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TMI Blog2016 (2) TMI 583X X X X Extracts X X X X X X X X Extracts X X X X ..... r the purpose of deciding this appeal are as under:- 3. For the purpose of convenience, parties shall be referred to as "Plaintiff" and "Defendant". 4. Appellant is the original Plaintiff. Respondent No.1 is the original Defendant No.1. Respondent No.2 is the original Defendant No.2 who was appointed as Chairman and Managing Director ("MD") of the 1st Defendant- Company. On 1st August, 2012 the 2nd Defendant was reappointed as Chairman and Managing Director of the 1st Defendant-Company for a period of further five years till 2017 and the Plaintiff was appointed as Joint Managing Director of the 1st Defendant-Company. 5. On 1st April 2014, Companies Act was amended and by the Amendment Act of 2013, a new clause was introduced in Section 196(3)(a). By virtue of the said amendment vide sub-clause (3)(a), additional disqualification was added to the disqualifications which already existed in the said provision namely a Managing Director could not be appointed or continued after he had attained the age of 70 years. The said amendment admittedly came into force on 01/04/2014. Defendant No.2 was appointed for a period of five years as MD on 01/08/2012, prior to the amendment. The conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the amendment, the eligibility criteria for appointment as MD was provided in section 269(2). Section 269 (2) of the Companies Act reads as under:- "269. Appointment of managing or whole-time director or manager to require Government approval only in certain cases.- (1) .......... (2) On and from the commencement of the Companies (Amendment) Act, 1988, no appointment of a person as a managing or whole-time director or a manager in a public company or a private company which is a subsidiary of a public company shall be made except with the approval of the Central Government unless such appointment is made in accordance with the conditions specified in Parts I and II of Schedule XIII (the said Parts being subject to the provisions of Part III of that Schedule) and a return in the prescribed form is filed within ninety days from the date of such appointment." 12. Part-I of Schedule XIII of the Companies Act reads as under:- SCHEDULE XIII (See sections 198, 269, 310 and 311) CONDITIONS TO BE FULFILLED FOR THE APPOINTMENT OF A MANAGING OR WHOLE-TIME DIRECTOR OR A MANAGER WITHOUT THE APPROVAL OF THE CENTRAL GOVERNMENT PART I APPOINTMENTS No person shall be eligible for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged insolvent or has at any timebeen adjudged as an insolvent; (c) has at any time suspended payment to his creditors or makes, or has at any time made, a composition with them; or (d) has at any time been convicted by a court of an offence and sentenced for a period of more than six months." 15. The legislative intent in introducing section 196(3)(a) is quite clear. Obviously, the intention was to change the earlier position by providing that the person who has been appointed as Managing Director before he was 70 years old is prohibited from continuing as Managing Director once he has attained the age of 70. The Apex Court in Rama Narang vs. Ramesh Narang and Others(1995) 2 SCC 513 had an occasion to interpret Section 267 of the Companies Act. The Apex Court in the said case was called upon to decide the question whether the Managing Director was liable to be removed upon his conviction and sentence by Additional Sessions Judge, Delhi notwithstanding the admission of the appeal by the Delhi High Court and notwithstanding the stay granted by the Delhi High Court to the order of conviction and sentence. The Apex Court in para 10 of the said judgment has examined the said quest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny or companies specified in the notification to be published in the Official Gazette. Such a power is, however, not available in the case of a Managing Director. Secondly, Section 283 of the Companies Act provides that the office of a Director shall become vacant if convicted and sentenced as stated hereinabove but sub-section (2) thereof, inter alia, provides that the disqualification shall not take effect for thirty days from the date of sentence and if an appeal is preferred during the pendency of appeal till seven days after the disposal of the appeal. This benefit is not extended in the case of a Managing Director. The Companies Act has, therefore, drawn a distinction between a Director and a Managing Director; the provisions in the case of the latter are more stringent as compared to that of the former. And so it should be because it is the Managing Director who is personally responsible for the business of the Company. The law considers it unwise to appoint or continue the appointment of a person guilty of an offence involving moral turpitude to be entrusted or continued to be entrusted with the affairs of any company as that would not be in the interests of the shareholder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) would operate differently than clauses (b) to (d). The said observation is contrary to the ratio laid down by the Apex Court in Rama Narang (supra). 16. We do not agree with the submission of Mr. Seervai, the learned Senior Counsel appearing on behalf of Respondent No.2 that ratio of the judgment in Rama Narang (supra) would not apply to the present case. We also do not find force in the submission of Mr. Seervai, the learned Senior Counsel for Respondent No.2 that Section 196(3)(a) would not apply to the Managing Directors who had been appointed before 01/04/2014 (which is the date on which the the amended section 196(3)(a) was brought into force) as it would otherwise retrospectively affect the vested right of such Managing Directors and, secondly, that there is presumption against legislation operating retrospectively. 17. In our view, Mr. Aspi Chinoy, the learned Senior Counsel appearing on behalf of the Appellant has correctly submitted that the amended Section as a matter of public policy contains mandatory prohibition/bar against any Company from continuing the Managing Director in employment once he has attained the age of 70 years. The language of section 196(3)(a) i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions should not be given retrospective effect so as not to prejudicially affect the interest of any person to whom such Regulations may be made applicable. The Apex Court then observed that it was necessary to make distinction between the existing right and vested right. It relied on the earlier Judgment of the Apex Court in Trimbak Damodhar Rajpurkar vs. Assaram Hiraman Patil1962 Suppl 1 SCR 700. In the said case, the Apex Court was called upon to consider the question as to whether the amendment made to section 5 of the Bombay Tenancy and Agricultural Lands Amendment Act could be said to be retrospective because its operation took within its sweep existing rights. In the said case five judges Bench of the Apex Court held that Section 5 had no retrospective operation. The Apex Court, in the said case of P. Suseela (supra), relied upon the observations made by the Apex Court in Trimbak Damodhar Rajpurkar (supra), which read as under:- "In this connection it is relevant to distinguish between an existing right and a vested right. Where a statute operates in future it cannot be said to be retrospective merely because within the sweep of its operation all existing rights are includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Act would apply to all proceedings where the period of notice had expired after the amending Act had come into force and that the effect of the amending Act was no more than this that it imposed a new and additional limitation on the right of the landlord to obtain possession from his tenant. It was observed in that judgment that "a notice under Section 34(1) is merely a declaration to the tenant of the intention of the landlord to terminate the tenancy; but it is always open to the landlord not to carry out his intention. Therefore, for the application of the restriction under sub-section 2(a) on the right of the landlord to terminate the tenancy, the crucial date is not the date of notice but the date on which the right to terminate matures; that is the date on which the tenancy stands terminated". (Emphasis supplied) The Apex Court then observed in para 15 of its judgment in P.Suseela (supra) as under:- "15. Similar is the case on facts here. A vested right would arise only if any of the appellants before us had actually been appointed to the post of Lecturer/Assistant Professors. Till that date, there is no vested right in any of the appellants. At the highest, the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts of the present case. It has to be borne in mind that by virtue of the Amendment Act of 2013, which came into force on 01/04/2014, one additional disqualification was added to the list of disqualifications which were in existence under the old Act under Section 267. Since a new clause was added as further disqualification for appointment or continuation as Managing Director of the Company, it would operate not only at the stage of appointment but also would operate in the case of a person who has already been appointed and attained the age of 70 years and such a person, therefore, by virtue of disqualification, had no right to be continued as Managing Director, unless a special resolution was passed by the Company. There is no question therefore of the retrospective application of the provision. Since Section 196(3)(a) would apply prospectively, whoever attains the age of 70 after the Amendment Act came into force would cease to function as Managing Director by operation of statute. Ratio of the said judgments therefore on the retrospective application, which have been relied upon by the learned Senior Counsel appearing on behalf of Respondent No.2 viz. in K.S. Paripoorna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able in the present case. 23. The last submission made by Mr. Seervai, the learned Senior Counsel for Respondent No.2 was that executive interpretation of the said section supported the interpretation placed by the Respondent No.2 on Section 196(3)(a). Reliance was placed on a Circular issued by Government of India, Ministry of Industry (Department of Company Affairs), in the context of the Companies (Amendment) Act, 1988 clarifying that the conditions specified in Schedule XIII Part-1 of the 1956 Act were required to be satisfied only at the time of appointment. It further observed that if the appointee, after appointment, did not satisfy any of the said conditions, it would not debar the person concerned from continuing in office for the full tenure of his appointment. Secondly, reliance was also placed on Schedule-V of 2013 Act which is also in pari materia with Schedule XIII of 1956 Act which speaks about the conditions to be fulfilled for the appointment of managing or full time Director or Manager without the approval of the Central Government. It was submitted that Clause (c) of Schedule-V of 2013 Act is exactly the same as Section 196(3)(a) and therefore it was submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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