupying the field. We are not going into the details ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Board are not at fault. They have been selected and appointed in accordance with the existing rules. ' Learned counsel for the petitioner has fairly stated that he does not have anything to say as to the ability, integrity and/or suitability of the persons appointed as members of the new Board under the rules and/ or the Chairman of the Board. His contention has been against the rules and he has demonstrated how the rules are ultra vires . In the circumstances as above, we refrain from giving and give no direction to terminate the appointments already made. We, however, feel constrained to observe that the respondents shall be duty-bound to reframe the rules as observed above and such reframing must be completed within a framework of a time-schedule. For the exercise in this behalf, a period of nine (9) months from the date of receipt of a copy of this order will be reasonable and proper. Accordingly, the respondents are given nine (9) months from the date of receipt of a copy of this order for the said purpose. It is, however, made clear that the respondents shall not fill in any existing vacancy or any vacancy that may be created within the period above until the rules are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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