By TIOL News Service

MUMBAI, FEB 19, 2016: THE issue is: whether, after the amendment of the Companies Act in 2013, any Managing Director who was appointed prior to the Amendment Act would have a right to continue to act as Managing Director after his attaining the age of 70 years without special general resolution passed by the Company. NO is the answer.

Facts of the case

Mr. Rangaswamy Sampath (Respondent No.2) was appointed for a period of five years as Managing Director (MD) on 01/08/2012 in the Ultramarine & Pigments Ltd (Respondent No.1 company). On 1st April 2014, Companies Act was amended and by the Amendment Act of 2013, a new clause was introduced in Section 196(3)(a). By virtue of the said amendment vide sub-clause (3)(a), additional disqualification was added to the disqualifications which already existed in the said provision namely a Managing Director could not be appointed or continued after he had attained the age of 70 years. Mr. Sridhar Sundarajan (the Appellant) raised an objection that in view of the incorporation of the said clause in section 196(3)(a), Respondent No.2 could not continue as MD and, therefore, he has sought an order of injunction, restraining him from functioning or continuing to exercise his powers as Chairman and MD of the Company. It was contended by the Respondent No. 2 that the said amendment could not operate retrospectively which was accepted by the Single Judge and hence this appeal.

Reasoning

1. It has to be borne in mind that by virtue of the Amendment Act of 2013, which came into force on 01/04/2014, one additional disqualification was added to the list of disqualifications which were in existence under the old Act under Section 267. Since a new clause was added as further disqualification for appointment or continuation as Managing Director of the Company, it would operate not only at the stage of appointment but also would operate in the case of a person who has already been appointed and attained the age of 70 years and such a person, therefore, by virtue of disqualification, had no right to be continued as Managing Director, unless a special resolution was passed by the Company. There is no question therefore of the retrospective application of the provision. Since Section 196(3)(a) would apply prospectively, whoever attains the age of 70 after the Amendment Act came into force would cease to function as Managing Director by operation of statute.

2. In the present case, prior to 2013 Amendment Act, appointment after the age of 70 years was not permissible subject to proviso but after the Amendment Act came into force, this was added as disqualification for further continuation of a person after he attained the age of 70 years. In a case therefore where the appointment is already made and thereafter eligibility criteria is changed then, in that event, it could be said that the vested right is created in a person who is already appointed prior to the amendment and additional eligibility criteria could not be applied retrospectively. However, in a case where additional disqualification is added to the Section then in such a case, after disqualification is incurred after his initial appointment, he would cease to continue as Managing Director since the disqualification would operate as cesession or discontinuation to work as Managing Director.

(See 2016-TIOL-296-HC-MUM-CA)