Case Law Details
Suman Kumar Vs Union of India & Ors. (Supreme Court of India)
Introduction: In a recent verdict, the Supreme Court of India dismissed a writ petition challenging the amended Rule 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. The petitioner, Suman Kumar, contested the rule, which mandates private companies with a paid-up share capital of Rs.10 crores or more to have a full-time company secretary. This article delves into the details of the case, the court’s reasoning, and the broader implications of the judgment.
Background: The challenge revolved around the amendment to Rule 8A, where the threshold for the mandatory appointment of a full-time company secretary was increased from Rs. 5 crores to Rs. 10 crores in paid-up share capital, via a notification dated 03.01.2020. The petitioner argued against this amendment, contending that it was arbitrary and lacked a rational basis. The court, however, rejected this contention, emphasizing that economic policy matters should be left to expert bodies.
Analysis of Rule 8A Amendment: The court noted that the increase in the paid-up share capital threshold was not arbitrary or irrational but was made to counter the effects of inflation. The judgment stressed that courts should exercise caution and judicial restraint in matters requiring technical, commercial, and expert knowledge. The enhancement aimed to improve the ease of doing business and reduce compliance expenditure, which falls under the domain of economic policy.
Constitutionality and Article 14: The court highlighted that unless it can be demonstrated that the increase in paid-up share capital for appointing full-time company secretaries is ex facie arbitrary, capricious, or whimsical, and lacks a nexus with the intended purpose, it cannot be deemed unconstitutional or a violation of Article 14 of the Constitution of India.
Rejection of Second and Third Prayers: The second and third prayers in the writ petition, which dealt with the enforcement of corporate governance guidelines and the formation of a High Power Committee to investigate lapses leading to the closure of over 6 lakh companies, were deemed far-fetched and unworthy of detailed consideration by the court.
The court cited the counter-affidavit filed by the Union of India, which outlined the government’s steps to deregister paper companies and shell companies involved in wrongful activities. It was noted that the Companies Act, 2013, already contains provisions to deal with cases of fraud, and the Serious Fraud Investigation Office (SFIO) has been established to take appropriate action in such instances.
Petitioner’s Grievance on E-FORM INC-22A: The petitioner, appearing in person, raised concerns about the non-issuance and non-compliance of E-FORM INC-22A (ACTIVE) on mismatch issues. The court made no comments on this matter and suggested that the petitioner, if advised, may make a representation or file appropriate proceedings in accordance with the law.
Conclusion: In conclusion, the Supreme Court dismissed the writ petition, emphasizing the importance of economic policy matters being within the purview of expert bodies. The court upheld the constitutionality of the amended Rule 8A and rejected the other prayers, emphasizing the government’s initiatives to tackle fraudulent activities and the need for companies to comply with existing legal provisions. The judgment sets a precedent for judicial restraint in economic and technical matters, deferring to the expertise of relevant authorities.
Legal Citations: The judgment refers to legal precedents, including Peerless General Finance and Investment Co. Ltd. v. RBI (1992) 2 SCC 343, Govt. of A.P. v. N. Subbarayudu (2008) 14 SCC 702, State of Punjab v. Amar Nath Goyal (2005) 6 SCC 754, Transport & Dock Workers Union v. Mumbai Port Trust (2011) 2 SCC 575, and Essar Steel Ltd. v. Union of India (2016) 11 SCC 1.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
In view of the counter affidavit filed by respondent no. 1 – Union of India and also for the reasons set out below, we do not find any good ground and reason to accept the prayers made in the present writ petition.
The first prayer is the challenge to the amended Rule 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 vide notification dated 03.01.2020. By the amendment, every private company which has a paid up share capital of Rs.10 crores or more is required to have a whole-time company secretary. The earlier / un-amended provision, with effect from 31.03.2014, provided for a threshold of paid up capital of Rs.5 crores or more.
The figure, it is obvious, has been increased to nullify the effect of inflation. The increase is hardly arbitrary or irrational. Besides, enhancement has to be read with the desire to improve ease of doing business and reduce compliance expenditure. It is not the function of the courts to sit in judgment over matters of economic policy, which must necessarily be left to the expert bodies.1 In matters requiring technical, commercial, administrative, expert knowledge, etc., the courts should ordinarily exercise caution and judicial restraint.2 Unless it is demonstrated that the element of discretion/deliberation in increase in the paid-up share capital of companies to Rs. 10 crores for appointment of full-time company secretaries is ex facie arbitrary, capricious, or whimsical, and bearing no nexus with the object or the purpose sought to be achieved, such aspects cannot be held unconstitutional and/or violative of Article 14 of the Constitution of India.
The second and third prayers, which relate to the guidelines for enforcement of corporate governance and formation of a High Power Committee to look into lapses leading to closure of more than 6 lakh companies, in our opinion, are far-fetched and do not merit detailed consideration.
The counter-affidavit filed by respondent no. 1 – Union of India indicates the steps taken by the Government to de-register paper companies, shell companies and others that have indulged in wrongful activities. The Companies Act, 2013 contains various provisions to deal with cases of fraud etc. Further, the Serious Fraud Investigation Office (SFIO) has been established to take appropriate action in such cases, and there are stringent penalty provisions. No relief can be sought by or on behalf of these defaulting companies, as that would mean approaching this Court with unclean hands, given that these companies were non-compliant with the provisions of the Companies Act, 2013.
At this stage, the petitioner – Suman Kumar, who appears in person and has been heard, raises a grievance regarding non-issue/non-compliance of E-FORM INC-22A (ACTIVE) on mismatch etc. We make no comment in this regard. The petitioner – Suman Kumar, if advised, may make a representation or file appropriate proceedings, which proceedings, if filed, will be decided in accordance with law.
Recording the aforesaid, the writ petition is dismissed.
Pending application(s), if any, shall stand disposed of.
Notes
1 Peerless General Finance and Investment Co. Ltd. v. RBI, (1992) 2 SCC 343.
2 Govt. of A.P. v. N. Subbarayudu, (2008) 14 SCC 702; State of Punjab v. Amar Nath Goyal, (2005) 6 SCC 754; Transport & Dock Workers Union v. Mumbai Port Trust, (2011) 2 SCC 575; and Essar Steel Ltd. v. Union of India, (2016) 11 SCC 1.
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