The Central Government has the power to impose conditions under section 637a of the Companies Act when its approval is sought under section 269(1) in relation to the appointment of a Managing Director.

( 1 ) A very interesting question with reference to the scope of section 269 and section 637a of the Indian Companies Act (as amended by Act 65 of 1960) arises for consideration, as a case of first impression, in this civil writ petition.

( 2 ) A few salient facts alone may be sufficient to notice for deciding this question. The petitioner, called the Raymon Engineering Works Limited, is a public limited company which was incoprporated on 30th November, 1954 with an authorised capital of rupees three crores. It was, therefore, an existing company within the meaning of section 3 (2) of the Act.

( 3 ) RAYMON and Company (India) Private Limited, incorporated in 1951, consisting only of two shareholders (Mrs. and Mr. M. C. Ray) were appointed on 7th February, 1956 as Managing Agents of the petitioner-company for a period of ten years. The Managing Agents negotiated, on 5th September 1955, for the purchase of a Bone Mill from Messrs David Curlenders for Rs. 3,25,000. 00 out of which Rs. 15,000. 00 had been paid as earnest money. There was a conveyance dated the 25th June, 1957, whereby the balance of Rs. 3,10,000. 00 was paid. The negotiations for the purchase of this Mill are stated to have commenced in the year 1953-54 but completed on the 25th June, 1957. Shri M. C. Ray, the director and shareholder of the Raymon and Company (India) Limited was also one of the promoters of the company.

( 4 ) SOME time in 1957, Rayon and Company (India) Private Limited offered to sell the entire land comprised in the Bone Mill along with the structures and machinery to the petitioner-company in order to enable the petitioner-company to erect and start their factory for the manufacture of wagons, for which they had obtained a licence under the Industries (Development and Regulation) Act, 1951. In pursuance of the said offer a meeting of the Board of. Directors of the petitioner-company was held on 12th June, 1957 in which two independent valuers had valued the assets of the Bone Mill at Rs. 10,80,000. 00 and Rs. 9,60,000. 00 respectively. The Board of Directors of the petitioner-company accepted the offer of Raymon and Company (India) Private Limited for the sale of the said Bone Mill unanimously resolving to purchase the said Bone Mill land and machinery for Rs. 10 lakhs, if necessary, by issuing fully paid-up ordinary shares for the said Rs. 10 Lakhs. The resolution, copy of whi is Annexure 1 to the return filed by the first respondent, states that the Bone Mill had been purchased by the Managing Agents for and on behalf of the petitioner-company.

( 5 ) IN July, 1957, the petitioner-company applied to the Controller of Capital Issues, Government of India, seeking his consent for the issue of one Lakh equity shares, of Rs. 10. 00 each, to the Managing Agents. But the Controller suggested payment of only rupees five Lakhs as sale consideration for the said Bone Mill. Raymon and Company (India) Private Limited did not agree to this; finally the Controller of Capital Issues agreed, by his letter dated the 5th January, 1959, to the issue by the petitioner-company of ordinary shares worth rupees 6 Lakhs to Raymon and Company (India) Private Limited in respect of said Bone Mill. The sale deed, which was completed earlier, was not finalised till 17th January, 1959.

( 6 ) IN August, 1960, the petitioner-company issued Rs. 3,99,400. 00 ordinary shares of rupees ten each and two thousand preference shares of Rs. 100. 00 each. In the prospectus, the fact of the purchase of Bone Mill from the Managing Agents-company for Rs. 6 Lakhs was disclosed, but not the fact of the same having been purchased for 3 Lakhs by the Managing Agents-company.

( 7 ) ON 23rd September, 1963 an application was made, in accordance with section 269 of the Companies Act, for permission to appoint Shri Ray as a Managing Director of the petitioner-company, supported by a resolution of the petitioner-company to that effect. Annexure A to the petition is the copy of not