V.S. Deshpande, J.
(1) The petitioner is a public limited company governed by the provisions of the Companies Act, 1956 (hereinafter called the Act). Its Board of Directors resolved on 8-10-1966 under Article 117 of the Articles of Association for the first time to appoint Sarvashri Rajinder Lal and Narinder Lal as two Managing Directors of the Company each on a salary of Rs. 5000.00 per month plus commission amounting to 31 per cent of the net profits of the company during a financial year and other service benefits. The shareholders of the company approved the resolution in General Meeting. The total managerial remuneration payable by a public limited company to its Directors is subjected to the overall ceiling of 11 per cent of the net profits of the company for the financial year under section 198(1) of the Act. Section 198(3) slates that :-
'(3)Within the limits of the maximum remuneration specified in sub-section (1), a company may pay a monthly remuneration to its managing or whole-time director in accordance with the provisions of section 309 or to its manager in accordance with the provisions of section 387.'
(2) The relevant part of section 309(1) states that:-
'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 campany, 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 :'
(3) Section 309(3) enacts a ceiling on the remuneration payable to one managing director or to the managing directors together in the following words:-
'309(3)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 Government 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.'
(4) The procedure followed by the company in fixing the remuneration of the managing directors was exactly in accordance with section 309(1) and the amount of the remuneration was below the particular ceiling imposed by section 198(1) and the overall ceiling imposed by section 198(1). As the appointment of the managing directors was, however, being made 'for the first time' it could not have effect 'lineless approved by the Central Government' as required by section 269(1) of the Act. Section 637A(1) supplements section 269 and other similar provisions in the following words :-
'637A.(1) Where the Central Government 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 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.'
(5) The respondent Company Law Board (hereinafter called the Board) to whom the power of the Central Government to give approval under section 269(1) subject to any condition as may be imposed under section 637A(1) has been delegated under section 637A(1), however, granted the approval to the appointment of Sarvashri Rajinder Lal and Narinder Lal as Managing Directors by their letter No. 1(72)- CL.--VIII/67 dated 28-9-1967 (Exhibit 5) subject, inter alia, to the following impugned condition :-
'THE total remuneration of each Managing Director by way of commission and salary shall not exceed Rs. l,20,000.00 per annum.'
(6) The company contends that the payment of the remuneration to the Managing Directors as resolved by the company is in accordance with the provisions of section 198 and 309 of the Act. The condition imposed by the Board reduces the remuneration below the statutory ceiling and is, thereforee, contrary to the provisions of sections 198 and 309. It is, thereforee, ultra virus section 637A read with section 269 and is also illegal as being contrary to sections 198 and 309. Section 637A does not enable the Board to lay down a condition which would repeal the provisions of sections 198 and 309 or be contrary to them. The impugned condition was. thereforee, beyond the scope of section 637A.
(7) In the year ending 30th September 1967, the company worked under a loss. Under section 198(4) of the Act the ceiling on the total managerial remuneration of such a company for the year of the loss was not to exceed Rs. 50,000.00 per annum unless remuneration in excess of this limit is sanctioned by an order of the Board. The company made an application dated 11-3-1968 to the Board for payment of remuneration to the Managing Directors in excess of the statutory ceiling of Rs. 50,000.00. But the Board rejected the application by their Letter dated 1-5-1968 (Exhibit 8). The refusal by the Board to sanction remuneration above Rs. 50,000.00 per annum in the year of loss is also challenged by the Company on the grounds that an adequate hearing was not given to the company and the Board did not pass a speaking order in turning down the request of the company.
(8) The Board has controverter both the contentions of the company. The defense against the first contention is that the Board is competent to fix a ceiling on the remuneration payable to the Managing Directors by way of a condition imposed under section 637A while giving the approval under section 269(1). The ceiling imposed by sections 198 and 309 is only the upper limit of the remuneration. The company is not entitled as of right to pay remuneration to its Managing Directors up to the statutory ceiling. The Board was competent to impose a lower ceiling on such remuneration by a condition imposed under section 637A read with section 269. The Board did not thereby contravene the provisions of sections 198 and 309. Before arriving at a final decision as regards the quantum of remuneration, the Board took into consideration the facts and circumstances of the case such as the size of the company, extent of its business, qualifications of the Managing Directors, their responsibilities, etc. The lower administrative ceiling fixed by the Board being within its competence, the company cannot agitate disputed questions of fact or ask the Court for appraisal of the material on which the decision of the Board was based.
(9) Since 1959 the Board has been imposing a maximum administrative ceiling on managerial remuneration taking its clue from the statement made in Parliament by the late Shri Lal Bahadur Shastri during the discussion on the Companies (Amendment) Bill of 1959. A part of the statement is reproduced in the reply of the Board in this case as follows:-
'GENERALLY, the basic principle is that no individual should be paid a remuneration exceeding Rs. l,20,000.00 per annum or Rs. 10.000.00 per month. In the general context of our country this would be considered fairly high. But you have to consider that they have been getting before. . . '
(10) In granting approval to the appointment of the Managing Directors for the first time under setcion 269 read with section 637A, the salary payable to the Managing Directors was a relevant consideration 'having regard to the socialistic pattern of society by our Constitution and Directive Principles of State Policy contained in part Iv of the Constitution. ........ which have been adopted by the Courts as indications of what should be regarded as reasonable restrictive legislation. Income without any ceiling would help concentration of wealth and of economic power. In order to ensure the social objectives of State and also to see that the cost of management of the company is kept low and the managerial personnel are not paid remuneration disproportionate to the maximum service which they can render to the com- pany, the Central Government imposed administrative ceiling on the maximum remuneration that can be paid to the management'.
(11) As to the second contention, the company was granted adequate hearing on 3-9-1968 when an advocate on behalf of the company and the Secretary of the company attended and argued the matter. The order rejecting the request of the company to remuneration in excess of Rs. 50,000.00 for the loss year was made after fully considering the facts and circumstances of the case and was thus valid. Only two questions arise for our consideration, namely:-
(1) Whether the administrative ceiling imposed by the Board on 28-9-1967 on the remuneration payable to the Managing Directors by the company is ultra virus or illegal and (2) Whether the refusal by the Board to enhance the remuneration of the Managing Directors above the ceiling of Rs. 50,000.00 for the loss [year was bad because the company was not granted adequate hearing and because the order of refusal did not state the reasons thereforee ?
(12) Question No. 1 Does the company have an enforceable right to pay to each of the two Managing Directors a remuneration of Rs. 5000.00 per month plus commission and other perquisites It is true that the company is not a citizen for the purposes of Article 19 of the Constitution and cannot, thereforee, claim the fundamental right to carry on any occupation, trade or business under Article 19(l)(g) of the Constitution. Barring this. the company as an artificial person enjoys the same legal rights as are enjoyed by a natural person. It is entitled to enter into contract with its Managing Directors according to the Contract Act and subject to the provisions of the Companies Act. The right of the company to pay remuneration to its Managing Directors is more specifically based on section 198(3), section 309(1) and section 309(3) already reproduced above. These provisions specifically authorise the company to pay a certain remuneration to the Managing Directors subject to a certain limit. They mean that the payment of such remuneration is legal. Section 309(1) says that the remuneration payable to the Managing Directors 'shall be determined, in accordance with and subject to the provisions of section 198 and this section'. It implies that the remuneration shall be determined only in this manner, and in no other way. The manner specified is that the remuneration should be fixed 'either by the articles of the company, or by a resolution .......... passed by the company in general meeting' The ordinary right of the company to fix the remuneration of its Managing Directors by adopting Articles of Association or by passing a resolution is strengthened by section 309(1) which virtually says that this shall be done only in this manner. This is the law of the land. It is binding both on the company and the Board or the Government. How then can the Government change the quantum of the remuneration fixed by the company as required by law The argument of the Government is that there is another law which empowers them to do so. This counter-acting law is the power of the Board to impose a condition under section 637A while approving the Section 637A(1) already reproduced above contains two limitations on the power of the Government or the Board in imposing conditions subject to which approval under section 269 may be granted. The first limitation is that the power to impose the condition can be exercised only 'in the absence of anything to the contrary contained in such or any other provision of this Act.' This means that the power cannot be exercised if either section 269 or an analogous provision or any other provision of the Act would be contrary to the exercise of such a power. A Division Bench of this Court to which one of us was a party (Hardy, J.) in M/s. Raymon Engineering Works Ltd. v. The Union of India (Letters Patent Appeal No. 46 of 1969 decided on 1-8-1969) interpreted the words 'anything to the contrary' to mean that 'such a provision of the Act should sa;y that the approval etc., is to be given unconditionally or itself specifies the conditions.' Their Lordships were concerned in repelling the argument that section 269(2) itself is such a contrary provision. Their Lordships were not concerned with considering whether 'any other provision of this Act' would be contrary to the exercise of this power and if so in what way it could be contrary. The provisions covered by the words 'any other provision of this Act' would not be a provision under which itself an approval is to be accorded. Nevertheless there can be something in such a provision which would clearly exclude the imposition of a particular condition under section 637A. This brings us to the second limitation on the power exercisable under section 637A.
(13) This limitation relates to the nature of the condition to be imposed. Section 637A(1) says that the Central Government may accord the approval subject to such condition, limitation or restriction 'as it may think fit to impose'. The ambit of the power given to the Central Government regarding the nature of the condition is worded very widely. But these wide words have inherent and built-in limits. Firstly if the Central Government were to be empowered to impose whatever condition they liked without the Legislature having laid down any guidelines showing the nature of the condition which the Government may impose, the delegation of such a power by the Legislature to the Government would be had for excessive, unfettered and unguided delegation as it could enable the Government to act arbitrarily. It must, thereforee, be understood that the Government is to be guided by the provisions of the Act and the objects and the legislative policy of those provisions in imposing a condition under section 637A(1). Secondly the power given to the Government is to exercise a discretion. It is a well-known rule of construction of statutes that a discretion has to be exercised reasonable and judicially and that it must not be exercised on extraneous and irrelevant grounds. Otherwise the exercise of discretion would be had as being ultra virus the provision of law which gives the discretion. Lastly the nature of the condition to be imposed would take its colour from the expression 'in the absence of anything to the contrary contained in such or any other provision of this Act'. If the power itself cannot be exercised contrary to the provisions of the Act it would follow that the nature of the condition also cannot be contrary to the provisions of the Act.
(14) It is in the light of the above considerations that we have to see whether the Board could validly impose the impugned condition reducing the remuneration of the Managing Directors below what was fixed by the company. Firstly what are the guidelines laid down by the Legislature in regard to the imposition of 'a condition relating to the remuneration of the Managing Directors. The Board can fix a condition regarding remuneration only if and insofar as such guidelines are laid down by the Legislature. A study of the scheme of the Act would show that the Legislature has itself occupied the entire ground relating to the fixation of the remuneration of the Managing Directors. It has not left anything to be done regarding such remuneration by the Government or the Board except when the remuneration is to be enhanced above the statutory limits under the provisos to section 198(4) and 309(3). The Legislature has specifically legalised the Articles of Association and the resolution by the company fixing the remuneration in section 309(1) and thereby e.xcluded any interference whether of any general law or by way of administrative action in the fixation of such remuneration. The Legislature has. thereforee, given absolutely no indication that the Government had any power to reduce the remuneration below the remuneration fixed by the Articles of Association and the resolution of the company within the overall limits placed by sections 198 and 309. The question of guidelines for reducing the remuneration thus simply does not arise. The action by the Board in reducing the remuneration is, thereforee, arbitrary and void as it cannot be rested on any legislative guidelines.
(15) The effect of section 637A is to add a kind of proviso to section 269 and to such other provisions under which approval etc. has to be given by the Government. Such addition enables the Government to impose a condition in granting the approval. The various provisions under which the approval is granted are diverse and relate to divergent things. The objects of each of these provisions are also divergent. thereforee, the nature of a condition imposable under section 637A would have to accord with the objects of the particular provision such as section 269 under which the approval is granted so that the discretion can be said to be exercised for relevant reasons and not for extraneous ones. The approval under section 269 is to the appointment of Managing Directors for the first time. If the Legislature had not specifically provided in sections 198 and 309 what precise remuneration is to be given to the Managing Directors, the amount of remuneration payable to the Managing Directors would have a very relevant consideration in imposing a condition in granting such an approval. The condition regarding the remuneration would then have been germane to the object of section 269. Section 637A is in this respect incidental to section 269 and in effectuating the object of section 269 the imposition of such a condition would be regarded as incidental. (See Canara Workshops Ltd. v. Union of India (1966) 36 Comp. Cases 63). But any condition regarding remuneration which is contrary to the provisions of sections 198 and 309 would not be regarded as germane to section 269 inasmuch as the Legislature has exhaustively dealt with remuneration in sections 198 and 309 with the effect that section 269 does no include in its scope any element regarding the fixation of remuneration. For instance, if rules were to be made by the Central Government under section 642(1) of the Act to carry out the purposes of the Act any rule relating to the fixation of remuneration would have simply to carry out the objects of section 198 and 309. If such a rule were, for instance, to say that the Government may in its discretion generally reduce the remuneration of Managing Directors in all cases below what is required to be fixed under section 309(1) of the Act, then such a rule would be open to the objection that it is contrary to sections 198 and 309. It is to be noted that the general administrative policy adopted by the Board not to allow remuneration to a Managing Director in excess of a maximum of Rs. 1,20,000 per annum is in the nature of an 'administrative rule: or an administrative instruction issued by the Government in this respect. If even a statutory rule could not have been made to this effect, a fortiori, an administrative instruction or administrative policy would be contrary to sections 198 and 309.
(16) It appears to us that approval under section 269 has to be given in each case according to the merits of the particular case. The facts of each case would be. different from 'other cases. thereforee, the question whether an approval should be given and if so on what conditions it should be given would have to be determined by the Board under section 269 entirely according to the facts of the particular case. If in an individual case there is something against a Managing Director, his qualifications, abilities, etc., which in the light of the facts and circumstances of that case, would persuade the Board to the; view that the remuneration payable to him should be something less than that is allowed by sections 198 and 309, then perhaps an argument may possibly be raised that due to the particular reasons against the particular Managing Directors, the remuneration should be less than what is required to be fixed according to secion 309(1). It would appear that even such action in an individual case is liable to be challenged as being against section 309(1). But we are not required to express any opinion on this question. For, in the present case the reduction of the remuneration of the Managing Directors has nothing to do with the facts and circumstances of this particular case' or with the qualifications, abilities, character or efficiency of these two Managing Directors. On the entrary, according to the reply filed by the Board, the maximum remuneration of Rs. 1,20,000 for each of the two Managing Directors has been allowed by the. Board in the present case after considering the facts and circumstances of this particular case. The Board further says that such a high remuneration has not been allowed by it in any other comparable case. This means hat the merits of the present case were better than the merits of any other case. If the so-called 'administrative ceiling of Rs. 1,20,000 per Managing Director had not been imposed by the Board as a general executive policy then in the present case the two Managing Directors would have been .granted, the highest remuneration of ten per cent of the net profits under section 309(3) of the Act which is permitted by the Legislature.
(17) The real reason, thereforee, why the petitioner has not been allowed to pay the maximum remuneration of ten per cent of the net profits allowed by the Legislature under section 309(3) to its two Managing Directors is not any lack of merit on the part of the company or on the part of the Managing Directors. The real reason is totally different. It is the general administrative policy adopted by the Board to regard Rs. 1,20,000 as the maximum permissible remuneration for a Managing Director instead of five per cent of the net profits which is permitted by section 309(3). It is to be noted that the authority of law is claimed by the Board only for the imposition of a condition in approving the appointment of the Managing Directors for the first time. This law is sections 637A and 269. But these sections authorise the Board only to take individual decisions in individual cases according to the merits of each particular case. But as stated above, on the individual merits of the present case the remuneration of ten per cent of the net profits should have been allowed to be paid by the company to the Managing Directors under section 309(3).
(18) As distinguished from sections 198 and 309 which lay down the general maximum limits of remuneration applicable to all cases, sections 637A and 269 are concerned with the taking of separate decisions by the Board in each individual case. It would follow, thereforee, that a general policy modifying or changing the general maximum limits laid down in sections 198 and 309 cannot be adumbrated under sections 637A and 269.
(19) The administrative ceiling is substantially below the legislative ceiling. The result is that if the administrative ceiling is allowed to operate, no case will ever be decided according to the legislative ceiling. For, the case with the highest merit will get the remuneration of Rs. 1,20,000 per year for a Managing Director and cases with lesser merits will get correspondingly lesser remuneration below the maximum of Rs. 1,20,000 per annum. The Parliament fully discussed the question as to what limits should be placed on managerial remuneration when the Companies Act, 1956 was passed. The decisions of the Legislature were embodied in sections 198 and 309. When the Companies Act was amended in 1960, the question was again debated but sections 198 and 309 were not amended in this respect. The Legislature, thereforee, continued its previous decisions embodied in sections 198 and 309- If the Government was of the view that the legislative ceiling was too high, then it should have ensured that a lower legislative ceiling was fixed in 1956 or at any rate sections 198 and 309 were amended in 1960 to lower the legislative ceiling. The fact that this was not done would show that the Government agreed with the decision of the Legislature. If so, it is not understood how the Board could formulate a new administrative policy which administratively laid down a much lower ceiling and a policy to give remuneration in different cases according to the merits of each case below the administrative ceiling and even in the best case only up to the administrators ceiling. Since sections 637A and 269 are concerned only with individual decisions and cannot support a general policy the Directive Principles of State Policy contained in the preamble and in Articles 37, 38 and 39 of the Constitution arc urged by the Board in support of the administrative policy. Under Articles 37, the Directive Principles 'of State Policy laid down in Part Iv of the Constitution are 'fundamental in the governance of the country and it shall be he duty of the State to apply these principles in making laws.' This means that these principles are to govern the State Policy both in administration and in legislation. But the wide scope of administrative power is reduced in those respects in which the Legislature has enacted the statutes. Executive power cannot be exercised contrary to a statute. Sections 198 and 309 are themselves enacted by the Legislature in pursuance of the policy of reducing disparities in income and preventing concentration of wealth embodied in the preamble and in Articles 38 and 39 of the Constitution. It follows, thereforee, that administrative policy cannot contradict the legislative policy in this respect.
(20) The dilemma which the Board faces in defending this case is this : The general administrative policy of fixing a ceiling on managerial remuneration far below the legislative ceiling appears to be contrary to sections 198 and 309.
(21) The only justification for imposing a condition under sections 637A and 269 in an individual case is the existence of this so-called administrative policy which itself is illegal. The result is that the only justification for imposing a condition under sections 637A and 269 reducing the managerial remuneration disappears. This dilemma cannot be resolved unless and until sections 198 and 309 are amended to lower the legislative ceilings fixed therein.
(22) We conclude, thereforee, that the general administrative policy of fixing a ceiling on 'managerial remuneration far below the legislative ceilings fixed by sections 198 and 309 was illegal as being contrary to sections 198 and 309. Further, the conditions imposed in individual cases under sections 637A and 269 would also be unsustainable for the same reason, namely, that they would be contrary to sections 198 and 309. For, the administrative ceiling is a rule of thumb that in all cases the remuneration is to be fixed much lower than is allowed by sections 198 and 309 because the. maximum of Rs, 1,20,000 per annum for a Managing Director is itself far below the maximum fixed by sections 198 and 309. If this administrative policy is allowed to operate in all cases then in every case the remuneration would be fixed under the administrative policy. In no case will any occasion arise of fixing the remuneration by the Articles of Association or the resolution of a company in accordance, with sections 198 and 309. For, in each case the 'administrative limit would be much lower than the contractual remuneration agreed to between the company and the Managing Directors in accordance with sections 198 and 309. The provisions of se.ctions 198 and 309 would thus be rendered inoperative, ineffective and otiose by mere administrative action and without any legislative repeal. If administrative action cannot directly repeal the legislative, provisions of sections 198 and 309, then on the principle that what cannot be done directly cannot also be done indirectly, the administrative action having the effect of the repeal of sections 198 and 309 must be regarded as illegal being contrary to them. (See I. N. Saksena v. State of Madhya Pradesh : (1967)IILLJ427SC and H H Maharajadhiraja Madhav Rao Scindia Bahadur and others v. Union of India, : 3SCR9 .
(23) The usual test by which the validity of the impugned condition visa-vis sections 198 and 309 is to be judged is by considering whether it can co-exist with them. One way of co-existence is to make such a condition supplementary to the provisions of sections 198 and 309. The difference between what is supplementary and what is contrary is at times subtle. But the test of the difference between them is that a condition which is supplementary can be given effect to 'at the same time' along with section 198 and 309. But this cannot be said about the impugned condition. It cannot operate with the provisions of sections 198 and 309 at the same time in 'any given case. For, its very object is to fix the remuneration far below the remuneration that would have been fixed by the Articles of Association and the resolution of a company in accordance with section 309(3). Hence the impugned condition is contrary to sections 198 and 309 both because it affirms a proposition which negates the propositions affirmed by sections 198 and 309 regarding the remuneration and also because the enforcement of the condition would make sections 198(4) and 309(3) a dead-letter which would never be; applied in 'any case and are, thereforee, virtually repealed.
(24) The administrative ceiling on managerial remuneration is, thereforee, invalid in spite of our appreciation of its object because the manner of its achievement has to be legislative and not administrative in the context of sections 198 and 309 'of the Act. In the words of Justice Holmes 'a strong public desire to improve the public condition is not enough to warrant achieving the desire by a shorter cut than the constitutional way' (in the present case the legal way of amending the Companies Act).
(25) The answer to the first question is, thereforee, that the impugned condition reducing the remuneration of the Managing Directors is invalid.
(26) Question No. 2 : The adequacy of the hearing given to the company is a question of fact on which contrary allegations are made in the petition and in the reply. It appears that the member of the Board was not available when the senior advocate of the company appeared to argue the case. But later the member was available but the senior advocate was not present and the case could be argued only by the other advocate and the secretary of the company. The member may have refused adjournment for the production of the senior advocate. But the question whether the remuneration to the Managing Directors should be enhanced above the limit already fixed by the Legislature in its wisdom was not such that the Board was bound to wait for the production of the senior advocate. The company had very little chance of persuading the Board who definitely had complete discretion in the matter. They say that they considered all the relevant circumstances and no fault can, thereforee, be found if they refused the adjournment and also rejected the request for enhancement of the remuneration. The order rejecting the request of the company states that 'having regard to the facts and circumstances of the case, the Company Law Board regrets its inability to sanction any higher minimum remuneration.... . I am also to say that unless the profits of the company go up appreciably, it may not be possible for the Company Law Board to approve the remuneration indicated in para 1 above for future years.' The reasons for the rejection thus apparently are that the Legislature itself has fixed the limit of remuneration for the year in which the company made no profits or inadequate profits and that the maximum permissible for such a year was being granted to the company and even this cannot be assured in future unless the company increases its profits appreciably. These reasons are good enough when given by a quasi-judicial or an administrative authority. The contention, thereforee, fails and the question No. 2 is answered against the company.
(27) The condition imposed by the Board in their letter dated 28-9-1967 fixing the remuneration of the Managing Directors of the petitioner- company was ultra virus and illegal. It is, thereforee, quashed. The approval of the first appointment of the Managing Directors contained in that letter was otherwise valid. The writ petition is allowed in the above terms without any order as to costs.