LexMADANLAL FAKIRCHAND DUDHEDIYA versus SHREE CHANGDEO SUGAR MILLS LLD.
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3 S.C.R.
SUPREME COUH.T REPOH.TS
973
Company and not a sale in the course of business
operations, which alone would had attracted t.ax, if
profit resulted.
In the result, the appeiil fail.-i, ancl is dismiss-
ed with costs.
·
Appeal dismi8sed.
MADANLAL FAKfRCHAND DUDHEDIYA
v.
SHREITI CHANGDEO SUGAR MILLS L'l'D.
(P. B. GAJENDRAGADKAR, A. K. SARKAR and
K. N. WANCHOO JJ.)
Company-Agreement to
pa11 c1Jmmission
beyond
specified
limi'.t-Validity-Oompa.nie8
(1qf1950), 8, 76(1) & (2).
from profit.o
Act,
.Wi6
There was an agreement between the respondent com~
pany, which was incorporated as a Private Limited Company
in 1939, and its promoters, the appeilant and the rest l)f the
respondent~, that in consideration of the promoters having
each purchased sharers worth 1-1 /2 lakhs of the company, the
company would pay them 12-l/2% of the net profits every yoar.
That agreement was put in art. 3 of the ArticJes of Association
of the company.
In 1941
there was a second agreement
between the company, its promoters and a firm, and by it
the said firm was appointed as the managing agent of the
company and the commission payable to the promoters \vas
reduced to 6-1 /4% and art 3 amended accordingly. There was
litigation between the parti's and the consent decrees pcissed
there in left the promoters' commission in tact. Meanwhile the
Companies Act, I 956, came into force and the company served
a notice to the appellant saying that the promoters' commi-
ssion was no longer lawful and that.art. 3 would be deleted.
The appellant then brought the suit out of which the present
appeal arose, for a declaration that the agreement to pay
cor.-imission was valid and for an injunction rf"Str::iining the
company from deleting the said art. 3. It was urged on behalf
of the companv that s. 76( l) anrl (2) of the '"id Act had made
the agreement invalid and unenforceable. The trial court found
in favour of the company and di~mis~ed the suit.
The court
of appeal agreeing, with the trial court dismissed the appeal·
1!162
K.M.S. Reddy,
Commissioner of
Income-tax, Kera/a
v.
The West Co1at
Chemicals tJnd
!ndurtiies l.td
Tiidayat11llah .J,
1962
March 20.
{96t
,\/ odc1da/ Fa~·irchar.d
/)11d~td1ja
v.
SI.,,, ClltJntdto
~ 11rtir Mr/ls J.tr/.
974
SUPRE~fE COURT REPORTS [l!l62] SCPP.
Section iG of tl:e Cc,mpanits Act, 1956, before it"'"' amrndrd
in 1960, \\'as in i1s ma1crial parts as follo\\·s :-
''(1 ).
A rompany may pay a commission to any
~rson in consideration of
(a)
his s11hscrihin~ or agrrr.ing to sub~rrihc,
:vhrthrr abso111trlY nr condi,r:onally, for any !'har~s
111, or del:cnt11rrs of, the companv. or.
(h)
his procuring-
or
agrec-ing to procure
sub~c1 iption,!:,
v.·l~ethrr ab!'olutr. or conditional, for
anv sharrs in, or debentures oC the. con1plny, if t hc-
foJJ0,ving conditions arc- fulfillrd, viz.
(i~
the pavmrnt of er n1mission is a11thori·
srci hy the 1rticlt's:
(ii) the commi!:.si0n paid or agreed to be
paid does not c·xrrrd in the <'a!'e of !'hares, fi\"C
per CC'nt. of the prirf" at \,-hh h the .!)ha1 es a1 r.
ist;ue<l or the amount or rate authorised by the
Art:cJes, ,,·hicht>vrr is Je!'s, and in the cac;.c <Jf
debentures, t\\'O and a half per cent. of the price
;, t '"'hich thr dr.br.nturrs arr. is5.ued or the
;imonnt "'f rate au'horised hy
the articles,
\\·h:c-hc\er i~ Jc·!'s:
(iii) the an1ount or rate per rent. of the
<<,rrn1is(;ion paid or agrrc<l to be paid is in the
ta!'c of !-hares or deb<'ntures offered to the public
for s1il'scription, disclosed in the .prospectus; and
~iv) .............................. .
(2)
Save a<
nforc<aid and save as provided in
srction i9: no con1pany shall allot any of its shares or
dehrntures or apply a,ny of it'." c~pitaI moneys, eitl":er
dirr<:!ly or indireclly, in payment of any c:on11nis~ion,
di~co11nt or a)Jo,,·anrc, to any person in considc·ration of
(a)
his suhscrihing- or agref'ing to su~Jscribc,
\vhethrr absohit~ly or ronditionall'.-', ff)r any share<;
in, r,r dthrnt11r('<; of, 1~1c company~ or
(b)
.,., . .,,.,,,,,.,., . ., ........... .
By 1\mcncling Act GS of 1960 the ,,.r,rd ~capital' occt1rring
in thats. 76(2) v.a!' clelr.ted.
'
3 S.C.R.
SUPREME COURT REPORTS
975
Held,
(per Gajendragadkar, and Wanchoo, JJ) that
s. 76 of the Act must be co,.<rued by itself, in the light of its
own scheme and object and not by reference to what the
English law on the point may be.
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