Executive guidelines cannot override statutory criteria for managerial remuneration under the Companies Act, the Delhi High Court held.

Government policy is not the same as public policy for purposes of section 637AA of the Companies Act, 1956, because public policy is a legal concept that must be recognised by law and not assumed from executive preference. The Delhi HC further held that managerial remuneration under the Companies Act had to be approved strictly within the statutory scheme in sections 198, 269, 309, 310, 637A and 637AA. Executive guidelines could not replace the prescribed statutory factors or operate as an independent source of authority, so approvals based on those guidelines were ultra vires and invalid.

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Issues: (i) Whether Government policy is synonymous with public policy for the purposes of section 637AA of the Companies Act, 1956. (ii) Whether administrative or executive guidelines can control or override the statutory scheme governing approval and fixation of managerial remuneration under the Companies Act, 1956.

Issue (i): Whether Government policy is synonymous with public policy for the purposes of section 637AA of the Companies Act, 1956.

Analysis: Article 37 makes the Directive Principles fundamental in governance but not directly enforceable except through law. Article 38 contemplates minimising inequalities in income, yet the statutory implementation of that objective must be through legislation and not merely executive action. Public policy is a legal concept distinct from Government policy. Governmental decisions may be taken in public interest, but that does not make them public policy. Section 637AA itself requires the Central Government, while fixing remuneration, to have regard to specified statutory factors including public policy relating to removal of disparities in income. In the absence of an established public policy on that subject, the Government could not substitute its own administrative policy for the statutory requirement.

Conclusion: Government policy is not synonymous with public policy, and the impugned fixation of remuneration could not be justified on that basis.

Issue (ii): Whether administrative or executive guidelines can control or override the statutory scheme governing approval and fixation of managerial remuneration under the Companies Act, 1956.

Analysis: The Companies Act contains an integrated scheme governing managerial remuneration through sections 198, 269, 309, 310, 637A and 637AA. Section 637AA is the governing provision for the manner in which approval powers are to be exercised, and it mandates consideration of the statutory factors enumerated therein. After its enactment, the Central Government could not issue or apply general administrative instructions that displaced those factors or operate only on the basis of a Government policy. The approvals under challenge were not shown to have been made with reference to the statutory criteria, but were based on the impugned guidelines and the Government's policy on income disparities. Such action was contrary to the statute and therefore without authority.

Conclusion: The impugned guidelines were ultra vires the Companies Act, 1956, especially section 637AA, and the approvals based on them were invalid.

Final Conclusion: The statutory power to approve and fix managerial remuneration had to be exercised only within the framework prescribed by Parliament, and executive policy could not supplant the mandatory statutory criteria. The impugned guidelines were struck down, the approvals founded on them were quashed, and reconsideration of the applications was directed in accordance with law.

Ratio Decidendi: Where a statute prescribes specific factors for the exercise of approval or fixation power, executive guidelines cannot replace those factors or operate as an independent source of authority; governmental policy cannot be treated as public policy unless the statute or law so recognises it.

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