CIBATUL LIMITED Vs. UNION OF INDIA

JUDGEMENT

(1.) Petitioner no. 1 Cibatul Limited is a Company registered under the provisions of the Indian Companies Act 1956 Petitioner no. 2 is working as the Managing Director of petitioner no. 1. Petitioners nos. 3 4 and 5 are the shareholders of petitioner no. 1. Petitioner no. 2 is the professional Managing Director. He after having passed and obtained M. Sc. decree in Organic Chemistry obtained Doctors Degree in Switzerland in the year 1949. Thereafter in the year 1950 he joined service and started his career with petitioner no. 3. Thereafter in the year 1960 petitioner no. 1-Company was incorporated. In the year 1966 petitioner no. 1 started manufacturing business. Petitioner no. 2 thereafter in the year 1967 joined petitioner no. 1 Company and became its Managing Director for the first time. He was appointed for a period of five years. Again he was appointed in the year 1972 as the Managing Director for a period of five years and he continued to serve petitioner no. 1 in that capacity upto 1977. Thereafter petitioner no. 1-Company decided to re appoint petitioner no. 2 again for a period of five years and for that purpose the terms and conditions were settled and an application was submitted to the Government of and a for the purpose of obtaining sanction and that petition was submitted on 16-8-1977.

(2.) Thereafter on 28-1-1978 the Government of India sanctioned and gave approval for a period of two years and the terms and conditions which were set out by the Company were revised. Under these circumstances the petitioners ultimately filed this Special Civil Application. It may be stated here that the terms and conditions which were agreed showed that the appointment was to be made for a period of five years. The salary which was fixed was Rs. 5 0 per month with annual increment upto Rs. 500/at the discretion of the Board of Directors payable from January of each calendar year. It was also agreed to give commission upto one percent of the net profits of the company computed in the manner laid down in sec. 309(5) of the Act subject however to a maximum of 50x. of the annual salary the amount of commission payable to be determined by the Board of Directors at its sole discretion With in the above limit. Perquisites every also agreed between the parties and a special mention may be made to gratuity medical benefits and residential accommodation. Gratuity fixed was not exceeding three-forth of a months salary for each completed year of service as per the scheme of Approved Gratuity Fund applicable to the officers of the Company. Medical benefits for self and family included reimbursement of expenses Actually incurred the total cost of which to the company shall not exceed three months salary for a period of every there years of service. So far as residential accommodation is concerned it was agreed that the rent will be recovered at the rate fixed by the company and the cost of the same to the company will not exceed 25% of the salary. The monetary value of this perquests will be evaluated as per Rule 3 of the Income Tax Rules 1962 The other terms included Companys contribution towards Provident Fund Pension Leave free use of car personal accident insurance and leave travel facility. When the Government of India granted approval under secs. 269 and 198(4)/309(3) of the Companies Act 1956 what was done was that reappointment of petitioner no. 2 was approved not for a period of five years but for a period of two years.As regards the salary though Rs. 5 0 per month were approved increment of Rs. 500/per year was not approved and a substantial reduction was made in commission and the commission approved was one percent of the net profits of the Company computed in the manner laid down in sec. 309 (5) of the Act subject however to a maximum of Rs 10 0 per annum. This was a substantial reduction inasmuch as an amount of Rs. 20 0 atleast would be payable less to petitioner no. 2 in view of the revised terms. In gratuity also the revision was made which stated as under :-

(3.) It was submitted in the petition that sec. 269 and 637AA of the Indian Companies Act 1956 impose unreasonable restrictions on the rights of the shareholders of petitioners nos. 1 and 2 to carry on business on terms offered and accepted and results in hostile and discriminative treatment quo management personnel and public limited companies and their subsidiaries and are violative of the petitioners rights under Articles 14 and 19(1) (g) of the Constitution of India.