CIBATUL LIMITED v. UNION OF INDIA — 1980 DIGILAW 73 (GUJ)

S. L. TALATI, J. ( 1 ) PETITIONER no. 1 Cibatul Limited is a Company registered under the provisions of the Indian Companies Act 1956 Petitioner no. 2 is working as the Managing Director of petitioner no. 1. Petitioners nos. 3 4 and 5 are the shareholders of petitioner no. 1. Petitioner no. 2 is the professional Managing Director. He after having passed and obtained M. Sc. decree in Organic Chemistry obtained Doctors Degree in Switzerland in the year 1949. Thereafter in the year 1950 he joined service and started his career with petitioner no. 3. Thereafter in the year 1960 petitioner no. 1-Company was incorporated. In the year 1966 petitioner no. 1 started manufacturing business. Petitioner no. 2 thereafter in the year 1967 joined petitioner no. 1 Company and became its Managing Director for the first time. He was appointed for a period of five years. Again he was appointed in the year 1972 as the Managing Director for a period of five years and he continued to serve petitioner no. 1 in that capacity upto 1977. Thereafter petitioner no. 1-Company decided to re appoint petitioner no. 2 again for a period of five years and for that purpose the terms and conditions were settled and an application was submitted to the Government of and a for the purpose of obtaining sanction and that petition was submitted on 16-8-1977. ( 2 ) THEREAFTER on 28-1-1978 the Government of India sanctioned and gave approval for a period of two years and the terms and conditions which were set out by the Company were revised. Under these circumstances the petitioners ultimately filed this Special Civil Application. It may be stated here that the terms and conditions which were agreed showed that the appointment was to be made for a period of five years. The salary which was fixed was Rs. 5 0 per month with annual increment upto Rs. 500/at the discretion of the Board of Directors payable from January of each calendar year. It was also agreed to give commission upto one percent of the net profits of the company computed in the manner laid down in sec. 309 (5) of the Act subject however to a maximum of 50x. of the annual salary the amount of commission payable to be determined by the Board of Directors at its sole discretion With in the above limit. 309 (5) of the Act subject however to a maximum of 50x. of the annual salary the amount of commission payable to be determined by the Board of Directors at its sole discretion With in the above limit. Perquisites every also agreed between the parties and a special mention may be made to gratuity medical benefits and residential accommodation. Gratuity fixed was not exceeding three-forth of a months salary for each completed year of service as per the scheme of Approved Gratuity Fund applicable to the officers of the Company. Medical benefits for self and family included reimbursement of expenses Actually incurred the total cost of which to the company shall not exceed three months salary for a period of every there years of service. So far as residential accommodation is concerned it was agreed that the rent will be recovered at the rate fixed by the company and the cost of the same to the company will not exceed 25% of the salary. The monetary value of this perquests will be evaluated as per Rule 3 of the Income Tax Rules 1962 The other terms included Companys contribution towards Provident Fund Pension Leave free use of car personal accident insurance and leave travel facility. When the Government of India granted approval under secs. 269 and 198 (4)/309 (3) of the Companies Act 1956 what was done was that reappointment of petitioner no. 2 was approved not for a period of five years but for a period of two years. As regards the salary though Rs. 5 0 per month were approved increment of Rs. 500/per year was not approved and a substantial reduction was made in commission and the commission approved was one percent of the net profits of the Company computed in the manner laid down in sec. 309 (5) of the Act subject however to a maximum of Rs 10 0 per annum. This was a substantial reduction inasmuch as an amount of Rs. 20 0 atleast would be payable less to petitioner no. 2 in view of the revised terms. In gratuity also the revision was made which stated as under :-"gratuity: Not exceeding one-half months salary for each completed years of service subject to maximum of Rs. 30 0 or 20 months salary whichever is less. 20 0 atleast would be payable less to petitioner no. 2 in view of the revised terms. In gratuity also the revision was made which stated as under :-"gratuity: Not exceeding one-half months salary for each completed years of service subject to maximum of Rs. 30 0 or 20 months salary whichever is less. "in regard to the medical benefits also a change was made which was as under :"reimbursement of expenses actually incurred for self wife and dependent children the total cost of which to the company shall not exceed one months salary in any year. "here year was taken as a unit. Now therefore the Company-petitioner no. 1 and petitioner no. 2 both felt aggrieved and thereafter they continued correspondence with the Government of India. We will refer to that correspondence whenever it becomes necessary to do so. Ultimately on 19-11-1979 this petition came to be filed. ( 3 ) IT was submitted in the petition that sec. 269 and 637aa of the Indian Companies Act 1956 impose unreasonable restrictions on the rights of the shareholders of petitioners nos. 1 and 2 to carry on business on terms offered and accepted and results in hostile and discriminative treatment quo management personnel and public limited companies and their subsidiaries and are violative of the petitioners rights under Articles 14 and 19 (1) (g) of the Constitution of India. ( 4 ) THE other points which are argued by the learned advocate Shri J. C. Bhatt appearing on behalf of the petitioners are as under : (1) The guidelines issued by the Government to India are illegal and therefore any decision taken after following those guidelines would be required to be struck down as illegal and bad in law; (2) Refusal to approve the terms proposed is contrary to law arbitrary and unreasonable; (3) Functions exercised by the Government of India are of quasi Judicial nature and therefore it is necessary that an opportunity is given to the petitioners to present their case and that speaking order is passed; and (4) The proposed terms according to the petitioners were well within the guidelines of 1969. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ( 5 ) HAVING set out the relevant provisions which are required to be considered for the purpose of deciding these submissions made on the either side the first question which is required to be considered is whether the guidelines issued by the Government of India are illegal or not. The guidelines were issued on 11 1969 They are set out at annexure G on page 50. It prescribes a ceiling of Rs. 90 0 per annum and it also prescribes a ceiling in regard to commission on net profit and is fixed upto 1 per cent of the net profits subject to a maximum ceiling of 50% of the approved salary i. e. an absolute ceiling of Rs45 0 per annum. It also provides that if a company proposes to pay remuneration in the form of commission on net profits alone this shall be subject to a maximum administrative limit of Rs. 1 35 0 per annum. ( 6 ) THE second set of guidelines referred to as new guideline at the time of alternates are produced at annexure H on page 52. They were issued on 9-11-1978. The ceiling of salary is reduced and brought down to Rs. 60 0 and the ceiling on commission is also reduced and is brought down to Rs. 12 0 per annum. It may be stated here that it is not necessary to decide the affect of the new guidelines for the purpose of deciding this matter inasmuch as the new guidelines come to be issued on 9 that is after the date on which the Government of India approved with revision the appointment or reappointment of petitioner no. 2 as managing director. The Government of India acted on the guidelines dated 11 It may be worthwhile to mention that the Government of India on 23 constituted Sachar Committee and on 13-10-1977 constituted Boothalingam Committee. The Government of India by appointing these committees undertook the study of wages income and prices. Both the committees submitted the reports. 2 as managing director. The Government of India acted on the guidelines dated 11 It may be worthwhile to mention that the Government of India on 23 constituted Sachar Committee and on 13-10-1977 constituted Boothalingam Committee. The Government of India by appointing these committees undertook the study of wages income and prices. Both the committees submitted the reports. Boothalingam Committees submitted the report on 12-5-1978 and Sachar committee sub waited report on 29-8-1978. These facts are necessary to be stated because the Government of India by Act No. XLI of 1974 added sec. 637aa which we have reproduced alone. In that section clause (e) stated that the Central Government shall have regard to public policy relating to the removal of disparities in income. Now therefore the Government of India had in mind the formulation of a public policy and with that view two committees were appointed and the reports were received. The question therefore was of sore importance whether the Government of India had in fact formulated any public policy relating to the removal of disparity in income. This question was answered by the Minister of State for Finance in Parliament on 6-4-1979 when in Lok Sabha unstirred question No. 6345 was asked. The answer was as under :-"the recommendations of the Bhootalingam Study Group including let rccommendation regarding minimum pension are still under the consideration of the Group of Ministers and no decision has yet been taken. The Report has raised certain basic issues of policy and it is difficult to say at this stage when it would be possible for the Group of Ministers to finalize their recommendations. "it is therefore clear that the Government of India has not formulated any statutory public policy. Therefore when petition of petitioner no. 1 for reappointment of petitioner no. 2 as managing director came before the Government of India the Government of India was bound to decide that application in accordance with the provisions contained in the Indian Companies Act which we have set out above. ( 7 ) REFERENCE may be made to Upper Doab Sugar Mills Ltd. v. Company Law Board reported in 41 Company Cases at page 643. It was held that the condition imposed by the Company Law Board fixing the ceiling on managerial remuneration far below the Legislative ceiling fixing by sees. ( 7 ) REFERENCE may be made to Upper Doab Sugar Mills Ltd. v. Company Law Board reported in 41 Company Cases at page 643. It was held that the condition imposed by the Company Law Board fixing the ceiling on managerial remuneration far below the Legislative ceiling fixing by sees. 198 and 309 was illegal as it was contrary to those sections It was also held on the facts that the company had been given adequate opportunity of being heard before the Board refused to enhance the remuneration of the managing directors above the ceiling of Rs. 50. 030/fixed by statute for the year in which the company had incurred a loss and that the Board gave sufficient reasons for the refusal. After this judgment in the year 1971 the government of India by Act No. XLI of 1974 added sec. 637 AA in the Indian Companies Act. This judgment was also carried in Appeal to the Supreme Court. The Supreme Court reversed the judgment wherein The Company Law Board was the appellant and the Upper Doab Sugar Mills Ltd. etc. were joined as respondents. The case is reported in A. I. R. 1977 Supreme Court at page 831. The Supreme Court clearly laid down as under :"sec. 198 deals with the overall maximum managerial remuneration and managerial remuneration in the case of absence or adequacy of profits The total managerial remuneration payable by a public company or a private company which is a subsidiary of a public company to its managerial staff according to sub-sec. (1) if that section cannot exceed 11 per cent of the net profits for a financial year. The total managerial remuneration covers the remuneration merely of the managing directors but also of other managerial personnel like secretaries treasurers and managers. Sub-see. (3) of the section provides that within the limits of the maximum remuneration a company may pay a monthly remuneration to its managing director in accordance with sec. 309. Sub-sec. (1) of sec. 309 prescribes the formalities which have to be complied with for fixing of the remuneration of a managing or fulltime director of a company. We are not concerned with sub-sec. (2) if that section Sub sec. 309. Sub-sec. (1) of sec. 309 prescribes the formalities which have to be complied with for fixing of the remuneration of a managing or fulltime director of a company. We are not concerned with sub-sec. (2) if that section Sub sec. (3) which constitutes the main plank of the case of the respondents provides that a director who is either in the wholetime employment of the company or a managing director may be paid remuneration either by way of monthly payment or at a specified percentage of the net profits of the company or partly by one way and partly by the other. According to the proviso to that sub-section except with the approval of the Central Government such remuneration of the wholetime director or managing director shall not exceed 5 per cent of the net profits for one such director and if there is more than one such director 10 per cent for all of them together. Perusal of sec. 309 shows that it does not deal with the appointment of managing directors. It only pertains to the remuneration of managing or wholetime directors who have already been appointed. The effect of the proviso to sub-sec. (3) of sec. 309 is that if the tenure of a managing director who has already been appointed continues after the coming into force of the Act the remuneration to be paid to such a managing director shall not after the coming into force to the Act exceed 5 per cent of the net profits for one such director and if there be mere than one such director 10 per cent for all of them together. "it was also held as under:"section 637a of the Act makes it clear infer alia that where the Central Government is required or authorized by any provision of the Act to accord approval in relation to any matter then in the absence of anything to the contrary contained ill such or any other provision of the Act the Central Government may accord such approval subject to such conditions limitations or restrictions as it may think fit to impose. In view of the provisions of secs. 269 and 637a of the Act we find no infirmity in the condition imposed by the appellant Board. The provisions of both secs. 299 and 637a expressly deal with the question which arises directly in this case. In view of the provisions of secs. 269 and 637a of the Act we find no infirmity in the condition imposed by the appellant Board. The provisions of both secs. 299 and 637a expressly deal with the question which arises directly in this case. "now, therefore, the Government of India after having added sec. 637 AA in the Indian Companies Act was also required to follow that section which was added in the year 1974. It may here the made clear that by adding sec. 637 AA sec. 637 A was not repealed The effects of those sections were therefore necessary to be considered. As public policy was not formulated it may he that it was difficult to follow sec. 637 AA (e ). However what was necessary to be consider was (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; and (d) professional qualifications and experience of the individual concerned. In view of the provisions which we have set out above it is clear that if any officer of the Government of India takes upon himself to decide the matter having regard to the guidelines of 1969 on his table he would be deciding the matter not in accordance with law but in accordance with some administrative instructions which the Government of India has sent to him. It is therefore necessary to show that the guidelines are in conformity with law. It if could be shown that they are in conformity withal the they are useless because following the law would be following the guidelines. If the guidelines are not in conformity with law they are illegal bad and void. It was necessary to consider first the total amount of managerial remuneration paid and Thereafter decide as together the person was a fit and a proper person to be appointed as managing director and that the terms offered were fair and reasonable. It was also necessary to determine as to whether the remuneration fixed was in conformity with the provisions contained in sec. 309 of the Indian Companies Act. It was also necessary to determine as to whether the remuneration fixed was in conformity with the provisions contained in sec. 309 of the Indian Companies Act. Before granting approval and at the time of the deciding about the conditions it was also necessary to consider the financial position of the company remuneration or commission drawn by petitioner no. 2 his professional qualifications and several other factors which are enumerated in the sections which we have referred to above. Here in this case merely prescribing an upper ceiling limit without taking recourse to several other factors mentioned in various sections which we have enumerated above it is more clear that the guidelines are in clear violation of law and therefore they are illegal void and they cannot be taken into consideration at the time of fixing the remuneration of the managing director. ( 8 ) WHEREAS sec. 198 267 637 and 637 AA require the Central Government to take into account individual or special factors touching a company the impugned guidelines lay down generalizations which are sought to be made applicable to all such companies. An administrative generalization militates against the due consideration of individual or special factors touching a company which the statute requires to be done. Such an administrative generalization will therefore be ultra vires the statutory provision. Guidelines issued in 1969 are indisputably administrative instructions of a general character because as stated on the floor of the Parliament no statutory public policy contemplated by sec. 637 AA (e) has yet been formulated by the Central Government. Administrative guidelines issued in 1969 firstly circumscribe or squeeze the area which the statutory provisions delineate for the exercise of discretion and the statutory circumference for the exercise of such discretion is unduly narrowed down. This is one vice which vitiates the guidelines. Second vice is discernible from the fact that generalized administrative instructions cut across militate against and cannot fit into the individual factors of each such company which are required to be considered before according or refusing to accord an approval or according approval with variation in the terms and conditions of appointment. Any administrative policy which squeezes the broad statutory provisions will be hit by the statutory provisions. Any administrative policy which squeezes the broad statutory provisions will be hit by the statutory provisions. Therefore with the enactment of sec 637 AA (e) policy is sought to be elevated from the administrative nadir to the statutory height so as to save it from the vice of being hit by the relevant statutory provisions. Unfortunately it has yet not been formulated. In a situation of this kind only the statutory protection such as one afforded by sec. 637 AA (e) can save the policy. ( 9 ) THE learned advocate Miss V. P. Shah on this point tried to suggest that inasmuch as the Government of India has not formulated a public policy as contemplated by sec 637 AA (e) It was not necessary to read that section because that section would not apply. So attempt was also made to show that the word may is used in section 637 AA. its sufficient to say that this section was enacted with a clear purpose after Ruling of 41 Company Cases (Supra) and there was a clear purpose which is sought to be achieved. Thereafter the Government of India did issue the new guidelines in the year 1978. We are not concerned in this case with regard to those guidelines but we make it clear that the Government of India was bound to consider sec. 637 AA so also the other provisions of the Act. In this view of the matter the first point raised by the learned Advocate Shri J. C. Bhatt succeeds and we hold that the guidelines issued on 11-11-1969 are illegal and they are required to be struck down. ( 10 ) THE second question which was argued was that the refusal to approve the terms is country to law arbitrary and unreasonable. It stone thing to Say that the proposal which was sent was required to be considered in accordance with law. Ultimately after examination in accordance with law one could as well accept it or modify it or reject it. Nonacceptance can never amount to say in that it is not in accordance with law if on scrutiny it is found that it is in accordance with law and therefore what can be. stated is that the proposal sent is required to be examined in terms of the relevant provisions of the Indian Companies Act. Nonacceptance can never amount to say in that it is not in accordance with law if on scrutiny it is found that it is in accordance with law and therefore what can be. stated is that the proposal sent is required to be examined in terms of the relevant provisions of the Indian Companies Act. This court cannot examine the terms proposed in light of the relevant Sections as the objective facts which are necessary to be examined are not before us. It would be for the government of India to examine the terms proposed in light of the objective facts with reference to the provisions of law. Nothing beyond is contemplated. ( 11 ) THAT leads us to the examination of the third submission which is very important. The question which is required to be considered is whether the functions exercised by Govt. of India are administrative or whether they are of a quasi judicial nature. The learned Advocate Miss Shah tried to point out that the functions which are exercised are administrative and it was tried to urge that the guidelines only laid down the administrative policy. We cannot accept this argument. In a case R. D. and Chemical Co. v. Company Law Board reported in A. I. R. 1970 Supreme Court at page 1789 it was decided in regard to sec. 326 of the Indian Companies Act that the Central Government has to act judicial and its satisfaction has to be objective. Sec. 316 is in regard to the power of the Central Government to approve the appointment of the managing agent. Sub-sec. (2) of sec. 326 reads as under:-" (2) The Central Government shall not accord its approval under sub-sec. (1) in any case unless it is satisfied- (a) that it is not against the public interest to allow the company to have a managing agent; (b) that the managing agent proposed is in its opinion a fit and proper person to be appointed or reappointed as such and that the conditions of the managing agency agreement proposed are fair and reasonable; and (c) that the managing agent proposed has fulfilled any conditions which the Central Government require him to fulfill. "in regard to the above section the Supreme Court observed as under :-"sec. 376 uses the present tense. The satisfaction required of the Central Govern. ment under sub-sec. "in regard to the above section the Supreme Court observed as under :-"sec. 376 uses the present tense. The satisfaction required of the Central Govern. ment under sub-sec. (2) must be with reference to the three conditions existing in present but in adjudging whether a person is fit and proper to be appointed managing agent past acting and conduct cannot be ignored. The Central Government has to consider his acts and activities past and present the interest of the shareholders and the general interests of the public in allowing the management to he continued by the Directors of the Company and other circumstances which have a bearing on the question. The Board will consider the criticism by the Commission appointed to inquire into the dealings of the group of Companies managed by the managing director of the Company the progress made by the Company while under the management of the managing director and others the interests of the shareholders the creditors and of the public generally and also that a complaint was pending in a Criminal Court against the managing director and others charging them with committing Serious offences. "it was further observed :-"investment of power in the Central Government under sec. 326 carries with it a duty to act judicial i. e. to Fold an inquiry in a manner consistent with rules of natural justice to consider all relevant matter to ignore irrelevant matters and to reach a conclusion without bias without predilection and without prejudice. The satisfaction contemplated by sec. 326 must therefore be the result of an objective appraisal of the relevant materials. The recital about satisfaction may be displaced by showing that the conditions did not exist or that no reasonable body of persons properly versed in law could have reached the decision that they did. " ( 12 ) IT was clearly observed that the power was a quasi judicial power and not are administrative power. Now if one looks to sec. " ( 12 ) IT was clearly observed that the power was a quasi judicial power and not are administrative power. Now if one looks to sec. 269 (3) practically the same aspects are required to be considered and the aspects are (1) whether it is in the interests of the company to have a Managing or whole time director; (ii) whether the proposed managing or wholetime director of the company is in its opinion a fit and proper person to be appointed as such and that the appointment of such person as managing or wholetime director is not against the public interest; and (iii) whether the terms and conditions of appointment of the proposed managing or wholetime director of the company are fair and reasonable. Now therefore if any officer of the Central Government has to perform a duty having regard to sec. 269. 637 A and 637 AA it is clear that he has to take into account the objective facts and has to determine those facts in a quasi judicial manner. Mere we may state that it is not necessary to consider the argument of learned advocate Shri Bhatt regarding the question which he posed that the proposal terms were well within the guidelines of 1959 inasmuch as we have come to the conclusion that the guidelines are illegal. ( 13 ) SINCE the Central Government exercises a quasi judicial function when it considers the application for approval of appointment on objective facts no administrative guidelines can be allowed to interfere with the exercise of that judicial or quasi judicial discretion. Exercise of judicial or quasi judicial discretion is always unfettered and uninhibited and anything which interferes with it is void and must be struck down. Guidelines issued in 1969 are administrative in character and interfere with the judicial discretion of the Central Government in considering each case on its merits. Therefore also they are void and ultra vires and are liable to be struck down. ( 14 ) THE next question which is required to be considered is when the Central Government has to act in a quasi judicial manner whether it has in fact acted in a quasi judicial manner. It appears and it is quite likely that when a proposal was sent all the relevant data must have been sent. That relevant data is required to be sent in accordance with law. It appears and it is quite likely that when a proposal was sent all the relevant data must have been sent. That relevant data is required to be sent in accordance with law. It also appears that some correspondence ensued and the Secretary and the Advocate met the officer of the Government of India but that was done after the proposal was modified. The question whether a particular officer acted in a quasi judicial manner or not could be seen from the manner in which the order is passed. Here the learned advocate Miss Shah tried to show to us that the reasons are stated in reply of the affidavit which is filed and those reasons are in paragraph 15 of the affidavit. The reasons stated are that the reappointment of petitioner was made for two years with effect from 1-10-1977 when the old guidelines were enforced. It is also stated that the appointment of petitioner no. 2 as managing director of petitioner no. 1 for a period of five years from 1-10-1972 to 20 was approved on a remuneration of Rs. 3500/per month plus 1 commission plus dearness allowance of Rs. 250/per month plus parkways to as per the guidelines then in force. Relying on this paragraph it was tried to be submitted that the officer did take into consideration the past remuneration of the managing director and having considered that the present remuneration and the period was fixed and perhaps as new guidelines were to come In force the period was limited. To state this in an affidavit is one thing. No such thing is stated when the terms of reappointment were revised. In fact the advocate of petitioner no 2 approached the officer to pass a speaking order and he refused to do so. It is well settled that any person in a quasi judicial matter passes an order without stating the reasoning by which he had come to that particular finding the order itself is arbitrary on the face of it. The person against whom the order is passed is entailed to know as of right as to under that circumstances and for what reasons his prayer was being rejected. As soon as one tells him that his prayer is rejected and that he is not bound to give reasons the order passed is an order which is arbitrary and is required to beset aside. As soon as one tells him that his prayer is rejected and that he is not bound to give reasons the order passed is an order which is arbitrary and is required to beset aside. that order can never be sustained in a State where the citizens are governed by law. Even a citizen who approaches any authority who has a power to act judiciously and he acts in a quasi judicial manner where he is bound to take objective facts into consideration the person against whom the order is passed is entitled to know that only the relevant factors were considered objectively; that irrelevant factors never entered the field that mind was applied and that with a proper reasoning the order was passed. It is quite likely that another person may take a different view but that is entirely a different matter. If the Court has no power of appeal over a quasi judicial officer the Court may not exercise that power but the Court has certainly a power to examine as to whether the person had a power whether the person exercised that power judiciously whether the power that was exercised was not exercised arbitrarily and it was in a judicial manner in the sense it was made known that all relevant factors were considered and irrelevant factors were never considered. This would be the essence how a quasi judicial officer is expected to behave and act. The order passed on the face of it should show that the order was passed after taking into consideration all the relevant objective facts. This is only possible if the order is a speaking order. If on the face of it the order does not show any reasons the arbitrariness is writ large on it. In this case it is more than clear that the officer who revised the proposal in regard to reappointment of petitioner no. 2 not only did not state any reasons but he refused to pass a speaking order when he was requested to do it.-We are therefore satisfied that the order passed is required to be struck down. ( 15 ) A quasi judicial or judicial authority is under an obligation to give reasons in support of its conclusions because it is the reasons which rule out the element of arbitrariness in a decision. Secondly. sec. ( 15 ) A quasi judicial or judicial authority is under an obligation to give reasons in support of its conclusions because it is the reasons which rule out the element of arbitrariness in a decision. Secondly. sec. 269 provides that the terms and the conditions should be fair and reasonable. The Central Government was under an obligation to show why the terms and conditions agreed upon between petitioner No. 1 and petitioner No. 2 were not fair and reasonable. These two reasons impel us to hold that the Central Government is under an obligation to make a reasoned order. Inasmuch as it did not do so the impugned order is liable to be struck down. ( 16 ) WE may refer to a case Orient Paper Mills Ltd. v. Airline of India reported in A. I. R. 1969 Supreme Court at page 48 It was required to be determined in that case whether M. G. Poster Paper was packing and wrapping paper chargeable under item 17 (4) or printing paper chargeable under item 17 (3) of first Schedule. It was held that the power was a quasi judicial power. It was observed as under :"there is hardly any doubt that the power exercised by the appellate authority i. e. the Collector under sec. 35 is also a quasi judicial power. He is designated as an appellate authority; before him there was a list between the appellant which had paid the duty and the revenue; and his order is subject to revision by the Central Government. Therefore it is obvious that the power exercised by him is a quasi judicial power. " ( 17 ) ANOTHER case to which we may refer is The Siemens Engineering and Manufacturing Co. of India Ltd. v. The Union of India and another reported in A. I. R. 1976 Supreme Court at page 1785. In that case it was observed:"it is now settled law that where an authority makes an order in exercise of a quasi Judicial function. it must record its reasons in support of the order it makes. Every quasi judicial order must be supported by reasons. In that case it was observed:"it is now settled law that where an authority makes an order in exercise of a quasi Judicial function. it must record its reasons in support of the order it makes. Every quasi judicial order must be supported by reasons. THE rule requiring reasons to be given in support of an order is like the principle of audi alteram partem a basic principle of natural justice which must inform quasi judicial process and this rule must be observed in its proper spirit and mere pretense of compliance with it would not satisfy the requirement of law. " ( 18 ) THE learned advocate Miss Shah made an attempt by which it was submitted before us that in sec. 198 (1) managing director is not mentioned and therefore sec. 198 (1) will not apply to managing director. This argument if accepted would lead to absurd results. The reason is that 11% of the net profit would then be available for other managerial persons apart from managing director. Apart from the absurd results that would follow the argument is not at 811 sound. Managing Director is Director. That is clear from the Definition which we have quoted above. Further in the case A. I. R. 1977 Supreme Court page 831 (Supra) it is clearly stated that sec. 198 (1) would be applicable to the managing director Thus this argument has absolutely no force. ( 19 ) IN view of the findings which we have arrived at on the submissions made by the learned advocate Shri J. C. Bhatt we did not call upon him to argue in regard to his first submission that secs. 269 and 6375 a of the Indian Companies Act 1956 were violative of the petitioners right under Arts. 14 and 19 (1) (g) of the Constitution of India and in this petition we have not decided that question. ( 20 ) IN view of the above findings it is declared that the guidelines dated 111969 are illegal as they contravene the provisions of the Indian Companies Act. The impugned order dated 28-1-1978 is quashed. The Government of India is hereby directed to decide the application of reappointment of petitioner no. 2 in the light what we have stated above in this judgment after giving him a proper opportunity of being heard and they are also directed to pass a speaking order. . The impugned order dated 28-1-1978 is quashed. The Government of India is hereby directed to decide the application of reappointment of petitioner no. 2 in the light what we have stated above in this judgment after giving him a proper opportunity of being heard and they are also directed to pass a speaking order. . ( 21 ) RULE is made absolute with costs. Rule made absolute. .