SC Dismisses Plea Challenging Rule 8A Amendment on the Increase in Paid-up Capital Threshold for CS Appointment

Case Details: Suman Kumar v. Union of India - [2024] 158 taxmann.com 344 (SC)

Judiciary and Counsel Details

• • Sanjiv Khanna & S.V.N. Bhatti, JJ.
  • Shashank Deo Sudhi, Shreyas Jain, Ms Prachi Jain, Mani Bhushan Sinha, Advs. & Pranab Prakash, AOR for the Petitioner.
  • Tushar Mehta, SG (N/P) Balbir Singh, A.S.G Rajan Kumar Chourasia, Kanu Agrawal, Shraddha Deshmukh, Shyam Gopal, Chinmayee Chandra, Ankur Talwar, Sachin Sharma, Sangram Patnaik, Advs. Arvind Kumar Sharma & Vardhman Kaushik, AOR’s for the Respondent.

Facts of the Case

In the instant case, the petitioner filed a writ petition before the Supreme Court making prayers, the first prayer was to challenge 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 that has a paid-up share capital of Rs. 10 crores or more is required to have a whole-time company secretary.

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 the closure of more than 6 lakh companies.

With regard to the challenge to the Rule 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Supreme Court noted that by amendment, every private company which had a paid up share capital of Rs.10 crores or more was required to have a whole-time company secretary.

Earlier/un-amended provision, with effect from 31.03.2014, provided for a threshold of paid up capital of Rs.5 crores or more. Figure, it was obvious, had been increased to nullify effect of inflation and increase was hardly arbitrary or irrational.

It was noted that besides, enhancement had to be read with desire to improve ease of doing business and reduce compliance expenditure.

Further, the Court observed that it was not function of courts to sit in judgment over matters of economic policy, which must necessarily be left to expert bodies.

Supreme Court Held

Dismissing the writ plea, the Apex Court ruled that in matters requiring technical, commercial, administrative, expert knowledge, etc, Courts should ordinarily exercise caution and judicial restraint and unless it was demonstrated that element of discretion/deliberation in increase in paid-up share capital of companies to Rs. 10 crores for appointment of full-time company secretaries was ex facie arbitrary, capricious, or whimsical, and bearing no nexus with object or purpose sought to be achieved, such aspects could not be held unconstitutional and/or violative of Article 14 of Constitution of India.

With regard to other prayers relating to the guidelines for enforcement of corporate governance and the formation of a High Power Committee to look into lapses leading to the closure of more than 6 lakh companies, the Supreme Court held that the Companies Act, 2013 contains various provisions to deal with cases of fraud etc and Serious Fraud Investigation Office (SFIO) has been established to take appropriate action in such cases, and there are stringent penalty provisions, thus, no relief can be sought by or on behalf of these defaulting companies, as that would mean approaching Court with unclean hands, given that these companies were non-compliant with provisions of the Companies Act, 2013.