JUDGMENT
Sujata Manohar, J.
1. The first petitioners are a well known law publishing house known as All India Reporter Limited. They are a public limited company registered under the Companoes Act and have a registered office at Bombay and a branch office at Nagpur. The first petitioners publish monthly journals, commentaries on various Central Stalutes, various types of digests, manuale etc. They also have their own prinding press. The second petitione is the Manager, Sales and Circulation, of the first petitioners from 1-4-1967. He is an Arts Graduate andholds an LL. B Degree also.The second petitioner is the younger brother of the General Manager of the first petitioners. By a resolution passed by the Board of Directors on 30-4-1967 the second petitioner was designated as Manager, Sales and Circutation, with effect from 1-4-1967 and his remuneration was fixed at Rs. 2500 in the payseals of Rs. 2500-150-3250. The second petitioner reached the maximum in his pay scale, namely, Rs. 3250 on 1-1-1979 a general rise in the salary of Rs. 4063 per month with effect from 1-9-1973. With the coming into effect of the new Section 314(1-B) of the Companies Act, 1956, which was introduced by the new Section 314(1-B) of the Companies Act, 1956, which was introduced by the Companies (Amendment) Act 41 of 1974, it became necessary for the first petitioners to obtain the approval of the Central Government for granting to the second petitioner the remuneration of Rs. 1063 per month because the second petitioner was the younder brother of the General Manager of the petitioner Company and drea a salary exceeding Rs. 3000 per month. The first petitioners accordingly applied to the Central Governmet for approval under Section 314(1-B) of the Companies Act. The Central Government, by its order dated 22-1-1976, granted its approval.The second petitioner continued to draw his salary of Rs. 4063 per month thereafter. In the Extraordinary General Meeting of the first petitioner Company held on 14-1-1978 it was unanimously resolved that subject to the approval of the Central Government the first petitioner approved and accorded sanction to a revision of pay scale of the second petitioner with effect from 1-7-1972 in the pay scale of Rs. 5000-250-6250 plus provident fund and gratutty admissible as per the Rules.
2. The first petitioners by their letter dated 31-1-1978 forwarded to the Central Government the necessary information in the preseribed from and enclosed all the necessary documents required for obtaining the approval of the Central Government to the employment of the second petitioner in the first petitioners Company on the terms fixed by the special resolution dated 14-1-1978, Thereafter the first petitioners received a communication from the Central Government dated 29-6-1978, which is Annexure 1. By this communication the continuance of the second petitioner as Manager, Sales and Circulation, in terms of the special resolution passed by the Company at its Extraordinary General Meeting held on 14-1-1978 but on the following remuneration with effect from 1-2-1978:-
(a) Salary of Rs. 4100 per month in the pay scale of Rs. 4100-100-4500. There were other terms relating to perquisites with which we are not concerned at present. It was further provided that the approval was subject to the following conditions, limitations, of restrictions:-
(a) that not more than one increment will be allowed in a year:
(b) that any other increase in remuneration by way or salary etc, except as in para (1) of the letter will be subject to the approval of the Central Government.
(C) that the incumbent shall not be employed in any other company in any capacity.
It was further stated that the above approval had been accorded without prejudice to any changes in the Government’s policy or any action that may be taken in pursuance of the provisions of the Companies Act, 1956, or of any amendments thereto that may be enacted by Parliament from time to time. On receipt of this communication the first petitioner wrote a letter dated 14-8-1978 addressed to the Secretary, Ministry of Law, Justice & Company Affairs, setting outin detail the financial position of the Company and asking the Central Governemnt to grant approval to the Company’s resolution for increase in the remuneration. Thereafter by its letter dated 25-10-1978 addressed to the Company, the Central Government wrote as follows:
“With reference to your letter of August 14, 1978 on the above subject, I am directed to say that the Central Government has carefully considered the representation of the company in the light of submissions made therein and has been pleased to amend this Department’s Letter No. J (45) CL VIL 78 (ii) dated 25th June, 1978 in respect of Shri W. W. Chitaley as follows:-
1. For the existing sub-para (a) of para (1) the “Salary of Rs.4500 (Rs. Four thosand & five hundred) may be substituted.
2. The other terms and conditions of the said letter shall remain unaltered.
3. This letter is issued by order and in the name of the President of India”.
3. Being aggrieved by this communication of the Central Government, the petitioners have filed the present petition challenging the orders passed by the Central Government dated 29-6-1978 and 25-10-1978. According to the first petitioners, the second petitioner is performing very important duties. He is in charge of the sales and circulation and sales promotional activities of the Company’s publications both in India and abroad. He assists the General Manager of the compayu. He is also responsible for rbringing our various commentaries, digests and toher publication. He makes a substantial contributions to the work of the first petitioners. The first petitioners have also contended that as a result of the work done by the secong petitioner and the General Manager of the Company, the turnover of the Company had increased from Rs. 1,06,03,290 in 1974 to Rs. 1,51,12,604 in 1976, and to Rs. 1,58,51,307, in 1977, The net profits of the Company have increased from Rupees 5,17,145 in 1974 to Rs. 26,87,287 in 1977, According to the petitioners, the second petitioner had been drawing a fixed monthly remuncration of Rs. 4063 from 1-9-1973. Onwards. Looking to the increase in the turnover and profits of the company, the first petitioners submit that they are entitled to grant to the second petitioner the increased salary in the pay-scale of Rs. 5000-250-6250 with effect from 1-7-4977.
4. Before we examine the contentions raised by the petitioners, it is necessary to examine the provisions of the Companies Act, 1956, in this connection, Section 314(j-B) provides as follows.
(1-B) Notwithstanding anything contained in sub-section (1): –
(a) no partner or relative of a director or manager.
(B) no firm in which such director or manager, of relative or either is a partner.
(C) no private company of which such a director or manager, or relative of either, is a director or manager, or relative of either, is a director or mamber, shall hold any office or place of profit in the company which carries a total monthly remuneration of not less than three thousand rupees, except with the prior consent of the company by a special resolution and the approval of the Central Government.
Provided that in a case where no office of profit could have been held in the company by a person if ths Section had been in force at the time when the appointmnet or re-appointment to such office of profit was made, the company shall, within a period of six months from the commencemnt of the Companies (Amendment) Act, 1994, obtain the approval of the company in general meeting and of the company in general meeting and of the Central Government for the holding by such person of the office of profit.”
Section 637-A Provides as follows:
“637-A Power of Central Government or Company Law Board to accord approval, etc. Subject to conditions and to prescribs fees on application.- (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 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.”By virtue of Section 314(1-B) no relative of the Manager shall hold any office or place of profit in the Company which carries a total monthly remuncration or not less than three thousand rupees, except with the prior consent of the Company by a special resolution and the approval of the Central Government it is not in dispute before us that the requisite resolution under Section 314(1-B) has been passed by the first petitioner Company. The question before us is whether the conditional approval which is granted by the Central Governmnet to increase the monthly remuneration of the second petitioner is valid or not.
5. Under Section 637-A of the Companies Act, where the Central Government is required under the provisions of the Companies Act to secord its approval in relation to any matter, it can accord such approval subject to such conditions, limitations or restrictions as it may think fit to impose.The supreme Court in the case of company Law Board v. Upper Doab Sugar Mills Ltd. Reported in , has interpreted the provisions of Section 637-A, and has held that in excrcise of its powers under S. 637-A it is open to the Central Government to impose a condition relating to limit on the salary that may be paid to the person concerned in the Company, thus, under Section 637-A the Central Government can accord its approval to the appoinment of the second petitioner and impose a restriction on the salary that may be paid to the second petitioner.
6. This power, however, to impose a ceiling on the salary payable cannot be exercised in an arbitrary manner. In the present, case, the petitioner Company had forwarded to the Central Government their balance-sheets and profit and loss accounts for the calendar years 1974, 1975 and 1976, They had also sent to the Central Government all relevant information required to be set out in Form No. 24-B prescribed under the Compahies (Central Government) General Rules and Forms, 1956, setting our the nominal and paidup capital of the Company, its management structure, details of its capital structure, its turnover, and net profits for the last three financial years, the nature of services rendered by the second petitioners, his age, qualifications and experience, and particulars regarding other employees in receipt of a salary above Rs. 3000. Under the Companies (Central Government) General Rules and Forms, this information is required to be supplied by the company whenever it applies for sanction for an increase in remuneration under the provisions of the Companies Act. Presumably the information is sought for because it is to be taken into account by the Central. Government while according its sanction or approval to the incrrease in the remuneration. In the present case, if we examine the first order dated 29-6-1978 there is nothing in the order which world indicate that the material supplied by the first petitioner Company had been considered in reducing the proposed salary from Rs. 5000-250-6250 to Rs. 4100-100-4500. Even in the return filed by the respondents the basis for fixing this revised pay-scale is not disclosed. The only portion of the order which indicates some reason for the revised pay scale is paragraph 2 where it is stated. “The above approval has been accorded without prejudice to any changes in the Government’s policy.” In view of the above statement the best inference that can be drawn in favour of the respondents is that they had prescribed the salary scale Rs. 4100-100-4500 in pursuance of the Government’s policy. This order is revised by the order dated 25-10-1978 by which a fixed salary of Rs. 4500 has been substituted for the salary of Rs. 4100 per month in the pay scale of Rs. 4100-100-4500. The revised order provides that the other conditions of the said order shall remain unattered. Once again, the basis for altering the salary and substituting a fixed salary for a salary scale is not indicated anywhere in the order.
7. There is much substance in the submission made by learned counsel for the petitioners that both these orders are passed without application of mind by the Central Government. Under the revised order a fixes salary of Rs. 4500 has been sanctioned. The order, however, provides that the other terms and conditions of the original order would remain unchanged. One of the terms and conditions of approval in the original order provides that not more than one increament will be allowed in a year. Clearly if no pay-scale is sanctioned by the Central Government, there can be no question of any increment being granted. In revising the order, therefore, the respondents do not appear to have considered the terms and conditions laid down in their previous order, much less the material supplied by the petitioners. Secondly the first petitioner Company had sought the approval of the Central Governmentto the increase in salary of the second petitioner with effect from 1-7-1977, The Central Government has sanctioned the increase with effect from 4-2-1978, There is nothing in the order which indicates how the dated 1-2-1978 has been selected by the Central Government and on what basis the date proposed by the first petitioner Company has been disapproved. At the same Extraordinary General Meeting the first petitioner Company had passed a resolution ot increase the salary of its Administrative Officer with effect from 1-7-1977, The Central Government has sanctioned a reduced increase in his case with effect from 1-7-1977, In the case of the second petitioner, however, the increase is sanctioned as from 1-2-1978. In the absence of anything in the orders or even the return to indicate the basis for such differntiation, it must he held that the dates from which these increases are to be granted have been selected arbitrarily by the Central Government.
8. As earlier pointed out, there is a reference to the approval having been accorded without prejudice to any changes in the Government’s policy. Presumably, therefore, the approval granted has some nexus with some Government policy. It is not known what the policy of the Government is for approving an increase in the remuneration of the policy of the Government is for approving an increase in the remuneration of the relatives of the Managers of the Companies, It is also not known whether this Government policy is similar to the public policy for removal of dispartities in income referred to in Section 637-AA. In this connection,it is necessary to bear in mind that Section 327-AA. Which was in serted by the Companies (Amendment) Act of 1942, does not apply to applications for approval of an increase in the remuneration to relatives of Managers. Section 637-AA lays down certain factors which have to be taken into account while granting approvals under that section. This section, however, does not apply to approvals for an increase in the remuneration of relatives of Managers under Section 314(1-B) Such a sanction became necessary for the first time by reason of the Companies (Amendment) Act, 1942, which, inter alia, introduced Section 314(1-B) in the Companies Act, 1956, Under Section 637-AA it is provided as follows:-
” 637-AA. Power of Central Government to fix a limit with regard to remuneration. – Notwithstanding anything contained in Section 1980, Section 309 of Section 637-A, the Central Government may, while according its approvel, under Section 269 to any appointment or to any remuneration under Section 309, Sec 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 of percentage of profits of the company, as it may deem at and while fixing the remuneration, the Central Government 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 concerned;
(e) public policy relating to the removal of disparities in income.” Section 637-AA in terms only applies to approval under Sections 309, 310, 311 or Section 387, These sections pertain to the remuneration of Directors, including any Managing or whole time, Director and the remuneration of a Manager. Under Section 637-AA in granting its approval, the Central Government has to take into account the financial position of the Company and other factors which are enumerated in that section. These include public policy relating to the removal of disparities in income. Since this section does not apply to approvals under Section 314(1-B) the only relevant section for the purpose of approval under Section 314(1-b) is section 637-A. Under Section 637-A no such factors as in Section 637-AA have been enumerated which are required to be considered by the Central Government. This does not, however, mean that it is open to the Central Government to grant its approval or withhold such approval arbitrarily. Nor is its open to the Central Government to impose any condition arbitrarity while according its approval, If any conditions are sought to be imposed, the must be imposed on the basis or relevant material pertaining to the Company which seeks such an approval, In view of Form No. 24-B which has been prescribed by the Central Government for making applications their alia under Section 314(1-B), the financial condition of the Company, its management structure, its capital structure, nature of the services to be rendered by the person concerned, his qualifications, the number of employees who are in receipt of a salary over Rs. 3000 and other relevant information pertaining to the relative mentioned in it, are all relevant for cousidering the application for approval of an increase in remuncretion for approval of an increase in remuneration of the relatives of the Manater, While Section 937-AA refers to an additional factor to be taken into consideration viz., public policy for removal of disparties in income, there is no reference to such a public policy for removal of disparities in income, there isno has ference to such a public policy under Section 637-A. Thus the Central Government is not under any statutory obligation to consider a public policy (if formulated) for removal of disparities in income while considering applications in income while considering applications for approval under Section 314(1-B) much less any Government policy. It must consider the relevant information supplied to it under Form No. 24-B in deciding upon the conditions, if any, subject to which it proposes to grant its approval under Section 314(1-B) It is difficult to see how it can arrive at any decision simply on the basis of may policy of the Government unconnected with the relevantmaterial pertaining to the Company in question and the person whose salary is to be increased. In the absence or any provision in the Companies Act, 1956, is difficult to uphold any policy fetters on the exercise of discretion by the Central Government.
9. In the present case, the orders do not indicate that all the relevant factors were considered by the Central Government while imposing the condition relating to salary, On the contrary, there is some indication in the orders that the conditional approval which was granted was based on Government’s policy a factor irrelevant under Section 637-A There is nothing in those orders which would indicate on what basis originally the salary of Rs. 4100 in the pay-scale of Rs. 4100-100-4500 in prescribed and thereafter the same was revised to a fixed salary of Rs. 4500. The revised order retains other conditions prescribed by the previous order. These, as earlier stated, are referable only to a salary scale, Granting approval to a fixed salary while retaining conditions which are applicable only to salary scale shows non-application of mind by the respondents to the relevant material. The date from which the increase is granted also is fixes arbitrarilyu. The orders, therefore, are passed without any application of mind by the Central Government and are clearly had in law.
10. Shri V. R. Manohar, learned counsel for the petitioners has also challenged the orders on the ground that the orders passed under Section 314(1-B) read with Section 637-A of the Companies Act are quasi-judicial orders. He has submitted that such orders must disclose the reasons for passing them. In the absence of disclosure of such reasons both in the orders as also in the return filed by the respondents, the orders must be considered as had in law. He relied upon the observations of the Gujarat High Court in the case od Cibatul Ltd, v. Union of India reported in 1980 Tax LR 2098. In that case the Gujarat High Court was required to consider the guidelines issued by the Government of India in 1969 in respect of ceiling on remuneration inter alia, of Managing Directors, While striking down the guidelines the Gujarat High Court held that the Central Government’s exercise of power in granting such approval was an exercise of quasi-judicial powers. The Gujarat High Court relied upon the ratio of the judgment of the Supreme court in R. D. & Chemical Co. Ltd., v. Company Law Board, New Delhi reported in AIR 1970 SC 1989, where the Supreme Court held that the Central Government’s powers to accord approval to the payment of Managing Agents under Section 356 was a power which carried with it a duty to act judicially, that is to say, to hold an inquiry in the manner consistent with the rules of natural justice, to consider all relevant matters, ignore irrelevant matters, and to reach a conclusion without prejudice. Learned counsel for the petitioners also drea our attention to decision of the Delhi High Court in the case of Mahindra & Mahindra Ltd., v. Union of India reported in 1980 TaxLR 2132. In which the guidelines of 1976 issued by the Central Government were also struck down, In the other hand, Shri Bhangade, learned counsel for the respondents, strongly urged that the power to grant approval under Section 314(1-B) was a purely administrative power and there was no duty cast on the Central Government to give any reasons or to explain in any manner the reasons for its order of approval. He relied upon the observations of the Suorene Court in the case of Som Datt v. Union of India, to the effect that there is no rule of natural justice which requires a statutory tribunal to give in every case reasons in support of its decision. It is, however, not necessary in the present case to examine whether the approval granted under Section 314(1-B) read with Section 637-A is in the excrcise of quasijudicial powers or not, thorugh prime facte is would appear that such an approval has to be granted taking into account the relevant material relating by financial structure of the Company and its managerial structure, we need not go into this aspect of the matter to determine whether the order of approval should indicate reasons for imposing conditions on approval since the orders in the present case ex facte disclose non-application of mind by the Government to the matter at issue and the Government to the matter at issus and the material which was required to be considered by it in arriving at its decision.
11. We accordingly act aside the orders dated 29-6-1978 and 25-10-1978 passed by the Central Government and direct it to consider the application of the first petitioners after taking into account all relevant material supplied by the first petitioner. Rule is made absolute accordingly. The respondents to pay the costs of this petition to the petitioners.
12. Rule made absolute.