9911796707
TMI Blog2005 (5) TMI 345X X X X Extracts X X X X X X X X Extracts X X X X ..... ms and conditions of appointment of the petitioner, ( c )Quashing the minutes of meeting of the board of directors held on 25-3-2003 (Annexure P13), in which the aforementioned decisions were approved. ( d )Alternatively, the petitioner prays, that the respondents be directed to compensate him by paying 36 months remuneration for the remaining term in terms of section 318(4) of the Companies Act, 1956. 2. According to the petitioner, M/s. Puncom is a public limited company having been established in the year, 1981, under the Companies Act, 1956. Since the Government of Punjab exercises deep and pervasive control over its affairs, it is an industry of the said Government and "an authority" within the meaning of article 12 of the Constitution of India. 3. The petitioner s further case is that while he was working as Deputy Director in the Department of Telecommunications, Government of India, he was sent on deputation to M/s. Puncom on their own request. He joined as its Director Technical vide appointment letter dated July 20, 1988 (Annexure P1). 4. Subsequently on October 19, 1993 (Annexure P2), he was made a regular Director Technical with effect from March 7, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the next increment with effect from 1-5-2001, along with enhancement of pay scale for a further period of 5 years without effecting any change in the other terms and conditions of his employment. Once again, the board of directors did not include the termination clause for the extended term. Moreover, as required under the law, all this information regarding the petitioner s extended term as managing director for an additional period of 5 years along with the fresh terms and conditions were duly sent to the Registrar of Companies, Jalandhar, vide Annexures A to A/3 appended to Civil Miscellaneous Application Nos. 15114-15 of 2004 filed in this case and by order dated 3-12-2004, one of us directed that these miscellaneous applications will come up along with the main case. Accordingly, they have been considered along with the main case. 5. Upon a perusal of these documents as contained in Annexures A to A/3, it is evident that intimation regarding the extended period of 5 years along with the fresh terms and conditions were duly sent to the Registrar of Companies. The petitioner claims that as against the net worth of Rs. 3.73 crores in the year 1988 when he had joined, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xure P9. The petitioner was required to present this resignation at the closing meeting of the board of directors which was to take place after finalization of the successful bidder and after two other stages had been followed. However, the petitioner states that the first step was not completed and yet, in the bid opening meeting dated 6-3-2003, the petitioner was asked to submit an advance, undated and unconditional letter of resignation. He partially compiled by signing the draft resignation (annexure P9) on the spot leaving the date column blank and handed it over to the bid opening committee. However, when the persons with " mala fide intentions" were unable to extract a blanket resignation from the petitioner, two resolutions were drafted and moved by limited circulation as a result whereof, without any notice or information to the petitioner, his terms and conditions of appointment were altered by inserting a new clause to the effect that his services can be terminated without assigning any reason by giving 30 days notice or 30 days remuneration in lieu of notice. The petitioner came to learn that the ex officio Government director obtained the signatures of fellow ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... much as possible from the huge amount lying with the company in its bank account in cash to the extent of Rs. 100 crores and which the petitioner was "zealously guarding". 12. The petitioner has further stated that being totally disillusioned and frustrated, three out of the four independent directors, namely Prithpal Singh, V.P. Chandan and Arun Kumar resigned from the board of directors under protest vide letters of resignation which have been marked as Annexure P14. 13. The petitioner submits that the actions of the board of directors in changing the terms and conditions of the petitioner s appointment as vice chairman and managing director without any notice and thereafter, terminating his services as per the said changed terms and conditions, are illegal, arbitrary and against statutory provisions and have been resorted to with mala fide intentions. Consequently, the petitioner prays for quashing Annexures P10, P12 and P13 and in the alternative, prays that the respondents be directed to compensate him by paying remuneration for the remaining tenure of his service and to allow him to join the post of joint managing director. He also prays for quashing rule 35 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner has done so in order to withhold relevant information to the effect that he was appointed on contract basis and that in the letter of appointment dated 30-4-1996, (Annexure R1/2) there did exist a clause to the effect that his services could be terminated by giving him 3 (three) months notice. By not attaching the said letter, the petitioner has tried to project that in fact, his appointment was actually made by respondent No. 2 company keeping in view the resolution dated 29-5-1996, which is totally incorrect and false. In fact vide resolution dated 29-5-1996, in pursuance to the appointment of the petitioner by PSEDPCL dated 30-4-1996, only the detailed remuneration was fixed because the letter dated 30-4-1996, appointing the petitioner had fixed salary as Rs. 30,000 plus usual perks. Only to clarify the usual perks which were to form part of the remunerations, the resolution dated 29-5-1996, was passed. It is incorrect that on the basis of deliberations in the meeting of 29-5-1996, the clause relating to termination of service by giving 3 (three) months notice was either discussed or withdrawn by respondent No. 2 because the petitioner did not accept the same. These ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnexure P5, the petitioner has tried to convey an impression that he was asked to withhold certain information from the board of directors. According to the respondents, this statement/attempt is totally incorrect and false because the letter, Annexure P5, only states that the business plan should not be circulated with the agenda as the same is a confidential document. Since confidential documents are actually given to the board of directors at the time of the meeting, the petitioner was advised not to send these confidential documents as there was a risk that they may be made public if someone were to get hold of the same while preparing the agenda. The respondents have stated that letter dated 7-2-2003, is being totally misinterpreted by the petitioner for his own advantage and that it is incorrect on his part to assert that the Government or anybody else wanted to by-pass the board of directors in any manner. They also state that in order to delay the disinvestment project, the petitioner was trying to apply all kinds of tactics so that his position as vice chairman and managing director in the company could be saved. Therefore, all the acts of the petitioner were for his perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not. In any event the majority of the members had already approved the resolutions and all those members who attended on 25-3-2003, later ratified them in the meeting. The respondents claim that they therefore had the authority to reduce the period of notice and therefore, the period of three months notice was reduced to one month or pay in lieu thereof. It is further submitted that the impression being attempted to be given out by the petitioner to the effect that the resolution was managed to be approved by the three ex officio Government directors, is totally misconceived and false because the directors passed the resolution absolutely voluntarily and the same was duly ratified by all the directors on 25-3-2003. There was only one dissenting note and this was also considered. 25. The respondents have explained that as per the normal practice, the date 25-3-2003, was requisitioned by the company secretary on 14-3-2003, for convening the meeting. If a particular director did not attend, his non-attendance could not be attributed to anybody. Moreover, there was nothing irregular when all the directors (except for one dissenting note), approved the resolutions relating to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... association to project that his termination was wrong. It is further stated that there was absolutely no requirement of giving 14 days notice to its members/shareholders for a meeting. The petitioner is governed by the terms and conditions to which he had agreed and which formed part of his letter of appointment as the managing director and therefore, those terms and conditions can be brought into effect at any point of time. Therefore, even if the petitioner attempts to take benefit out of article 152 (which is not applicable), even then, the procedure for the removal of a director will not be applicable in the present case because the petitioner, right from day one, was aware and knew that in his appointment letter appointing him as the managing director, there did exist a clause that his services could be terminated by giving him three months notice. That apart, even the board of directors of PSEDPCL, in their meeting held on April 29, 1996, had decided in clear terms that the appointment of the petitioner would be on contract basis, terminable on three months notice on either side. Consequently, it cannot be said that there was no termination clause by which the services of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pleaded as party by name in the writ petition and therefore the petitioner cannot raise the plea of bias, malice or interestedness in the absence or behind the back of persons whom he has not impleaded. According to learned counsel for the respondents, these scandalous averments have been resorted to with the sole intention of prejudicing the mind of this court. 35. The respondents have denied the claim of the petitioner for salary by saying that he is not entitled for any salary much less the salary for 36 months as claimed. The petitioner s services have been terminated keeping in view the terms and conditions of his appointment which is perfectly valid and legal. 36. Further, reply of the respondents is that the provisions of PUNCOM-Conduct, Discipline and Appeal Rules, 1997, are not applicable to the petitioner as he has not been removed by way of punishment. He has been removed merely in pursuance of the terms and conditions of the appointment letter. The averments to the effect that the order of termination is punitive have been denied by saying that no part of the order can ever be said to project or suggest that the same is punitive. 37. In reply to the responde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure P3) and of the minutes of the 100th meeting by which the board of directors extended his term as managing director (Annexure P4) would establish that nowhere the word "contract" has been used. The board of directors of PUNCOM is the approving authority of the appointment of the petitioner even as per letter (Annexure R2/2) and hence, the terms and conditions approved by the said board of directors of PUNCOM are only relevant and effective. 41. The petitioner further states that he was a regular employee of the company working as its Director (Technical)/Joint Managing Director (Radio) against a regular permanent post when he was chosen for the appointment as managing director. While joining as managing director, he neither resigned nor he was asked to do so. It is therefore clear that the petitioner was not appointed as managing director on contract basis and if the word "contract" is used to his prejudice, it would be misconceived and it would be a misnomer. 42. According to the petitioner, even Annexure R-2/2 which is the letter/order dated 30-4-1996 (which the petitioner refers to as an "interme-diatory" letter made in the process of finalizing the terms and conditio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on plain paper. No terms and conditions were specified which have been left to mutual negotiations by specifying in the advertisement that "Salary and perks will not be a constraint for the right candidate". Therefore, in the process adopted, the negotiation was left to board of directors of the company of which the petitioner was already a member. This was also suitable to the petitioner as he was an internal candidate on regular appointment. In the case of non-agreement of any of the terms and conditions, he could always have fallen back on his regular appointment. Moreover, the person who signed the letter dated 29-4-1996, was a member of the board of directors and he did not record any dissent in the meeting held on 29-5-1996, when the resolution relating to the petitioner s appointment containing various terms and conditions (excluding any termination clause) was finally passed. 43. It is the further case of the petitioner that no document except Annexure R2/2 which is an "intermediatory" letter, mentions the termination clause. The petitioner, while tendering his draft resignation, asked for 36 months compensation which was not objected to by any one at any stage. The pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the board of directors and minuted in the form of a resolution (Annexure P3) which did not contain any termination clause. It was again these terms which formed the basis of his extension as vice chairman and managing director of the company for another five years. 47. The petitioner further contends that the respondent-company made phenomenal progress after his association with it as director (technical). It rose from a mere net worth of Rs. 3.73 crores in 1988, to Rs. 181.77 crores. This progress was due to the petitioner s technical inputs which were duly appreciated from time to time. A copy of one such appreciation letter is Annexure P16. In fact, even excellent response in public issue came due to the company s excellent progress and technical strengths. Further, almost every State has a public section undertaking (PSU) like PUNCOM (respondent-company) but during the period PUNCOM grew and preserved its earning almost all other telecom PSUs, like PUNCOM, perished like GCEL of Gujarat, MELTRON of Maharashtra, KELTRON of Kerala, KTL of Karnataka, and UPTRON of UP, etc. Against a meagre investment of Rs. 74 lakhs by Government of Punjab, the respondent-company has paid a d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the Companies Act. 52. The petitioner contends that there was no rationale behind the fact that no other director tendered his resignation and it was only the petitioner, who was asked to tender his resignation and that too, when the disinvestment process was still in its early stages and the board of directors had decided that resignation had to be a blanket resignation. The petitioner submits that he had tendered a draft resignation before the board of directors. He further states that in fact, it was the "game plan of the certain vested interests" to get the petitioner out of their way. 53. The petitioner vehemently denies that the resolution altering the terms and conditions of his appointment and his subsequent termination was ever circulated to all the directors as per requirement. He further submits, with reference to Annexure P11, that two independent directors, viz. Mr. Arun Kumar and Mr. V.P. Chandan did not receive the copy of the resolution although they were available in their respective places at the relevant time. The meeting was scheduled at such a time when some of the directors could not come in spite of their best efforts. It is apparent from the reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Their terms and conditions of appointment could also have been changed like that of the petitioner and they could also have been thrown out like the petitioner without any information and hearing. 56. The petitioner reiterates that article 152 is applicable upon the petitioner. Under article 171, PSEPDC has the power to appoint and discuss full time directors, M.D., V.C. and chairman from amongst the directors. But there is no separate provision for the procedure to be adopted to remove the managing director, vice chairman or chairman. Hence article 152 (laying down the procedure to be followed for removing the director) is to be followed as managing director is appointed from amongst the directors of the board of directors and is also one of the directors. Therefore, as per article 152, 14 days advance notice for the meeting is required to be given to all the directors including the petitioner for removal of even the petitioner. But in the present case, the petitioner was directly handed over the termination order without even intimating the resolutions passed against him by which it had been decided that he could be removed by the addition of a new clause. The petitioner a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esult of which ultimately the shareholding of PSEDPCL was reduced and as on date it holds only 70 per cent, while the remaining 30 per cent, is held by the general public. Mr. Patwalia submits that in this view of the matter, respondent No. 2 company cannot be said to be a Government company at all. He relies upon the judgment of the Hon ble Supreme Court of India in the case of Zee Telefilms Ltd. v. Union of India [2005] 2 JT 8. 62. This court rejects the aforementioned contention to the effect that the company is not a "State" for the following reasons. From the written statement filed by respondent Nos. 2 and 3, it has been admitted that at least, the holding of PUNCOM is M/s. PSEDPCL which is the Punjab State Electronics Development and Production Corporation Limited and which holds 70 per cent of the shares of PUNCOM. Now under the definition of section 617 of the Companies Act, 1956, a Government company means "any company in which not less than fifty-one per cent of the (paid-up share capital) is held by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments (and includes a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at necessary information was given in the prescribed manner and were accordingly registered through Form 25C relating to the decision taken on 29-5-1996, concerning the appointment of the petitioner as managing director for a period of five years with effect from 30-4-1996. Form 23 is the registration of the subsequent decision taken renewing the contract for a fresh period of five years. In this document, i.e ., Form 23, it has been mentioned that the name of the company is M/s. Punjab Communications Ltd. and under column No. 3, this company has been described to be a Government company. Finally Annexure P19, which has been brought on record by the petitioner in his replication to the written statement is the advertisement dated 20-2-1996, published in the Economic Times, New Delhi under the banner of PSEDPCL calling for applications for the post of managing director. In this advertisement, it is stated that M/s. PSEDPCL "requires managing director for its subsidiary company, Punjab Communications Ltd.". 64. For these reasons, this court is of the view that the argument of Mr. P.S. Patwalia to the effect that PUNCOM is not a Government company or that it is not a State, can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause in the letter of appointment, the services of the managing director could be dispensed with only by giving him 36 months remuneration. They also stated that the manner in which the petitioner was removed was not proper. These views of the directors are to be found between pages 89 to 93 and 110 to 115. 66. Learned counsel further submits that in fact, it is really at the behest of the State of Punjab that his services were terminated and this would be evident from the fact that vide resolution No. ( c ) of the Agenda No. 121.03 of the meeting of the board of directors (Annexure P12) it was decided that the Government of Punjab had appointed one Shri Vishwajeet Khanna, IAS as vice chairman- cum -managing director of the company vide letter dated 11-3-2003. 67. Learned counsel further submits that once it is held that the company is an authority and a "State" within the meaning of article 12, the manner in which the services were terminated must be held to be totally in violation of article 14 of the Constitution of India. He further submits that the action of the respondents in terminating his services amounts to following a policy of "hire and fire" which is tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffect that the petitioner has attempted to mislead this court at various stages. He has intentionally withheld the order of appointment dated 30-4-1996, by which he was appointed as managing director of PUNCOM and it was pursuant to that appointment that he had already joined on the same date, i.e ., on 30-4-1996. In fact, his appointment was as a result of the resolution passed by PSEDPCL in their meeting held on 29-4-1996. The board of directors considered the appointment of managing director and decided to appoint the petitioner as such on contract basis for a period of 5 years. It was clearly mentioned in the resolution itself that the said contract was terminable on 3 months notice on either side. That resolution dated 29-4-1996, which is Annexure R2/1 and the consequential order dated 30-4-1996, which is annexure R2/2 read thus: "Annexure R2/1 : After due consideration, the board approved the appointment of Shri A.S. Gill to the post of managing director for a period of five years on contract basis, terminable on three months notice on either side on a monthly salary of Rs. 30,000 in the scale of Rs. 30,000-2,500-50,000 plus usual perks as admissible to the chief execu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use of his disagreement. This is nothing but an attempt to "spin a yarn" as there is nothing on record to establish these tall claims of the petitioner and this court therefore has no hesitation in holding that in fact, no such deliberation took place because the appointment of the petitioner had already been made by PSEDPCL one month earlier on 30-4-1996. The minutes of the meeting attached by the petitioner as Annexure P3 was only to clarify his remuneration and this would be evident from the agenda of the meeting held on 29-4-1996, which clearly stated that the petitioner had already been appointed by the PSEDPCL on 30-4-1996 (one month earlier) and therefore his remuneration was accordingly fixed. 73. It is further evident that vide agenda No. 78.05, which again has been brought on record by the respondents in their written statement vide Annexure R2/3, the respondents, in order to give a formal shape to the appointment dated 30-4-1996, resolved that the BOD should give ex post facto approval of the appointment at the remuneration fixed by the holding company. It is thus clear that there was no deviation from the terms already fixed by the appointment letter dated 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 months remuneration for the remaining term in terms of section 318(4) of the Companies Act, 1956, this court has no hesitation in rejecting the same as being a totally misconceived prayer resorted to with the intention of causing loss to the exchequer and gain to himself. 77. No doubt section 318 of the Companies Act provides the payment of compensation to a managing director but the word used is "may" and therefore, this cannot be construed to be mandatory especially more so in view of the remaining words contained therein and which includes the interpretation of sub-section (3) of section 318 of the Companies Act. Sub-section (3) lays down that no payment of compensation shall be paid to a managing director in the following cases : ( a )where the director resigns his office in view of the reconstruction of the company, or of its amalgamation with any other body corporate or bodies corporate, and is appointed as the managing director, manager or other officer of the reconstructed company or of the body corporate resulting from the amalgamation; ( b )where the director resigns his office otherwise than on the reconstruction of the company or its amalgamation as aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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