Appointment of managing director, whole-time director or manger in a private company in accordance with the provisions of the Companies Act, 2013 (“Act”):

No private company shall:

(a)              appoint or employ at the same time a managing director and a manager;

(b)              appoint or re-appoint any person as its managing director, whole-time director or manager for a term exceeding five years at a time;

Note: No re-appointment shall be made earlier than one year before the expiry of his term.

(c)               appoint or continue the employment of any person as managing director, whole-time director or manager who: (i) is below the age of twenty-one years or has attained the age of seventy years; (ii) is an un-discharged insolvent or has at any time been adjudged as an insolvent; (iii) has at any time suspended payment to his creditors or makes, or has at any time made, a composition with them; or (iv) has at any time been convicted by a court of an offence and sentenced for a period of more than six months.

Note: The appointment of a person who has attained the age of seventy years may be made by passing a special resolution in which case the explanatory statement annexed to the notice for such motion shall indicate the justification for appointing such person.

Pursuant to the publication of the notification dated June 05, 2015 by the ministry of corporate affairs, sub section (4) and (5) of section 196 of the Act shall not apply to private companies.

Accordingly, private companies have been exempted from adhering to the provisions of section 197 and Schedule V of the Act, whereby the terms of appointment, including the remuneration payable and the appointment of a managing director, whole-time director or manager be approved by the board at a meeting which be subject to approval by a resolution at the next general meeting and by the central government where such appointment is at variance to the conditions specified in Schedule V.

Note: Where a public company fails to approve the appointment of a managing director, whole-time director or manager at a general meeting, any act done by such managing director, whole-time director or manager before such approval shall not be deemed to be invalid.

Note: A public company, while appointing a managing director, whole-time director or manager, shall ensure that the notice convening the board or general meeting, for considering such appointment shall include the terms and conditions of such appointment, remuneration payable and such other matters including interest, of a director or directors in such appointments, if any and a return in Form MR 1 shall be filed within sixty days of such appointment with the RoC.

Note: A private company shall, upon appointment of a managing director, whole time director or manager, chief executive officer, company secretary and chief financial officer, file a return of such appointment in Form MR 1, within sixty days of such appointment with the RoC.

Conclusion: The MCA notification dated June 05, 2015 read with the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 provide that a private company shall appoint a managing director, whole time director or manager without complying with the provisions as provided in sub section (4) and (5) of section 196. Accordingly, a private company shall continue to appoint a managing director, whole time director or manager, chief executive officer, company secretary and chief financial officer by approving their appointment in a board meeting and thereafter filing a return of such appointment in Form MR 1 with the RoC, within sixty days of such appointment. 

The Supreme Court of India (“Court”) in Huawei Technologies Company Limited v. Sterlite Technologies Limited while determining the scope of section 11(6) of the Arbitration and Conciliation Act, 1996 (“Act”) has held as follows: “Clause 22.3 of the Supply Contract contemplates appointment of a sole arbitrator by the parties by mutual consent. In a situation where the original arbitrator i.e. Shri Justice S.K. Dubey had recused himself the substitute or new arbitrator is required to be appointed according to the rules that were applicable to the appointment of the original arbitrator.”

The Court while coming to above conclusion referred to the ratio of Yashwith Constructions Private Limited v. Simplex Concrete Piles India Limited & Anr. (2006) 6 SCC 204 which is as follows: “The term ‘rules’ appearing in section 15(2) of the Act has been understood to be referring to the provisions for appointment contained in the arbitration agreement or any rules of any institution under which the disputes are to be referred to arbitration.”

In light of the above, it is established law that where an arbitral tribunal or a sole arbitrator recuses itself/ himself from the arbitral proceedings, the appointment procedure as provided in the arbitration agreement shall be followed for the appointment of the arbitral tribunal/ sole arbitrator and an application under section 11(6) of the Act shall only be filed after exhausting the process as provided under the arbitration agreement.   

A copy of the said judgement dated September 04, 2015 is classified non reportable and was published on the website hosted on the domain http://supremecourtofindia.nic.in/

Legal Update | Competition Commission of India

Pursuant to the information filed by Fast Track Call Cab Private Limited, the Competition Commission of India (Commission) took a view that the conduct (business operations) of ANI Technologies Private Limited (ANI), in the relevant product market of radio taxi services, within the relevant geographic market of the city of Bengaluru, amount to abuse of dominant position in accordance with the provisions of section 4 of the Competition Act, 2002 (the Act), as ANI commands 69% (sixty nine per cent) of the market share in the relevant market, being operations of radio cab services in the city of Bengaluru.

Accordingly, the Commission, in accordance with the provisions of section 26(1) of the Act, has directed the Directorate General (DG) to (i) cause an investigation into the operations of radio cab services in the city of Bengaluru; and (ii) complete the said investigation within a period of 60 (sixty) days from the receipt of its order in case no. 6 of 2015 dated April 24, 2015.

A copy of the said order is available here for your kind reference.

Supreme Court interprets Section 31(7) of the Arbitration and Conciliation Act, 1996

A three judge bench of the Hon’ble Supreme Court of India (“SC”) comprising of Chief Justice H.L Dattu and Justice S.A Bobde and Justice A.M Sapre, his brothers on the bench, had the occasion to decide the below mentioned questions in reference titled as Hyder Consulting (UK) v. State of Orissa (copy avaialble here) decided on November 25, 2014:

Q.           Whether the decision of the SC in State of Haryana & Ors. v. S.L Arora and Company (“S.L Arora”) wherein it was held that an award of interest on interest from the date of award is not permissible under section 31(7) of the Arbitration and Conciliation Act, 1996 (the “Act”) is good in law; and

Q.           Whether the arbitral tribunal is empowered to grant interest (both pre and post award), under the provisions of section 31(7), even in the absence of a clause to that effect in the contract, empowering the tribunal to do so.

Chief Justice H.L Dattu held that S.L Arora is good law in so much as where the arbitral award is silent about interest from the date of award till the date of payment, the person in whose favour the award has been made will be entitled to interest at the rate of 18 (eighteen) per cent per annum on the principal amount awarded, from the date of award till the date of payment.

However, Justice S.A Bobde and Justice A. M Sapre, through independent judgments, dissented with the above view and held that S.L Arora is wrongly decided in that it holds that the sum directed to be paid by the arbitral tribunal and the reference to the award on substantive claim does not refer to interest pendent lite awarded on the sum directed to be paid upon award and that in the absence of any provision of interest upon interest in the contract, the tribunal does not have the power to award interest upon interest, or compound interest either for pre award period or for the post award period and held that the arbitral tribunal is well empowered under section 31(7) to grant interest even in the absence of a clause in the contract to grant interest.

Relevant excerpts from the judgments are quoted below:

Justice S.A Bobde

“It is apparent that vide Section 31(7) (a) of the Act, parliament intended that an award for payment of money may be inclusive of interest, and the sum of the principle amount plus interest may be directed to be paid by the Arbitral Tribunal for the pre-award period. Thereupon the Arbitral Tribunal directed interest to be paid on such sum for the post award period vide Section 31(7)(b) at which stage the amount would be the sum arrived at after the merging of interest with the principal; the two components having lost their separate identities”

Justice A.M Sapre

“I am inclined to hold that the amount awarded under Section 31(7)(a) of the act, whether with or without interest, constitutes a sum for which the award is made.” “Therefore, for the purposes of an award there is no distinction between a sum with interest, and a sum without interest. Once interest is included in the sum for which the award is made, the original sum and the interest component cannot be segregated and be seen independent of each other. The interest component then losses its character of interest and takes the color of the sum for which the award is made”

Appropriation of Decretal Amount - Interpretation of Order XXI Code of Civil Procedure, 1908

The Supreme Court of India in V. Kalabharathi & Ors. v. Oriental Insurance Co. Ltd (copy available here) decided on April 01, 2014 while deciding the question of appropriation of the decretal amount and discussing the Scope of Order XXI keeping in view the ratio of the constitution bench judgment in Gurpreet Singh v. UOI [2006 (8) SCC 457] have held as under:

"In money suit, the amount consists of principal and interest till the suit is filed. But, in case of award passed under the Act, the question of inclusion of any interest on the decretal amount does not arise".

"If the amount deposited by the judgment debtor falls short of the decretal amount, the decree-holder is entitled to apply the rule of appropriation by appropriating the amount first towards interest, then towards costs and subsequently towards principal amount due under the decree".

"After such appropriation, the decree-holder is entitled to interest only to the extent of unpaid - principal amount. Hence, interest be calculated on the unpaid principal amount".

Further the SC followed the principles laid down in Bharat Heavy Electrials Limited v. R.S. Avtar Singh & Co., [2013 (1) SCC 243], which discussed Gurpreet Singh's case as follows:

"The general rule of appropriation towards a decretal amount was that such an amount was to be adjusted strictly in accordance with the directions contained in the decree and in the absence of such directions, adjustment be made firstly towards payment of interest and costs and thereafter towards payment of the principle amount subject, of course, to any agreement between the parties".

"The legislative intent in enacting sub rules (4) and (5) is clear to the points that interest should cease to run on the deposit made by the judgment debtor and notice given or on the amount being tendered outside the Court in the manner provided in Order 21 Rule 1 sub clause (D)". 

"If the payment made by the judgment debtors falls short of the decretal amount, the decree holder will be entitled to apply the general rule of appropriation by appropriating the amount deposited towards the interest, then towards costs and finally towards the principal amount due under the decree". 

"Thereafter, no further interest would run on the sum appropriated towards the principal. In other words, if a part of the principal amount has been paid along with interest due thereon as on the date of issuance of notice of deposit of interest on the part of the principal sum will cease to run thereafter". 

"In case where there is a shortfall in deposit of the principal amount, the decree holder would be entitled to adjust interest and costs first and then balance towards the principal and beyond that the decree holder cannot seek to reopen the entire transaction and proceed to recalculate the interest on the whole of the principal amount and seek for re-appropriation thereof".

Also pertinent to note here is that the Privy Council in Venkatadri Appa Rao v. Parthasarathi Appa Rao [AIR 1922 PC 233] and Rai Bahadur Sethnemichand v. Seth Rada Kishen [AIR 1922 PC 26], held as follows:

“The question then remains as to how, apart from any specific appropriation, these sums ought to be dealt with. There is a debt due that carries interest. There are moneys that are received without a definite appropriation on the one side or on the other, and the rule which is well established in ordinary cases is that in those circumstances the money is first applied in payment of interest and then when that is satisfied in payment of the capital.”

SARFAESI - POWERS OF LESSEE OF A MORTGAGED PROPERTY

The Supreme Court of India, in the case titled as Harshad Govardhan Sondagar v. International Asset Reconstruction Co. Ltd. & Ors. (copy available here) decided on April 03, 2014 - while dealing with the rights of the Lessee (remedies available where he is threatened to be dispossessed by any action taken by the secured creditor under Section 13 of the SARFAESI Act) have held as under:

When a lessee becomes aware of the possession being taken by the secured creditor, he may either surrender the possession or resist the attempt of the secured creditor to take the possession of the secured asset by producing before the authorized officer proof that he was inducted as a lessee prior to the creation of mortgage or that he was a lessee in accordance with the provisions of Section 65A of the Transfer of Property Act and that the lease does not stand determined in accordance with Section 111 of the Transfer of Property Act. 

Where the lessee resists the attempt of the secured creditor to take possession, the authorized officer cannot evict the lessee by force but has to file an application before the Chief Metropolitan Magistrate or the District Magistrate under Section 14 of the SARFAESI Act and state in the affidavit accompanying the application, the name and address of the person claiming to be the lessee.

When such an application is filed, the Chief Metropolitan Magistrate (CMM) or the District Magistrate (DM) will have to give notice and give an opportunity of hearing to the person claiming to be lessee as well as the secured creditor, consistent with the principles of natural justice, and then take a decision.  

If the CMM or the DM is satisfied that there is a valid lease created before the mortgage or there is a valid lease created after the mortgage in accordance with the requirements of Section 65A of Transfer of Property Act and that lease has not been determined in accordance with the provisions of Section 111 of Transfer of Property Act, he cannot pass an order delivering possession of the secured secured assets to the secured creditor. But in case he comes to a conclusion that there is no valid lease made either before the creation of mortgage or after creation of the mortgage satisfying the requirements of Section 65A of Transfer of Property Act or even if there was a valid lease, the lease stands determined in accordance with Section 111 of Transfer of Property Act, he can pass an order for delivering possession of the secured asset to the secured creditor.

Section 14(3) of the SARFAESI Act provides that no act of the CMM or DM or any officer authorized by the CM or DM done in pursuance of Section 14 shall be called in question in any court or before any authority. The SARFAESI Act, therefore, attaches finality to the decision of the CMM or the DM and this decision cannot be challenged before any court or any authority. But this Court has repeatedly held that statutory provisions attaching finality to the decision of an authority excluding the power of any other authority or Court to examine such a decision will not be a bar for the High Court or this Court to exercise jurisdiction vested by the Constitution because a statutory provision cannot take away a power vested by the Constitution.

In our view, therefore, the decision of the CMM or the DM can be challenged before the High Court under Articles 226 and 227 of the Constitution by any aggrieved party and if such a challenge is made, the High Court can examine the decision of the CMM or the DM, as the case may be, in accordance with the settled principles of law.

The High Court has failed to appreciate that the provisions of Section 13 of the SARFAESI Act thus override the provisions of Section 69 or Section 69A of Transfer of Property Act, but does not override the provisions of Transfer of Property Act relating to the rights of the lessee under a lease created before receipt of a notice under sub section (2) of Section 13 of the SARFAESI Act by a borrower.

Hence if any of the appellants claim that they are entitled to possession of a secured asset for any term exceeding one year from the date of the lease made in his favour, he has to produce proof of execution of a registered instrument in his favour by the lessor. Where he does not produce proof of execution of a registered instrument in his favour and instead relies on an unregistered instrument or oral agreement accompanied by delivery of possession, the CMM or the DM as the case may be, will have to come to the conclusion that he is not entitled to the possession of the secured asset for more than a year from the date of the instrument or from the date of delivery of possession in his favour by the landlord.

CAG - Duties and Powers conferred by Article 149 of the Constitution of India

The Supreme Court of India, in the case of Association of Unified Teleservices Providers & Ors. v. Union of India (copy available here) decided on April 17, 2014 – while dealing with the scope and ambit of the powers and duties of the Comptroller and Auditor General of India (CAG), the Telecom Regulatory Authority of India (TRAI) and the Department of Telecommunications (DoT) in relation to the proper computation and quantification of Revenue in determining the license fee and spectrum charges payable to Union of India under Unified Access Services (UAS) Licenses entered into between DoT and the private service providers have held as under:

CAG’s examination of the accounts of the Service Providers in a Revenue Sharing Contract is extremely important to ascertain whether there is an unlawful gain to the Service Provider and an unlawful loss to the Union of India, because the revenue generated out of that has to be credited to the Consolidated Fund of India.

Accordingly, unless the underlying records which are in the exclusive custody of the Service Providers are examined, it would not be possible to ascertain whether the Union of India, as per the agreement, has received its full and complete share of Revenue, by way of license fee and spectrum charges.

Further the SC also observed that CAG by adopting that process, CAG is not carrying out any statutory audit of the accounts of the service providers, but for the limited purpose of ascertaining whether the Union is getting its legitimate share by way of “Revenue Sharing”. Service providers are, therefore, bound to provide all the records and documents called for by the CAG.