LexCOMPANY LAW BOARD versus UPPER DOAB SUGAR MILLS LTD. ETC.
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COMP ANY LAW BOARD
v.
UPPER DOAB SUGAR MILLS LTD. ETC.
December 17, 1976
tH. R. KHANNA, A. C. GUPTA AND JASWANT SINGH, JJ.]
503
Companies Act, 1956-Ss. 19"8, 269, 309 and 637A...,..Scope of-Company
Law Board-If could fix overall maximum remuner11tion to managing directors
while giving approval under s. 269.
Section 198 ( 1) of the Companies Act, 1956 provides that the total manager-
ial remuneration payable by a public company to its directors in respect of a
financial year shall not exceed eleven per cent of the net profits of that company
for that financial year. Sub-section (3) prescribes that within the limits of the
maximum remuneration specified in sub-s. ( 1) a company may pay a remunera-
tion to its managing or whole-time director in accordance with the provisions
of s. 309. Section 309(3) provides that a dil;cctor who is either in the whole
time employment of the company or a managing director may be paid remunera-
tion either by way of monthly payment or at a specified percentage of the net
profits of the company or partly by one way or partly by the other. The pro-
viso provides that except_ with the approval of the Central Government such
remuneration shall not exceed five ll~- cent of the net profits for one such
director and if there is more than one such director ten per cent for all of
them together. Section .637A provides that where the Central Government is
required or authorised by any provision of the Act to accord approval
in
relation to any matter the Central Government may accord such approval
subject to such conditions, limitations, restrictions as it may think fit to impose.
In 1966 the respondent company appointed two managing din;ctol'8 and
~ought the approval of the Central Government under s. 269 of the Com-
panies Act, 1956 for their appointment.
Granting its approval the Company
Law Board fixed a ceiling on the total remuneration payable to each managing
director by way of commission and salary. The Company's representation to
the Board to raise the ceiling of remuneration was rejected .
In a petition under art, 226 of the Constitution the High Court held that
the action of the Board in reducing the remuneration was arbitrary and void
and that any condition regarding the remuneration which is contrary to the
provisions of ss. 198 and 309 would not be germane to s. 269 and that section
does not include in its scope any element regarding the fixation of remunera-
tion.
Allowing the appeals of the Board.
HELD : The High Court was in error in quashing the order of the .Board.
In view of the provisions of ss. 269 and 637 A there is no infirmity in
the
condition imposed by the Board. [510C; 509H]
Section 309 does not deal with the appointment of mana11ing directors but
pertains to the remuneration of managing or whole time directors who had
already been appointed. The effect of the proviso to s. 309(3) is that if the
tenure of a managing director already appointed continued after the coining into
force of the Act, the remuneration fo be paid to such managing director shall
not, after the coming into force of the Act, exceed 5 % of the net profits to
be paid for one such director and if there be more than one such director
10% for all of them together. {509D]
In the instant case since the managing director had been appointed for the
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first time after the coming into force of the Act their appointment had to be
approved in terms of s. 269.
The Board, while granting permission, inserted
ff
a condition regarding the total remuneration of each managing director. In so
doing the Board acted well within the power. [509F-GJ
16-1546 SCT /76
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504
SUPREME COURT REPORTS
[1977] 2 s.c.R.
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. '1840-1842/i2.
Appeals from the Judgment and Orders dated the 15th April,
1971 of the Delhi High Court in Civil Writ Petitions Nos. 54, 1183
and 1184/69.
Mrs. Shyamla Pappu, R. N. Sachthey and Girish Chandra for the
appellant in C.A. 1840/71.
R. N. Sachthey and Girish Chandra for the Appellants m CAs.
1841-42/71.
H. K. Puri for the Respondents.
The Judgment of the Court was delivered by
KHANNA, J.-This Judgment would dispose
of civil
appeals
Nos. 1840, 1841 and 1842 of 1971 which have been filed on certifi-
cate by the Company Law Board against the common judgment or
Delhi High Court in three writ petitions by the respondent-company;
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