Mahindra And Mahindra Ltd. And ...

vs Union Of India on 1 August, 1980

Equivalent citations: 1983 53 CompCas 337 Delhi, ILR 1980 Delhi 1232

Bench: P Narain, S Singh

Mahindra And Mahindra Ltd. And Others vs Union Of India on 1/8/1980

JUDGMENT

Prakash Narain, A.C.J.

1. The two questions of some importance which arise for determination in this case are :

"(a) Whether the policy of the Government for the time being is synonymous with public policy as
contemplated by a statute ? and

(b) Whether administrative or executive guidelines can fetter the specific provisions of a statute; or, in other
words, whether the working of a provision of a statute can be controlled by administrative or executive
guidelines."

2. The first petitioner, Mahindra & Mahindra, is a company incorporated under the Indian Companies Act. It
was originally incorporated as a private company, under the provisions of the Indian Companies Act, 1913. It
became a public limited company later on and by any standard is a public company of good standing and has
had commendable growth. Its total income for the financial year 1975-76 was Rs. 61 crores, for 1976-77 Rs.
69 crores, for 1977-78, Rs. 102 crores and for 1978-79 Rs. 143 crores. Its profit after tax for the financial year
1975-76 was Rs. 1.16 crores, for 1976-77, Rs. 1.58 crores, for 1977-78, Rs. 3.00 crores and for 1978-79 Rs.
9.15 crores. The company has been paying dividends regularly varying from 9 per cent. to 22 per cent. per
annum ever since it became a public limited company in 1955. The figures of total managerial remuneration
paid to the highest paid whole-time director of the first petitioner at a percentage of the net profits in
accordance with the provisions of the Companies Act, 1956, hereinafter referred to as the Act, for the
financial years ending on 31st October of each year has been as follows :

31-10-77 31-10-78 31-10-79

(i) Percentage of total managerial

remuneration 3.7 5.5 1.5 (ii) maximum percentage of

remuneration to any whole-time 0.95 1.34 0.35 director

3. Prior to November 1, 1977, the company's business consisted mainly of manufacture of jeeps, utility vans
and trucks. The company had, on its Board, to act as executive directors the following :

1. Mr. Keshub Mahindra

2. Mr. Harish Mahindra

3. Mr. Indra Chatterjee

4. Mr. B. R. Sule and

5. Mr. Kumar Sardesai

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4. At the time of their previous appointment as executive directors, the Central Govt., while granting approval
to their appointments as executive directors, approved their respective remuneration as follows :

Name Date of Appointment/remuneration Approval sanctioned per annum

(a) Mr. Keshub Mahindra 11-12-64 Rs. 1,20,000 (no commission) plus perquisites.

(b) Mr. Harish Mahindra 11-12-64 do. (c) Mr. Indra Chatterjee 13-07-76 Rs. 90,000 plus commission & not
exceeding

12-11-76 Rs. 45,000, Rs. 1,35,000

plus perquisites.

(d) Mr. B. R. Sule 12-07-74 Rs. 90,000 plus commission not exceeding Rs. 45,000,

Rs. 1,35,000 plus

perquisites.

(e) Mr. Kumar Sardesai 25-07-74 do.

5. On July 1, 1976, Mr. Harish Mahindra resigned as an executive director of the company.

6. With a view to diversify its activities, the company proposed a scheme of amalgamation with a company
then known as International Tractors Company of India Ltd. Some time in 1977, the Central Govt. approved
the merger as being in public interest under s. 23 of the Monopolies and Restrictive Trade Practices Act, 1969.
The scheme of amalgamation was sanctioned by the Bombay High Court with effect form November 1, 1977.

7. On September 15, 1978, Mr. Kumar Sardesai left the company on the termination of his contract.

8. On September 20, 1978, in view of the diversification aforementioned and the two vacancies having arisen
as a result of Mr. Harish Mahindra and Mr. Kumar Sardesai not continuing with the company, it designated
and appointed petitioners Nos. 4, 5 and 6 as executive directors of the company with effect form September
20, 1978. Prior to this appointment petitioners Nos. 4, 5 and 6 had been functioning as senior executives of the
company respectively for 14, 12 and 7 years. As executives of the company these three petitioners were
receiving the following emoluments excluding perquisites :

Petitioner No. 4 : Rs. 77,400 per annum

Petitioner No. 5 : Rs. 77,400 per annum

Petitioner No. 6 : Rs. 74,400 per annum

9. The three petitioners were appointed by the company as its executive directors on the remuneration,
excluding perquisites, of Rs. 77,400 per annum plus commission at half per scent. not exceeding Rs. 35,700
per annum. Before making these appointments the company had obtained the approval of the financial
institutions, i.e., the Industrial Development Bank of India, the Life Insurance Corporation of India and the
Industrial Credit and Investment Corporation of India, from which three institutions the company had received
long-term loans of substantial amounts. These three institutions had approved the appointment of petitioner
Nos.4, 5 and 6 as executive directors on type terms mentioned above. By an application dated November 28,
1978, addressed to the respondents, the company applied for approval of the appointment of the three
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petitioners as executive directors of the said company on the aforesaid terms in view of the provisions of s.
269 of the Act. All the relevant information required was sent along with the application. On April 23, 1979,
the shareholders of the company, in a general meeting, unanimously approved the appointment of petitioners
4, 5 and 6 as executive directors of the company and on the terms on which they were appointed. It is
contended on behalf of the petitioners, and not disputed by the respondents, that if the proposed remuneration
was paid to petitioners Nos. 4, 5 and 6, the remuneration payable by the company to its managerial personnel,
i.e., all the executive directors including petitioners Nos. 4, 5 and 6, would be under 2 per cent. of the net
profits of the company.

10. By a letter dated April 19, 1979, the Central Govt. approved the appointments of petitioners Nos. 4, 5 and
6 whole-time executive directors under the provisions of s. 269 of the Act but at salaries of Rs. 60,000 per
annum plus commission at the rate of 0.5 per cent. not exceeding Rs. 12,000 per annum and other perquisites
on terms and conditions mentioned in the said letter. No reason was given in the said letter for reducing the
quantum of the remuneration and the perquisites proposed to be given by the company to petitioners Nos. 4, 5
and 6. These three petitioners made a representation to the company against the said reduction in their
promised remuneration and conveyed their unwillingness to continue to serve the company at the company
against the said reduction in their promised remuneration. The letter was placed before the board of directors
of the company at a meeting held on August 21, 1979. In consequence of the decision of the board of
directors, the company addressed a detailed letter dated August 22, 1979, to the respondent requesting it to
reconsider the terms of the approval contained in the letter dated April 19, 1979. It was pointed out, inter alia;

(i) the company has extremely sound financial position;

(ii) the petitioners Nos. 4, 5 and 6 had excellent qualifications and experience and that the said petitioners
were professional managers who had risen in the company purely on merits;

(iii) that the said petitioners as senior executives of the company had been drawing remuneration higher than
the remuneration approved by the Central Govt.;

(iv) there were other executives in the company who are drawing salaries higher than the remuneration
approved by the Central Govt. for petitioners Nos. 4, 5 and 6; and

(v) the resolutions determining the remuneration of petitioners Nos. 4, 5 and 6 had been passed without a
single dissenting vote by the shareholders of the company and had the fullest approval of the financial
institutions which had a very substantial interest in the company as shareholders.

11. By its letter dated October 26, 1979, the respondent made some minor amendments in the terms of
approval as originally given in respect of provident fund and superannuation fund but did not make any
change in the remuneration already sanctioned. In effect, therefore, the prayer stood rejected.

12. In the meanwhile the company had also made an application to the respondent for grant of approval to the
re-appointment of its chairman, Mr. Keshub Mahindra, as chairman and whole-time director, for a fresh term
of five years from August 1, 1979, on the same terms and conditions which were applicable to him prior to
August 1, 1979. By a letter dated July 26, 1979, the Central Govt. approved the re-appointment of Mr. Keshub
Mahindra as chairman and director fixing his salary at Rs. 5,000 per month plus commission and perquisites.
The salary was reduced by this approval from Rs. 10,000 per month which he had been drawing since 1964 to
Rs. 5,000. The said letter also did not contain any reasons. By its letter date August 21, 1979, the company
requested the respondent to reconsider its decision contained in the said letter dated July 26, 1979. It was,
inter alia, pointed out :

(i) that the sanctioned remuneration was 47 per cent. less than the remuneration approved by the respondent in
1964, with regard to Mr. Keshub Mahindra which he had been drawing since 1964;
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(ii) that Mr. Keshub Mahindra had excellent professional qualifications and had made substantial contribution
to the business of the company;

(iii) during his tenure as chairman of the company its income rose from Rs. 1,637 lakhs to Rs. 10,238 lakhs
and profits rose from Rs. 102 lakhs to Rs. 308 lakhs. The number of employees had also risen from 3,855 to
9,707 and emoluments to the employees had increased by 400 per cent.

(iv) Mr. Keshub Mahindra possessed high and rare skills which was amply illustrated from the fact that he had
been appointed by the Govt. of India as a director of the Steel Authority of India Ltd. and the Reserve Bank of
India. He had also been appointed as chairman of the Housing and Urban Development Corporation and the
Indian Institute of Management, Ahmedabad. Mr. Mahindra had served on various committees of the Govt. of
India, including the high-powered Sachar Committee for reforms in the company law.

(v) that there was no public policy in existence for the removal of disparities in income.

13. On October 5, 1979, the petitioner's counsel wrote to the first-respondent to consider the matter afresh and
do justice in the case.

14. The respondent, by its letter dated October 6, 1979, replied to the company's letter dated August 21, 1979,
and stated that the Central Govt. had carefully considered the representation regarding the payment of salary
at the rate of Rs. 10,000 p.m. to Mr. Keshub Mahindra but having regard to the facts and circumstances of the
case, including "the present policy of the Central Government", it regretted its inability to accept the
company's request. The representation of the company thus stood rejected. Apart form the policy of the
Central Govt. referred to in the said letter no other reason was given why the representation was turned down.

15. As a result of the Central Govt.'s refusal to reconsider its decision with regard to him, Mr. Keshub
Mahindra resigned from the board of directors with effect from October 31, 1979. The board of directors
accepted the resignation on October 16, 1979.

16. On enquiries made, it is represented, the petitioner have been informed that the remuneration fixed in
respect of petitioners Nos. 4, 5 and 6 and Mr. Keshub Mahindra was in consequence of the guidelines issued
by the Ministry of Law, justice and Company Affairs of the Central Govt. in its Dept. of Company Affairs on
November 9, 1978 - See [1978] 48 Comp Case (St.) 232. A copy of these guidelines, inter alia, lay down,
amending the earlier guidelines of November, 1969, that he Government has the power to fix the
remuneration of managing/whole-time directors and managers of a company and that while giving approval to
appointments and remuneration the provisions of s. 637AA are to be kept in view and the Central Govt. would
have read to the "public policy relating to the removal of disparities in income". It is further laid down in para.
4 of the said guidelines as under (at p. 233 of 48 Comp Cas) :

"The case for reduction of ceilings : The Central Government have carefully reviewed the entire question of
managerial remuneration in the context of socio-economic objectives of State Policy and the need of
establishing a co-relation in managerial remuneration at comparable levels of responsibility in Government,
public sector undertakings and public limited companies. In this connection, the recommendations of the
Study Group on Wages, Income and Prices (Bhoothalingam Committee), whose report was published in May,
1978, as well as the recommendations of the high-powered expert committee under the chairmanship of
Justice Rajinder Sachar have been taken into account. These two committees had the benefit of the views of
various interests and bodies representing the employers, employees, trade unions, etc."

17. The substantive salary under the new guidelines, inter alia, has been fixed at not exceeding Rs. 60,000 per
annum and commission on net profits up to 1 per cent. of the net profits has been laid down as allowable in
addition to salary as an incentive for efficient and sound management provided the commission did not exceed
20 per cent. of the salary subject to an overall ceiling that the salary plus commission would not exceed Rs.
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72,000. Bonus was to be treated as part of the commission. Perquisites were also restricted by these
guidelines. Paragraph 5.3 of the said guidelines lays down that expatriates and persons possessing high and
rare skills would not be governed by the ceiling on managerial remuneration provided by the guidelines. Each
case was to be considered on its own merits.

18. The petitioners contend that not only s. 637AA is ultra vires arts. 14 and 19 of the Constitution of India
but that the said guidelines contained in the circular dated November 9, 1978, are ultra vires the provisions of
the Act, besides being ultra vires art. 14 of the Constitution. They further contend that "policy of the
Government", to which reference has been made in the circular and "public policy", are district concepts. It is
also the petitioner's case that in fact there is no "public policy relating to the removal of disparities in income"
in existence. Accordingly, the petitioners pray that s. 637AA of the Act and the impugned guidelines of
November 1978, be struck down, it be held that the approval, as given by the respondent with regard to the
petitioners and Mr. Keshub Mahindra, was arbitrary and so of no effect and that a direction be issued to the
respondent by way of a writ of mandamus restraining the respondent, its officers, employees and agents from
enforcing against the petitioners the provisions of clause (e) of s. 637AA of the Act or the provisions of the
said impugned guidelines. The petitioners further pray that the appointments of petitioners Nos. 4, 5 and 6 as
executive directors with effect from September 20, 1978, for five years be ordered to be approved in
accordance with law.

19. By way of return to the rule nisi obtained by the petitioners the respondent has filed the affidavit of Mr. C.
Khushaldas, a director in the Dept. of Company Affairs of the Ministry of Law, Justice and Company Affairs.
He has denied that the impugned circular dated November 9, 1978, is arbitrary, discriminatory or violative of
arts. 14 and 19 of the Constitution. He disputes that the said guidelines place any unreasonable or arbitrary
restrictions on the fundamental rights of the board of directors of the company or its shareholders. He has
referred to the aims and objects of enacting s. 637AA of the Act as follows (See 42 Comp Case (St.) 245,
clause 36) :

"This clause is intended to make it clear beyond doubt that the Central Government has power to adopt an
administrative ceiling within the statutory ceiling fixed by sections 309 and 198 of the Companies Act, 1956,
in regard to managerial remuneration. The High Court of Delhi has also suggested an amendment of the Act
in case it is intended to give effect to any such administrative ceilings within the statutory ceilings. This
amendment has accordingly been proposed."

20. Mr. Khushaldas has also disputed the averment that the impugned guidelines the violative of any
provisions of the Act including s. 637AA. He has affirmed that the said guidelines have not been issued under
the provisions of s. 637AA of the Act alone. Obviously, reference is made to s. 637A of the Act. The facts of
the case have not been disputed in the counter-affidavit, but the legal propositions enunciated by the
petitioners have traversed. It is stated in the affidavit that removal of disparities in income is a matter of public
policy and the State is enjoined by art. 39 of the Constitution to give due regard to the same. It is the
respondents's case that the impugned guidelines have been issued in pursuance of the directive principles of
State policy contained in art. 39 of the Constitution and so are neither unreasonable not arbitrary. Dilating
further on this aspect, Mr. Khushaldas avers as under.

"I deny the allegation that in so far as the circular on managerial remuneration, the same singles out the
persons there under for hostile and discriminatory treatment. The classification of managing directors,
whole-time directors, part-time paid directors and managers in public limited companies or private limited
companies which are subsidiaries of public limited companies is just and reasonable and does not suffer from
the vice of hostile discrimination. This is borne out by the provisions contained in the Act itself, to which
reference shall be made at the time of hearing."

21. Denying the said guidelines to be violative of art. 19(1)(g) of the Constitution, Mr. Khushaldas avers.

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"The circular is not motivated by irrelevant considerations and the guidelines themselves make it clear that
they have been issued in due consideration of all relevant factors, including the directive principles of State
policy contained in the Constitution, the recommendations of the Bhoothalingam the and Sachar Committees
and the views of several cross-sections of enlightened public opinion."

22. Who constitute the cross-sections of enlightened public opinion is not specified. He goes on further to aver
:

"I say that in the implementation of the policy that led to the issuance of the guidelines considerations relating
to the turnover-profit-making capacity of different companies are not relevant, and cannot be relevant. What is
material is the disparity in the income of a class of persons as compared with others. In formulating the
guidelines, no statutory provisions have been overlooked. In fact, all considerations applicable to sections
637AA of the Act have, inter alia, been cumulatively assessed before the guidelines were finalised and issued.
The guidelines do not place any fetter on the powers conferred by the Act on the Company Law Board or on
the Central Government. The provisions contained in the circular relating to 'expatriates' and 'persons
possessing high or rare skills' are neither vague nor arbitrary."

23. In para. 7 of his affidavit it is admitted by Mr. Khushaldas that the impugned guidelines were the basis of
the impugned orders issued with regard to petitioners Nos. 4, 5 and 6 and Mr. Keshub Mahindra. however, the
letters conveying the impugned orders do not state that the impugned guidelines were the basis on which
orders were issued by the Central Govt.

24. A rejoinder was filed on behalf of the petitioners to the counter-affidavit filed on behalf of the respondent.
After reiterating what has been said in the petition it has been pointed out that the impugned guidelines are
applicable only to public limited companies in the private sector and not to private limited companies in the
private sector or to the companies in the Government sector. Instances have been given to show how the
so-called levelling of remuneration is arbitrary and discriminatory. With regard to the Bhoothalingam
Committee on wage and dividends freeze was dead and as good as scrapped. This statement is said to have
been made by Mr. Patnaik in reply to a letter from Mr. H. N. Trivedi, the Indian National Trade Union
Congress leader. It has been further averred that no evidence whatsoever has been placed on record by the
respondent to show that any public policy existed with regard to what is said in the impugned guidelines for
the removal of disparities in income and for which reliance has been placed on are. 38 of the Constitution.

25. Before we proceed to deal with the contentions of the parties, to put the record straight, it has to be noticed
that there is no evidence on the record before us that there was any public policy framed at any point of time
for the implementation of the directives contained in art. 38 of the Constitution. There is, however, some
evidence that it was the policy of the Government for the time being which prompted the issuance of the
impugned circular dated November 19, 1978. The petitioners have categorically pleaded that the
Bhoothalingam Committee report had not been accepted by the Government nor has any policy been
announced by the Government as public policy in that regard. In the counter-affidavit of Shri C. Khushaldas,
filed by the respondent by way of return to the rule nisi, it has been said that in issuing the impugned
guidelines the Government had kept in view the recommendations of the Bhoothalingam Committee and the
Sachar Committee. It has been further said that the provisions of ss. 269, 309 and 311 have been kept in view.
The impugned guidelines are said to have been issued in conformity with the directive principles of State
policy contained in the Constitution, the recommendations of the aforesaid two Committees and "the view of
several cross-sections of enlightened public opinion". In other words, it is not disputed that the impugned
guidelines were issued in consequence of the Government policy. It has not been specifically said that there
was any public policy. With regard to the Bhoothalingam Committee and the Sachar Committee the
petitioners have placed on record a communication dated October 6, 1979, received by the first petitioner
from the respondent that the remuneration of Mr. Keshub Mahindra had been scaled down from Rs. 10,000 to
Rs. 5,000 per month "having regard to the facts and circumstances of the case including the present policy of
the Central Government". The same was the stand of the respondent with regard to the remuneration
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sanctioned for petitioners Nos. 4, 5 and 6. It is in this context, therefore, that a point arises for consideration as
to whether public policy, Government policy and public interest would be synonymous terms.

26. The relevant portion of art. 38 of the Constitution contained in Pt. IV reads us under :

"38. (2) The State shall, in particular, strive to minimise the inequalities in income and endeavor to eliminate
inequalities in status, facilities and opportunities, not only amongst individuals but also amongst groups of
people residing in different areas or engaged in different vocations."

27. This provision was brought in by s. 9 of the Constitution (Forty-fourth Amendment) Act, 1978. Article 37
provides that the provision contained in Pt. IV shall not be enforceable by any court, but the principles therein
laid down are nevertheless fundamental in the governance of the country and it shall be the duty of the State to
apply these principles in making laws. A combined reading of arts. 37 and 38, therefore, makes it obvious that
though there may be desirability to formulate a public policy to eliminate inequalities or minimise inequalities
in income, the same is to be enforced or effectuated by the State by making laws and not by executive action.
Therefore, though the State may be advised by the various committees it constituties, it has ultimately to
frame laws to remove inequalities in income. Indeed, it is to effectuate this laudable principle that the
Companies Act has incorporated in it the various provisions to keep a check and control over managerial
remuneration. Therefore. it would be advantageous first to read the relevant provisions of the Companies Act.

28. Section 2(24) of the Act defines "manager" as under :

"'Manager' means an individual (not being the managing agent) who, subject to the superintendence, control
and direction of the Board of directors, has the management of the whole, or substantially the whole, of the
affairs of a company, and includes a director or any other person occupying the position of a manager, by
whatever name called, and whether under a contract of service or not."

29. Section 2(13) defines "director" as under :

"'Director' includes any person occupying the position of director, by whatever name called."

30. The term "managing director" is defined by s. 2(26) as under :

"'Managing Director' means a director who, by virtue of an agreement with the company or of a resolution
passed by the company in general meeting or by its board of directors or, by virtue of its memorandum or
articles of association, is entrusted with substantial powers of management which would not otherwise be
exercisable by him, and includes a director occupying the position of a managing director, by whatever name
called :

Provided that the power to do administrative acts of a routine nature when so authorised by the board such as
the power to affix the common seal of the company to any document or to draw and endorse any cheque in the
account of the company in any bank or to draw and endorse any negotiable instrument or to sign any
certificate of share or to direct registration of transfer of any share, shall not be deemed to be included within
substantial powers of management :

Provide further that a managing director of a company shall exercise his powers subject to the
superintendence, control and direction of its board of directors."

31. Section 198(1) reads as under :

"The total managerial remuneration payable by a public company or a private company which is a subsidiary
of a public company, to its directors and its managing agent, secretaries and treasurers or manager in respect
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of that company for that financial year computed in the manner laid down in sections 349, 350 and 351,
except that the remuneration of the directors shall not be deducted from the gross profits : .....

32. Section 269(1), (3) and (4) is in the following words :

"269. (I) In the case of a public company or a private company which is a subsidiary of a public company,
whether such public company or private company is an existing company or not, the appointment of a person
as a managing or whole-time director shall not have any effect unless approved by the Central Government :

Provided that in the case of a public company, or a private company which is a subsidiary of a public
company, incorporated after the commencement of the Companies (Amendment) Act, 1960, the appointment
of a person as a managing or wholetime director after such incorporation may be made without the approval
of the Central Government but such appointment shall cease to have effect after the expiry of three months
from the date of such incorporation unless the appointment has been approved by that Government.

Explanation. - In this sub-section, and in sub-sections (3) and (5), 'appointment' includes 're-appointment' and
'whole-time director' includes' a director in the whole-time employment of the company' .....

(3) The Central Government shall not accord its approval under sub-section (1) in any case, unless it is
satisfied that -

(a) it is in the interests of the company to have a managing or whole-time director,

(b) the proposed managing or whole-time director of the company is, in its opinion, a fit and proper person to
be appointed as such and that the appointment of such person as managing or whole-time director is not
against the public interset, and

(c) the terms and conditions of appointment of the proposed managing or whole-time director of the company
are fair and reasonable.

(4) While according its approval under sub-section (1), the Central Government may, if it is of opinion that in
the interests of the company it is necessary so to do, accord approval to the appointment for a period lesser
than the period for which the person is proposed to be appointed by the company."

33. Section 309 provides for remuneration of directors and sub-s. (1) thereof reads as under :

"309. (1) The remuneration payable to the directors of a company, including any managing or whole-time
director, shall be determined, in accordance with and subject to the provisions of section 198 and this section,
either by the articles of the company, or by a resolution or, if the articles so require, by a special resolution,
passed by the company in general meeting and the remuneration payable to any such director determined as
aforesaid shall be inclusive of the remuneration payable to such director for services rendered by him in any
other capacity :

Provided that any remuneration for services rendered by any such director in any other capacity shall not be so
included if -

(a) the services rendered are of a professional nature, and

(b) in the opinion of the Central Government, the director possesses the requisite qualifications for the
practice of the profession."

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34. Sub-section (3) of s. 309 lays down that a director, who is either in the whole-time employment of the
company or a managing director, may be paid remuneration either by way of a monthly payment or at a
specified percentage of the net profits of the company or partly by one way and partly by the other provided
that except with the approval of the Central Govt. such remuneration shall not exceed five per cent. of the net
profits for one such director and if there is more than one such director, ten per cent. for all of them together.

35. Section 310 reads as under :

"310. In the case of a public company, or a private company which is a subsidiary of a public company, any
provision relating to the remuneration of any director including a managing or whole-time director, or any
amendment thereof, which purports to increase or has the effect of increasing, whether directly or indirectly,
the amount thereof whether that provision be contained in the company's memorandum or articles, or in an
agreement entered into by it, or in any resolution passed by the company in general meeting or by its board of
directors, shall not have any effect unless approved by the Central Government; and the amendment shall
become void if, and in so far as, it is disapproved by that Government :

Provided that the approval of the Central Government shall not be required where any such provision or any
amendment thereof purports to increase, or has the effect of increasing, the amount of such remuneration only
by way of a fee for each meeting of the board or a committee thereof attended by any such director and the
amount of such fee after such increase does not exceed two hundred and fifty rupees."

36. Section 387 deals with the remuneration of a manager. Section 388 lays down that the provisions of ss.
269, 310, 311 and 317 shall apply in relation to the manager of a company as they apply in relation to a
managing director thereof, and those of s. 312 shall apply in relation to the manager of a company, as they
apply to a director thereof. Section 637A gives power to the Central Govt. or the Company Law Board to
accord approval, etc., subject to conditions and payment of certain fees. The relevant provision with which we
are concerned is s. 637A(1), which reads as under :

"637A. (1) Where the Central Government or Company Law Board is required or authorised by any provision
of this Act, -

(a) to accord approval, sanction, consent, confirmation or recognition to, or in relation to, any matter;

(b) to give any direction in relation to any matter; or

(c) to grant any exemption in relation to any matter,

then in the absence of anything to the contrary contained in such or any other provision of this Act, the
Central Government or the Company Law Board may accord, give or grant such approval, sanction, consent,
confirmation, recognition, direction or exemption subject to such conditions, limitations or restrictions as it
may think fit to impose and may, in the case of contravention of any such condition, limitation or restriction,
rescind or withdraw such approval, sanction, consent, confirmation, recognition, direction or exemption."

37. Section 637AA was enacted as a consequence of a judgment of this court and reads as under :

"637AA. Notwithstanding anything contained in section 198, section 309 or section 637A, the Central
Government may, while according its approval under section 269, to any appointment or to any remuneration
under section 309, section 310, section 311 or section 387, fix the remuneration, of the person so appointed or
the remuneration, as the case may be, within the limits specified in this Act, at such amount or percentage of
profits of the company, as it may deem fit and while fixing the remuneration, the Central Government shall
have regard to -

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(a) the financial position of the company;

(b) the remuneration or commission drawn by the individual concerned in any other capacity, including his
capacity as a sole selling agent;

(c) the remuneration or commission drawn by him from any other company;

(d) professional qualifications and experience of the individual concerned;

(e) public policy relating to the removal of disparities in income."

38. A reading of the above provisions of the Companies Act shows that the Central Govt's control on
remuneration has been provided by Parliament keeping in view the directive principles of State policy that
there should not be too much disparity in incomes and an effort be made to minimise inequalities in incomes.

39. "Public policy" is an extremely difficult term to define. It is generally understood as to what is public
policy and traditionally everyone knows that wagering contracts, contracts in restraint of trade,
unconscionable alliances between men and women, etc., have been regarded as against public policy.
Burrough J. in Richardson v. Mellish [1824] 2 Bing 229, 252, long ago, said : "I, for one, protest .... against
arguing too strongly upon public policy; .... it is a very unruly horse, and when once you get astride it you
never know where it will carry you. It may lead you from the sound law. It is never argued at all but when
other points fail." (Words and Phrases Legally Defined, Vol. 4, Butterworths' Publication, 1969). Lord Truro
in Egerton v. Brownlow [1853] 4 HL Case 1, observed as under :

"Exceptions have been made to the expression of 'public policy', and it has been confounded with what may
be called political policy; such as whether it is politically wise to have a sinking fund or a paper circulation, or
the degree and nature of interference with foreign States; with all which, as applied to the present subject, it
has nothing whatever to do. Public policy, in relation to this question, is that principle of the law which holds
that no subject can lawfully do that which has a tendency to be injurious to the public, or against the public
good, which may be termed, as it sometimes has been, the policy of the law, or public policy in relation to the
administration of the law."

40. Lord Halsbury L. C. in Janson v. Driefontein Consolidated Mines Ltd. [1902] AC 484, 491, 492 (HL)
observed as under :

"In treating of various branches of the law learned persons have analysed the sources of the law, and have
sometimes expressed their opinion that such and such a provision is bad because it is contrary to public
policy; but I deny that any court can invent a new head of public policy; so a contract for marriage brokerage,
the creation of a perpetuity, a contract in restraint of trade, a gaming or wagering contract, or, what is relevant
here, the assisting of the King's enemies, are all undoubtedly un-lawful things; and you may say that it is
because they are contrary to public policy they are unlawful; but it is because these things have been either
enacted or assumed to be by the common law unlawful, and not because a judge or court have a right to
declare that such and such things are in his or their view contrary to public policy. Of course, in the
application of the principles here insisted on, it is inevitable that the particular case must be decided by a
judge; he must find the facts, and he must decide whether the facts so found do or do not come within the
principles which I have endeavored to describe - that is, a principle of public policy, recognised by the law,
which the suggested contract is infringing, or is supposed to infringe."

41. Therefore, it is very difficult to say precisely what is public policy. Nevertheless it is something quite
distance from government policy and on that count once could have no doubts. The distinction between
Government policy and public policy can more readily be understood if one takes a few examples. It would be
public policy in public interest whether to start an industry of a particular type in public sector or not or to
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nationalise any private enterprise. Generally speaking, Government policies are presumed to be made in
public interest. Having one or two internal public policy would always be regarded as being in public interest
but a Government policy to be held as being in public interest is an aspect which can be enquired into and in
some cases be subject to judicial review. Every Government policy in public interest cannot be regarded as
public policy, yet public policy is presumed to be in public interest. As Bouvier's Law Dictionary and Concise
Encyclopedia, Vol. II, sets out, a public policy is, "that principle of the law which holds that no subject can
lawfully do that which has a tendency to be injurious to the public or against the public good ([1853] 4 HL
Case 1; Greenh. pub. Pol. 2).

Further,

"Public policy is a variable quality; it must and does vary with the habits, capacities and opportunities of the
public."

"Therefore, we are of the view that when the respondent has categorically said that it was the Government
policy which resulted in the issuance of the impugned guidelines, that cannot be taken to mean that it was
public policy. Indeed public policy in a democratic set up is generally expressed through the will of
Parliament or other Legislatures. That is how it should be keeping in view the provisions of art. 37 of the
Constitution.

In an American case, Giant-Powder Co. (42 Fed. 470), it was observed, "public policy is manifested by public
acts, legislative and judicial and not by private opinion, however eminent".

42. The above discussion was necessary to appreciate the provisions of s. 637A and s. 637AA of the Act.
These sections have already been read earlier. The point in question, therefore, is whether the impugned
guidelines are intra vires or ultra vires the two sections.

43. In Upper Doab Sugar Mills Ltd. v. Company Law Board [1971] 41 Comp Case 643 (Delhi), the question
which came up for consideration before a Bench of this court was whether any administrative guidelines could
be issued under s. 637A of the Act and the remuneration of directors fixed according to those guidelines. The
contention of the petitioner was that the Company Law Board, to which the power of approval had been
delegated, in granting approval to the appointment of managing directors could not, pursuant to the
administrative policy of the Government, impose a condition that the total remuneration of each managing
director by way of commission and salary shall not exceed Rs. 1,20,000 per annum. It was contended that the
sanction for the fixing of the remuneration had to be given in accordance with the provisions of ss. 198,
269(1) and 309 of the Act and not pursuant to an administrative policy. This court held that a study of the
scheme of the Companies Act showed that the Legislature had itself occupied the entire ground relating to the
fixation of the remuneration of the managing director. It has left nothing to be done regarding such
remuneration by the Government or the Board except when the remuneration was to be enhanced above the
statutory limits under the provisos to ss. 198(4) and 309(3). Any condition regarding remuneration which is
contrary to the provisions of ss. 198 and 309 could not be germane to s. 269 inasmuch as the Legislature had
exhaustively dealt with remuneration in those two sections. It was further held that s. 637A and s. 269
authorise the Government or the Board only to take individual decisions in individual cases according to the
merits of each particular case. They do not authorise the laying down of a general policy modifying or
changing the general maximum limits laid down in ss. 198 and 309. It was observed that it would require an
amendment of ss. 198 and 309 before a general policy of the type that was impugned could be upheld. This
decision was rendered when a challenge was made to an executive action in pursuance of the guidelines which
have been superseded by the impugned guidelines in the present case. On appeal from the decision of this
court the Supreme Court reversed the decision in the case, reported as Company Law Board v. Upper Doab
Sugar Mills Ltd. . It was held that in view of the provisions of ss. 269 and 637A, the Company Law Board
was well within its powers in enforcing the condition.

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44. After the decision of the Delhi High Court in Upper Doab Sugar Mills Ltd.'s case [1971] 41 Comp Case
643 and before the decision of the Supreme Court ([1977] 47 Comp Case 173), reversing the decision of the
Delhi High Court, Parliament had brought about a change in the Companies Act not by the amendment of s.
198 or s. 269 or s. 309 but by enacting s. 637AA. Even s. 637A was left as such on the statute book without
either any amendment or being repealed. The result is that the power of the Central Govt. to accord approval,
etc., subject to conditions and to fix a limit with regard to remuneration is to be found not only in ss. 198, 269
and 309 but also in ss. 637A and 637AA. The Supreme Court has already upheld the power to fix
remuneration and impose conditions under s. 637A. What has, however, now to be seen is as to what is the
effect of the enactment of s. 637AA. Parliament was aware of the decision of the Delhi High Court in Upper
Doab Sugar Mills Ltd.'s case and indeed it was as a result of that decision that s. 637AA was enacted. It,
therefore, laid down a clear-cut policy and gave an absolute direction as to how the power is to be exercised.
Section 637AA starts with a non obstante clause purporting to exclude the strict connotation of s. 198 or s.
309 or s. 637A and so, gives a flexibility to governmental action. This flexibility given by Parliament is not,
however, absolute. In terms, the latter portion of s. 637AA lays down that the Central Govt. is to fix the
remuneration "within the limits specified in this Act, at such amount or percentage of profits of the company,
as it may deem fit". The further guideline given to the Central Govt. by s. 637AA in fixing the remuneration is
mandatory for the section lays down that the Central Govt. shall have regard to :

"(a) the financial position of the company;

(b) the remuneration or commission drawn by the individual concerned in any other capacity, including his
capacity as a sole selling agent;

(c) the remuneration or commission drawn by him from any other company;

(d) professional qualifications and experience of the individual concerend;

(e) public policy relating to the removal of disparities in income."

45. Therefore, the Central Govt. cannot fix the remuneration of the person concerned nor can it formulate a
policy nor can it give any administrative instructions except in accordance with the mandate of the section. It
is in this context that the question of public policy assumes some importance. As I have said earlier, it stands
established on the record that there is no public policy relating to the removal of disparities in income yet in
existence. Admittedly, the impugned fixation of remuneration is under a Government policy which is distance
from a public policy.

46. If there be no public policy, as postulated by clause (e) of s. 637AA, the only factors which the Central
Govt. can take into account are those enumerated in cls. (a) to (d) of s. 637AA within the limits laid down by
s. 198 and s. 309. The impugned guidelines are not claimed to be in accordance with cls. (a) to (d) of s.
637AA though it is generally pleaded that the guidelines have been framed keeping the provisions of ss. 637A
and 637AA in view. The impugned orders have not been passed, with regard to either Mr. Keshub Mahindra
or petitioners Nos. 4, 5 and 6, by taking the financial position of the company or other factors in view. It is the
case of the respondent that the remuneration has been fixed keeping in view the Government policy relating to
removal of disparities in income. This the Central Govt. could not do. Though there is power in the Central
Govt. under s. 637A to fix the remuneration, as has been held by the Supreme Court in the case of Upper
Doab Sugar Mills Ltd. [1977] 47 Comp Case 173, in view of the provisions of s. 637AA, that power can now
be exercised only in accordance with the provisions of the latter section. It is admitted by the respondent in
para. 3 of its counter-affidavit that the remuneration has been fixed in view of the Government policy and the
impugned guidelines. Nowhere it is stated by the respondent that it has taken any other factor into
consideration. This clearly amounts to the exercise of a power contrary to the provisions of the Act.

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47. It has been submitted that even if the power has not been exercised in accordance with s. 637AA, as there
is power to fix remuneration by virtue of the provisions of s. 637A the exercise of power should be upheld. In
other words, s. 637AA does not militate against such an interpretation being given and the ratio of the
Supreme Court in Upper Doab Sugar Mills Ltd. would apply. This theoretical aspect need not be commented
upon inasmuch as it is clearly the stand of the respondent in its correspondence with the first petitioner that
the remuneration has been fixed keeping in view "the present policy of the Central Government" and at best
the administrative instructions contained in the impugned guidelines. Though it has been said in the affidavit
that the impugned guidelines were issued keeping the provisions of s. 637A in view, the respondent seems to
forget that the manner of the exercise of the power under s. 637A has been clearly delineated by Parliament by
s. 637AA. Therefore, the existence of a public policy was a sine qua non before taking a decision as to how
the disparities in income were to be reduced. Further, in considering individual applications it was the duty of
the Central Govt. not only to take into consideration the guidelines formulated but also the factors set out in
cls. (a) to (d) of s. 637AA. Indeed, one may well say that the ratio of the decision of the Supreme Court in
Upper Doab Sugar Mills Ltd.'s case [1977] 47 Comp Case 173, could well be attracted in respect of approvals
to be given by the Central Govt. prior to February 1, 1975, when s. 637AA came into force. After that date the
manner of exercise of the power for fixing the remuneration of managing/whole-time director is to be found in
s. 637AA read with ss. 198, 269 and 309 of the Act. We would, therefore, hold that the impugned guidelines
are ultra vires the provisions of the Act and particularly s. 637AA and any approval following those guidelines
and not the provisions of the Act is without authority or jurisdiction. Accordingly, we quash the impugned
orders regarding fixation of the remuneration of petitioners Nos. 4, 5 and 6.

48. The impugned guidelines dated November 9, 1978 (copy Annex A-2), must also be held to be violative of
the provisions of the Act and ultra vires the power of the Central Govt. We come to the above conclusion in
view of the provisions of s. 657AA of the Act. The guidelines issued earlier, which have now been superseded
by the impugned guidelines, dated November 9, 1978, may, perhaps, be valid in view of the Supreme Court's
decision in Upper Doab Sugar Mills' case [1977] 47 Comp Case 173, referred to earlier. Those are not
challenged and so, we need not comment. After the enactment of s. 637AA administrative instructions can be
issued only keeping in view the manner in which the power under s. 637A has to be exercised.

49. In the view that we have taken it is unnecessary for us to dilate on whether the impugned guidelines are
violative of arts. 14 and 19 of the Constitution. It is also not necessary to comment upon the validity of s.
637AA of the Act. We would also rather not comment upon whether s. 637A is a general section and s.
637AA is a special provision. We have already observed how the two sections can be reconciled and read
together as constituting the power and the manner of exercising the power conferred upon the Central Govt.

50. The result is that the rule is made absolute to the extent that the impugned guidelines contained in the
circular, Ex. A-2, along with its amendments are declared ultra vires and violative of the provisions of ss.
637AA of the Companies Act, 1956. We issue a writ of mandamus directing the respondent not to apply the
said guidelines in considering the applications moved to it. We further direct the respondent to again process
and decide the applications moved on behalf of petitioners Nos. 4, 5 and 6 afresh within two months from
today in accordance with the law laid down. The petitioners will be entitled to their costs. Counsel's fee Rs.
550.

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