Case: Madanlal Fakirchand Dudhediya Vs. Changdeo Sugar Mills Limited, Bombay & Others

Vyas, J.1. This is an appeal of the plaintiff and it arises out of a decree of dismissal passed by Mr. Justice S. T. Desai in Suit No. 37G of 1956 filed on the Original Side of the High Court of Bombay. The appeal raises a question of construction under the Companies Act, 1956, and the question arises in this way.2. The first defendant company Shree Changedeo Sugar Mills Limited is a public limited company. Before it was incorporated into a public limited company, it was a private limited company. The promoters of the private limited company were the plaintiff Madanlal, defendant No. 2 Nanasaheb, defendant No. 3 Kundalik and Kasturchand, the father of defendant Nos. 7 to 10. The private limited company was incorporated in 1939 and later converted into a public limited company, as I have just said, in the year 1944 by reason of a settlement which was arrived at in the three suits pending in the High Court between Messrs. A. H. Bhiwandiwala and Co., the Managing Directors of the Company, and the promotors. At the time when the company was incorporated, a promoters agreement was arrived at on 18-12-1939 and it stated :"Because the Company entered into an agreement to pay the abovenamed promoters a sum equal to 12 per cent of its net profit till expiry of the period and on conditions mentioned in this agreement, and for other reasons, each of them agreed to purchase shares worth Rupees one-lakh-and-a-half out of the Companys capital and (thus) they established the Company. Also in the rules framed for partners mentioned in the Articles of Association it has been stated that the Company will enter into such an agreement with the promoters for these reasons. For the help rendered and pains taken by you the promoters and because each of you has agreed to purchase and has purchased shares worth Rupees one-lakh-and-a-half out of the Companys capital, the Company is entering into an agreement with you and also the three other persons as follows : 1. The Company, Companys hukdars, guardians, heirs (and) assignees shall pay each of you the promoters, your guardians, heirs, executors, administrators (and) assigns a sum equal to (Rs. 3-2-0) (in words Rupees three and annas two), per cent out of the Companys net profit as long as the Company is in existence. The Companys net profit shall be understood as described in S. 87(c) of the Indian Companies Act."There was a provision made in the Articles of Association for an agreement between the Company and the promoters and the provision was made in Art. 3. It was in these words :"The company shall enter into the following agreement : An agreement with each of Messrs. Kasturchand Shrikissan Jhaver, Nanasaheb Bapuji Jagtap, Kundalik Narayan Khilari and Madanlal Fakirchand Dudhediya regarding payment of a percentage of the net profits of the Company to each of them and their respective heirs, executors, administrators and assigns."The agreement dated 18-12-1939 was later modified on 22-4-1941 and by the modified agreement the promoters for themselves and their respective heirs, executors and administrators resigned their office and surrendered and renounced their rights to act as a Managing Director or Managing Directors of the Changdeo Sugar Mills Ltd., conferred on them by the Articles of Association of the Company and they further agreed to receive 6 1/4 per cent as promoters commission instead of 12 1/2 per cent as provided in their respective agreement with the Company. The modified agreement was confirmed on 25-9-1944 when the three suits to which I have just referred were compromised. The new Companies Act, being Act No. I of 1956, came into force on 1-4-1956. Thereafter, the plaintiff received a letter from the Company intimating to him that the Company would not pay any more commission after April 1956 as the agreement between the parties regarding payment of commission out of the net profits of the Company had become illegal. Later, in October 1956, the plaintiff received a notice from the Company informing him that an extraordinary general meeting of the shareholders of the Company was to be held inter alia for the purpose of amending certain Articles of Association of the Company. One of the proposed amendments was to delete Art. 3 from the Articles of the Association of the Company. The plaintiff contends in the suit that the provisions of the Companies Act, 1956, do not offend against the agreement dated 22-4-1941 which modified the prior agreement dated 18-12-1939 between the parties and has filed the suit for a declaration that the agreement between the parties is a valid and legal agreement and for an injunction to restrain the Company from passing a resolution deleting Art. 3 of the Articles of Association of the Company or from taking any action on the footing that the agreement had become illegal and void.3. The suit is resisted by the first defendant company mainly upon the contention that after the coming into force of the Companies Act, 1956, the agreements dated 18-12-1939 made between the Company on the one hand and each of the plaintiff, defendant No. 2, defendant No. 3 and Kasturchand on the other hand, as modified by the agreements dated 22-4-1941 had become void, illegal and inoperative and did not bind the first defendant company. It is contended that, in view of the provisions of S. 9 and S.76 of the Companies Act, 1956, the agreement dated 22-4-1941 to pay a sum equal to 6 1/4 per cent out of t he Companys net profit to the original promoters, of whom the plaintiff is one, is not binding on the first defendant company.4. The learned Judge took the view that the agreements dated 18-12-39 as modified by the agreement dated 22-4-1941 had become illegal and void and, therefore, they were not binding on the first defendant company on the coming into force of the Companies Act, 1956, on 1-4-1956. It is this view which is challenged by Mr. Munshi, the learned counsel for the plaintiff, in this appeal.5. Now, the first point which Mr. Munshi has argued before us is that the agreement, dated 22-4-1941, which replaced its predecessor agreement dated 18-12-1939, is not an agreement for subscribing for shares or for procuring subscriptions for shares and, therefore, the provisions of S. 76 of the Companies Act would not be attracted in this case. Now S. 76 provides:"76. Power to pay certain commissions and prohibition of payment of all other commissions, discounts, etc.-(1) A company may pay a commission to any person in consideration of -(a) his subscribing or agreeing to subscribe, whether absolutely or conditionally, for any shares in, or debentures of, the company, or(b) his procuring or agreeing to procure subscriptions, whether absolute or conditional, for any shares in, or debentures of, the company,if the following conditions are fulfilled, namely :(i) the payment of the commission is authorised by the articles;(ii) the commission paid or agreed to be paid does not exceed in the case of shares, five per cent. of the price at which the shares are issued or the amount or rate authorised by the articles, whichever is less, and in the easel of debentures, two and a half per cent, of the price at which the debentures are issued or the amount or rate authorised by the articles, whichever is less;(iii) the amount or rate per cent, of the commission paid or agreed to be paid is -in the case of shares or debentures, offered to the public for subscription, disclosed in the prospectus; and in the case of shares or debentures not offered to the public for subscription, disclosed in the statement in lieu of prospectus, or in a statement in the prescribed form signed in like manner as a statement in lieu of prospectus and filed before the payment of the commission with the Registrar and, where a circular or notice, not being a prospectus inviting subscription for the shares or debentures, is issued, also disclosed in that circular or notice; and(iv) the number of shares or debentures which persons have agreed for a commission to subscribe absolutely or conditionally is disclosed in the manner aforesaid.(2) Save as aforesaid and save as provided in S. 79, no company shall allot any of its shares or debentures or apply any of its capital moneys, either directly or indirectly, in payment of any commission, discount or allowance, to any person in consideration of -(a) his subscribing, whether absolutely or conditionally, for any shares in, or debentures of, the company, or(b) his procuring or agreeing to procure subscriptions, whether absolute or conditional, for any shares in, or debentures of, the company, whether the shares, debentures or money be so allotted or applied by being added to the purchase money of any property acquired by the company or to the contract price of any work to be executed for the company, or the money be paid out of the nominal purchase money or contract price, or otherwise.(3) Nothing in this section shall affect the power of any company to pay such brokerage as it has theretofore been lawful for a company to pay.(4) A vendor to, promoter of, or other person who receives payment in shares, debentures or money from, a company shall have and shall be deemed always to have had power to apply any part of the shares, debentures or money so received in payment of any commission the payment of which, if made directly by the company, would have been legal under this section.(5) If default is made in complying with the provisions of this section, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to five hundred rupees."Under S. 76, a commission may be paid to a person in consideration of his subscribing or agreeing to subscribe, whether absolutely or conditionally, for any shares in, or debentures of, the company, or his procuring or agreeing to procure subscriptions, whether absolute or conditional, for any shares in, or debentures of, the company, if certain conditions are fulfilled. That being so, Mr. Munshi says that a prerequisite for attracting the provisions of S. 76 of the Companies Act, 1956, is the existence of an agreement for subscribing for shares or debentures or an agreement for procuring subscriptions for shares Or debentures. The agreement dated 22-4-1941 being not an agreement of that nature, S. 76 would not apply to the facts of the present suit, says Mr. Munshi.6. Mr. Munshi contends that the modifications which were made in the original agreement dated .18-12-1939 by the agreement of 22-4-1941 were so fundamental and far-reaching that the entire nature of the prior agreement was transformed and the new agreement was not an agreement for subscribing for shares or debentures or procuring subscriptions for shares or debentures. With respect, we are unable to agree with Mr. Munshi. By the agreement dated 22-4-1941, the changes made in the prior agreement were mainly two. The Managing Directors rights, which each of the promoters was to enjoy by turn, were surrendered and the aggregate commission payable to the promoters was reduced to a sum equal to 6 1/4 per cent from 12 1/2 per cent of the net profit of the Company. The essential character of the original agreement, viz. that the commission was to be paid in consideration of the promoters subscribing or agreeing to subscribe for shares or debentures was preserved. It was because of that agreement that the commission, in all aggregating to 6 1/4 per cent of the net profit was agreed to be paid to the plaintiff, defendant No. 2, defendant No. 3 and the father of defendants Nos. 7 to 10 by the agreement dated 22-4-1941. The words "we hereby further agree to receive 6 1/4 per cent as promoters commission instead of 12 1/2 per cent as provided in our respective agreements with the Company" are clearly referable to the agreement dated 18-12-1939 which was indisputably an agreement for subscribing for shares or debentures. In our view, therefore, the agreement dated 22-4-1941 is an agreement to pay commission in consideration of an agreement to subscribe for shares or debentures or procure subscriptions for shares or debentures. Besides, it is to be noted that in the plaint there is no pleading that the character of the original agreement dated 18-12-1939 was so thoroughly changed that the agreement dated 22-4-1941 ceased to be an agreement for subscribing for shares or debentures. On the contrary, in paragraph 25 of the plaint, the plaintiff averred that the amounts of the commission were payable as before by the Company. The words "as before" would destroy the present contention of the plaintiff that the agreement dated 22-4-1941 was not an agreement to pay commission in consideration of subscribing or agreeing to subscribe for shares or debentures.7. The next point argued before us is whether in sub-s. (1) of S. 76 of the Companies Act, 1956, there is a prohibition upon the companies against paying a commission from profits. This takes us to tile construction of sub-s. (1) of S. 76. It is contended for the plaintiff that sub-s. (1) of S. 76 restricts the application of Companys capital for payment of commission, but does not restrict the payment of commission from profits. Mr. Munshi contends that when the Indian Legislature enacted the Act of 1956, it kept the subject of payment of commission from profits of the company outside the purview of S. 76. According to Mr. Munshi, sub-s. (1) of S. 76 is an enabling provision, which permits a company to apply its capital to the payment of commission up to a certain limit, and not a restrictive section prohibiting a company from paying commission from its profit. Mr. Munshi contends that the Indian enactments upon the Company Law being modelled on the English Acts on the same subject, it would not be inappropriate, on a question of construction of the Indian statute, to derive guidance from the English decisions and the legislative history of England In Ooregum Gold Mining Co. of India v. Roper, 1892 AC 125 (A), Lord Halsbury, in his address to the House of Lord, said that an agreement to take a share in a limited company was an agreement to become liable to pay to the company the amount for which the share had been created. It was an agreement which the company itself had no authority to alter or qualify and, therefore, in Lord Halsburys opinion the company were prohibited by law from issuing shares at a discount. In expressing this opinion. Lord Halsbury accepted the principle laid down in Ashbury Rly. Carriage and Iron Co. v. Riche, (1875) 7 HL 653 (B). Upon this position of law in England which had remained unaffected by the Act of 1867, an agreement that a less cash sum than the nominal amount of the share shall be accepted as payment for the share was repugnant and void. On the other hand, there was authority for saying that the payment of a commission to brokers or others who undertook to procure subscriptions, or in default to subscribe for a certain number of shares, was legitimate. That doctrine, however, did not meet with universal acceptance, although it had the support of Mr Justice Buckley in his valuable work on the Companies Acts. Then came the English Act of 1900. The object of enacting S. 8 of that Act was that the British Legislature was desirous of enabling remuneration to be paid for services rendered in placing or procuring subscription of the companys capital. By the first sub-section, a company was empowered, upon any offer of shares to the public for subscription, to pay a commission to any person in consideration of his subscribing or agreeing to subscribe, whether absolutely or conditionally, for any shares in the company, or procuring *r agreeing to procure subscriptions, whether absolute or conditional, for anv shares in the company, subject to certain defined conditions as to amount and disclosure. Thus, sub-s. (1) of S. 8 of the Act of 1900 permitted a limited application of the companys capital in payment of a commission : Hilder v. Dexter, 1902 AC 474 at p. 479 (C). Mr. Munshi relies on the above legislative history of England on the subject of the Company Law and on Hilder v. Dexter (C) and says that as the words "in consideration of his subscribing or agreeing to subscribe, whether absolutely or conditionally, for any shares in the company, or procuring or agreeing to procure subscriptions, whether absolute or conditional, for any share in the company", which occurred in sub-s. (1) of S. 8 of the English Act of 1900, occur also in sub-s. (1) of S. 76 of the Indian Act of 1956, sub-s. (1) of S. 75 should be construed as an enabling provision, as was sub-s. (1) of S. 8 of the English Act of 1900 construed in Hilder v. Dexter (C), permitting the companies to pay a commission out of their capital up to a limited extent, without imposing any restraint upon their power to pay a commission out of their profit. We are unable to agree. The English Acts regulated the structure of limited companies in England and concerned themselves with the powers of the said companies and the limits within which they were free to act. The Indian enactment of 1956 was passed with a view to regulate the affairs of the companies in India, and that being so it would not be right, in our view, to turn to the English Acts for construing the provisions of the Indian Act of 1956.In Ramanandi Kuer v. Kalawati Kuer, 55 Ind App 18 : (AIR 1928 PC 2 ) (D), it was observed by their Lordships of the Privy Council that where there was a positive enactment of the Indian Legislature, the proper course was to examine the language of that statute and to ascertain its proper meaning, uninfluenced by any consideration derived from the previous state of the law or of the English law upon which it might be founded. The construction of sub-s. (1) of S. 76 which Mr. Munshi suggests upon the basis of the words of the English Acts is, in our view, opposed to the plain language of the sub-section. The words which the British Parliament used in the English Acts were "it shall be lawful for a company to pay commission." These were the words which the Indian Legislature also used in the Indian Act of 1913 (S. 105. sub-s. (1)). But, those are not the words in sub-s. (1) of S. 76 of the Companies Act, 1956, the words here being : "A company may pay a commission ". Surely the Indian Legislature must have had the Act of 1913 before them while passing the Act of 1956. They must have had the language of S. 105 of the Act of 1913 before them while choosing the language of S. 76 in the Act of 1956. There must have been a purpose for departing from the language of S. 105, sub-s. (1) of the Act of 1913 and using different language in S. 76, sub-s. (1) of the Act of 1956. The purpose is clear. When the Legislature used the words "it shall be lawful for a company to pay commission", they legalised what was not lawful before. Before the English Act of 1900 was passed it was not lawful in England, and till the Act of 1913 was passed by the Indian Legislature it was not lawful in India, to pay a commission out of the companys capital. But, by the abovementioned enactments it was made lawful in both the countries to pay a commission, subject to a limitation, out of the companys capital. That was the reason why the words "it shall be lawful for a company to pay" were used in the English Acts of 1900 (S. 8). 1929 (S. 43) and 1948 (S. 53) and the Indian Act of 1913 (S. 105). The words used in sub-s. (1) of S. 76 in the Companies Act, 1956, are "a company may pay a commission". They are clearly indicative of a restraint upon the application, by a company, of its monies, in paying a commission, irrespective of the sources from which the payment might proceed. They are not merely enabling words, permitting a company to pay a commission from its capital. Such an enabling provision had already existed in S. 105 of the Act of 1913, and if nothing more was intended in framing sub-s. (1) of S. 76 of the Act of 1956, the material words of S. 105, viz. "it shall be lawful for a company to pay" would have been used in sub-s. (1) of S. 76 as well. But the Legislature deliberately did not use those words in S. 76, sub-s. (1). In our view, the Legislature, in enacting S. 76, sub-s. (1) of the Act of 1956, intended to lay down that a company may pay a commission from any source, capital or profit; but the payment must not exceed a certain limit, the quantum of the limit, in the case of shares, being 5 per cent of the price at which the shares were issued and, in the case of debentures, being 2 1/2 per cent of the price at which the debentures were issued.8. The intention of the Legislature has to be gathered from the words which the Legislature uses. The intention of the British Parliament in passing the Act of 1900 was to forbid, beyond a certain limit, the application by the company of its capital money either directly or indirectly in payment of any commission, discount or allowance. On the other hand, the intention of the Indian Legislature in enacting the Act of 1956 was to prevent the waste, not only of the companys capital, but also of the companys profit in paying commission. The mischief intended to be checked by the Indian Act of 1956 being different from the one intended to be controlled by the English Acts, neither the legislative history of England nor the English decisions in 1892 AC 125 (A) and 1902 AC 474 (C), would assist the plaintiff in this case.9. It is important to remember that, whereas in England sub-s. (1) of S. 8 of the Act of 1900, sub-s. (1) of S. 43 of the Act of 1929 and sub-s. (1) of S. 53 of the Act of 1948 dealt with payment of commission on shares only, S. 76, sub-s. (1) of the Indian Act of 1956 deals with payment of commission, not only on shares, but both on shares and debentures, and this fact is fatal to the construction that S. 76, sub-s. (1), is only an enabling section, since it is beyond controversy that at no time in the past was there any disability or restriction on die companies power to pay commission on debentures. It is not disputed that even before the enactment of S. 76 debentures could be issuedat discount and commission could be paid on debentures out of profit. Thus, so far as commission on debentures was concerned, there was no occasion, no need, to enable the companies in that behalf and this must effectively negative the contention that S. 76, sub-s. (1) is merely an enabling provision.10. In our view, S. 76, sub-s. (1) is both an enabling and a restrictive provision. It enables the companies to pay commission on shares and debentures, but restricts and regulates the quantum of the commission. The words "5 per cent of the price at which the shares are issued" and the words "2 1/2 per cent of the price at which the debentures are issued" which occur in sub-s. (1) are indicative of the quantum of the commission to be paid. They are not indicative, in our view, of the source from which the payment of the commission may proceed. In our opinion, therefore, upon a natural construction of the language of sub-clause (ii) of clause (b) of sub-s. (I) of S. 76, it must be held that the payment of commission on shares and debentures might proceed from any source, capital monies or profit, but it is to be restricted up to a certain percentage, the percentage being different in the case of shares and debentures.11. It is a settled rule of construction that the intention of the Legislature must be gathered from the words used by the Legislature, for the words declare best the intention. The Legislature might have intended to do a certain thing but if the words employed do not express that intention, it is not for the Courts to assume the role of legislators and give effect to the unexpressed intention. No confusion must be made, as Lord Halsbury said, between what the draftsman might have intended to do and the effect of the language which in fact was employed by him. If the words, which are a medium of expressing intention, fall short of declaring the intention, it is for the Legislature to amend the language of the section. So far as the Courts are concerned, where the words are clear and precise, they must be given their natural meaning. Now, upon the language of sub-s. (1) of S. 76 which is very clear, there is no doubt, in our view, that sub-s. (1) is both an enabling and a restrictive provision. When the Legislature says, that a company may pay a commission as provided in the section, it intends by necessary implication that a commission may not be paid otherwise or in any other manner. When the Legislature says that in the case of shares and debentures a certain percentage, the percentage being different in the case of shares and debentures, may be paid as commission, it necessarily intends that nothing more shall be paid by way of commission from any source whatsoever. Sub-Cl. (ii) of Cl. (b) of sub-s. (l) of S. 76 provides that a commission may be paid up to a certain quantum irrespective of the source of payment. It is implicit in that provision that the Legislature intended that a commission exceeding that quantum shall not be paid from any source whatsoever. The words of sub-s. (1) are wide and they must be given their natural one ordinary meaning. The words are "a company may pay a commission."The sub-section does not say that "a company may pay a commission out of capital . If the Legislature had intended to limit the scope of sub-s. (1) to the payment of commission out of capital only, words clear and unambiguous to that effect would have been used. But the words used are wide and not restricted to payment of commission out of capital only. As Maxwell has said, a statute is the will of the Legislature and the fundamental rule of interpretation to which all others are subordinate is that a statute is to be expounded according to the intent of them that made it. If the words of the statute are in themselves precise and unambiguous, no more is necessary than to expound those words in their natural and ordinary sense. Lord Halsbury has said in paragraph 637, Vol XXXI, of his celebrated word that it is the duty of the Judges to give fair and full effect to statutes without regard to the particular consequence in a special case. It is not the duty of the Judges to speculate on the reasons which might have led the Legislature to adopt a particular form of enactment, nor indulge in conjecture either that the Legislature might have entertained a purpose which, however natural, was not embodied in the words used or as to what the Legislature would have clone if a particular case had been presented to its notice, for it might be presumed that the frames of a statute contemplated matters of ordinary occurrence. Again, in paragraph 623, Lord Halsbury has said that if the words of an enactment are clear, all considerations of the policy of the Legislature in passing it are irrelevant. But if the language is ambiguous, the policy which dictated the statute might be taken into account.12. In New Piecegoods Bazar Co. Ltd. v Commr. of Income-tax, Bombay, (1950) SCR 553 at page 561 : (AIR 1950 SC 165 at p. 168) (E), it was observed that it was elementary that the primary duty of a Court was to give effect to the intention of the Legislature as expressed in the words used by it and no outside consideration could be called in aid to find that intention. At this juncture, I might refer to the heading to S. 76 of the Indian Companies Act and the heading reads : "Power to pay certain commissions and prohibition of payment of all other commissions, discounts etc." The learned Counsel for the first defendant company relies on this head note in support of his submission that sub-s. (1) of S. 76 is both an enabling and a restrictive provision, restricting the companies from paying commission beyond a certain limit, irrespective of the source from which the payment might proceed. Now, as to the use which could be made of a head note or a marginal note in construing a section, the position is well settled. In Bengal Immunity Co. Ltd. v. State of Bihar, (1955) 2 SCR 603 :( (S) AIR 1955 SC 661 ) (F), the learned Chief Justice referred to the marginal note to Art. 286 and relied upon it. Also, in Ramaben A. Thanawala v. Jyoti Ltd., 59 Bom LR 67 : (AIR 1958 Bom 214 ) (G),the learned Chief Justice, delivering the judgment of the Bench, said that although the heading of a section or a marginal note could not control the clear language of the section, a due consideration must be given to the heading and the marginal note for the purpose of arriving at a conclusion as to what according to the Legislature was the purpose of enacting the section.In that case it was held that the marginal note correctly indicated what the Legislature had aimed at in enacting the section which came up for construction before the Court. For all these reasons we are of the view that the words "a company may pay" in sub-s. (1) of S. 76 are both enabling and restrictive words.13. There is another reason also why we feel we must reject Mr. Munshis contention that the restriction upon payment of a commission imposed by sub-s. (1) of S. 76 extends only to the application of the capital of a company and not to the profit of the company. As I have said in the earlier part of this judgment, the restriction envisaged by sub-s. (1) applies to the payment of a commission, not only on shares, but on the debentures as well. In other words, sub-s. (1) places debentures on the same footing as. shares so far as the payment of a commission is concerned. This must serve, in our opinion, as a serious obstacle to the contention that sub-s. (1) is only an enabling provision permitting the companies to pay commission out of capital. So far as the Companies Act is concerned, debentures are not a capital of a company. As Palmer has said in his Company Precedents, the word debenture is employed to describe an instrument under seal evidencing a debt. The essence of a debenture is originally an admission of indebtedness and that is its essential characteristic, the central idea. In Trustees Corporation (India) Ltd. "v. Commr. of Income-tax, Bombay, 32 Bom LR 820 : (AIR 1930 PC 151 ) (H), it was observed by the Privy Council that it was well-settled that a company was in no sense a debtor to capital. By issuing a share credited with a definite sum as paid thereon, the company did not become a debtor to its shareholder for any sum at all. The amount so credited upon the share might, as between one shareholder and another, while the company was a going concern, determine the proportion of profit receivable by him as dividend, and, in a winding-up, his proportion of surplus assets; but it had no influence to extend or increase the aggregate amount available for division in due course of administration amongst the whole bodv of shareholders. Then again, in Emperor v. Laxman Bharmaji, 47 Bom LR 660 : (AIR 1946 Bom 18 ) (I), Mr. Justice Lokur observed that the main features which tended to show that the Patron Bonds were debentures were the acknowledgment of debt, the promise to return it, the fact that they found a series bearing consecutive numbers and the fact that all the holders got an equal chance to partake in the annual distribution of prizes out of the net interest realised by the Company. It is clear that a debenture I being an instrument evidencing a debt, discount on it is not a payment out of capital. It would be wrong, in our view, to construe sub-s. (1) of S. 76 as saying that, so far as the commission on shares is concerned, it must be limited to a certain percentage of the capital and so far as the commission on debentures is concerned, it may be paid both from capital and revenue. It may be noted that prior to the Act of 1956, there was no restriction on commission payable on debentures. After the coming into force of the 1956 Act, a restriction has been imposed upon it; and this has been done by sub-s. (1) of S. 76. Debentures not being capital, commission thereon could only be paid from the liquid assets of the company which are not capital. Such being the position, it could not be contended with any validity that the considerations which obtained when S. 8 of the English Act of 1900 came up for construction before the House of Lords would govern the construction of sub-s. (1) of S. 76 of the Companies Act, 1956 as well. It would bear repetition that as sub-s. (1) of S. 76 deals with commission, both on shares and debentures, legislative history on the subject of the Company Law in England would not help in the construction of S. 76.14. The learned counsel for the plaintiff has next contended that the term commission in sub-s. (I) of S. 76 has been used in its specific legal sense and, therefore, it is a term of art. It is argued that the words "pay a commission" in sub-s. (1) mean "pay a certain sum of money from the nominal price of the shares." Mr. Munshi has made this submission in this way. It is contended that the provisions of S. 78 and the legislation in England on the subject of payment of commission are in parimateria. It is then said that when S. 8 of the English Act of 1900 came up for construction before the Court of Appeal in England in 1902 AC 474 (C), it was held that sub-s. (1) of that section permitted a limited application of the companys capital in payment of a commission. From this, it is argued by Mr. Munshi that sub-s. (I) of S. 76 of the Companies Act, 1956, should be so construed as to restrict payment of commission from the capital of the company only. We are unable to agree. In the first place, the Indian statute (the Act of 1956) and the English statute, on the law of payment of a commission, are not in parimateria for the reason, amongst others, that in the Indian Act, by sub-s. (1) of S. 76, shares and debentures are put on the same footing for the purpose of payment of commission, which is not the case under the English law. Secondly, Hilder v. Dexter (C). did not lay down that sub-s. (1) of S. 8 of the English Act of 1900 did not permit application of the companys profit in payment of commission. We are unable to find any observations in their Lordships judgment in that case which would justify an argument that sub-s. (1) of S. 8 of the English Act of 1900 was construed as restricting payment of commission from capital only. Thirdly, the only question which was argued at the Bar in Hilder v. Dexter (C) was whether a particular mode of raising the sum required for working capital was prohibited by S. 8, sub-s. (2) of the Act of 1900 and was accordingly beyond the power of the Company. The point whether sub-s. (1) of S. 8 restricted payment of commission out of a particular source only did not arise for decision in that case. It is true that even an obiter in a judgment of the House of Lords is entitled to great respect and weight. But, even so. as I have just said, there is nothing in their Lordships judgment to support a contention that the restriction imposed by sub-s. (1) of S. 8 of the Act of 1900 did not apply to the profit of a Company. Fourthly, and this is important, the words which came up for construction before the House of Lords in Hilder v. Dexter (C) were different from the words which require to be construed in sub-s. (1) of S. 76 in this case. The words in sub-clause (ii) of clause (b) of sub-s. (1) of S. 76, namely the words "does not exceed .............five per cent, of the price at which the shares are issued" and "does not exceed......two and a half per cent, of the price at which the debentures are issued" are, as I have stated above, clearly indicative of quantum. They are not indicative of the source from where the payment of a commission might proceed. The words of sub-s. (1) of S. S of 1900, which came up for construction before the House of Lords, were :"to pay commission to any person in consideration of his subscribing or agreeing to subscribe, whether absolutely or conditionally, for any shares in the company, or procuring or agreeing to procure subscriptions, whether absolute or conditional, for any shares in the Company, if the payment of the commission and the amount or rate per cent of the commission paid or agreed to be paid are respectively authorized by the Articles of Association and disclosed in the prospectus, and the commission paid or agreed to be paid does not exceed the amount or rate so authorized."The language of sub-s. (1) of S. 8 of the Act of 1900, in this particular context, being fundamentally different from that of sub-clause (ii) of clause (b) of sub-s. (1) of S. 76, the decision in Hilder v. Dexter (C) would, with respect, not help the plaintiff.15. Fifthly, the intention of the British Legislature in enacting the Act of 1900 and the intention of the Indian Legislature in passing the Act of 1956 being different, the help of the legislative history of England and Hilder v. Dexter (C) cannot be successfully invoked for construing the Indian statute. Before the Act of 1900 was enacted in England, it was unlawful for the companies in that country to pay a commission out of capital. The Act of 1900 (S. 8) legalised such payment, but subject to a limitation. It is, therefore, clear that the intention of the English Act of 1900 was to prevent the waste of a companys capital in paying a commission. On the other hand, if we examine the provisions of the Indian Act of 1956, it would appear that the intention of the Indian Legislature in enacting this Legislation was to prevent the waste, not only of the companys capital, but also of the companys profit in paying commissions. Section 309 of the Act deals with the remuneration of Directors and by Cl. (b) of sub-s. (4) of this section the maximum limit of a commission payable to a Director out of the net profit of the Company has been fixed at 3 per cent, of the profit. Then, again, under S. 348 of the Act, it is provided that the remuneration of a managing agent is not to exceed 10 per cent, of the net profit ordinarily. It is clear from the abovementioned provisions of the Companies Act, 1956, that the intention of the Legislature in enacting this statute was to eliminate, as far as possible, the abuses which were noticed in the administration of the companies. In 59 Bom LR 67 : (AIR 1958 Bom 214 ) (G),a Division Bench of this Court consisting of the learned Chief Justice and Mr. Justice Desai pointed out that the Act of 1956 was enacted to help the development of companies in this country and put down abuses which were noticed in the working of the companies. Thus the mischiefs which were sought to be avoided by the legislatures in England and India being not quite the same, we must, upon a question of construing the Indian Act, look to the language of the said Act and to the intention of the legislators who passed that Act.16. The word commission occurs in several sections of the Companies Act, 1956. While on this point, we may usefully turn to clause (a), sub-clause (ii), and clause (b) of item 5, Schedule II, Part I. Clause (a), sub-clause (ii) says :"any preliminary expenses payable by the company, and any commission so payable to any person in consideration of his agreeing to subscribe for, or of his procuring or agreeing to procure subscriptions for, any shares in the company" and clause (b) provides :"the amounts to be provided in respect of the matters aforesaid otherwise than out of the proceeds of the issue and the sources out of which those amounts are to be provided."Thus, clause (b) suggests that the payment of commission under the Companies Act, 1956, is not restricted to capital only. It may be paid out of profit as well. Section 78, sub-s. (2), clause (c) says that the share premium account may, notwithstanding anything in sub-s. (1), be applied by the company in writing off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company. The words commission and Miscount are used in this clause in reference to shares and debentures. Debentures not being capital of a company, this would show that die payment of commission under the Indian Act of 1956 is not restricted to capital only, but may be made from profit as well. Section 309, sub-s. (6) says :"No Director of a company who is in receipt of any commission from the company and who is either in the whole-time employment of the company or a Managing Director shall be entitled to receive any commission or other remuneration from any subsidiary of such company."The commission which is spoken of in sub-s. (6) of S. 309 cannot be an amount of money payable from the capital of a company. It is scarcely necessary for us to examine further sections of the Act. From what has been stated above it is evident that the word commission, as used in the Act, refers to a payment of money, not only out of the capital of a company, but from its profit as well. Mr. Munshis contention that the word commission as used in the Act of 1956 has a specialised legal meaning and that it means an amount of money payable only from the capital is principally based upon the observations of Lord Davey in the case of Hilder v. Dexter (C), the observations being :"This sub-section, therefore, permits a limited application of the companys capital in payment of a commission (Lord Davey was referring to sub-s. (1) of S. 8 of the English Act of 1900)." I have stated above that these observations of Lord Davey lend no authority for contending that the profit of a company may not be applied in paying a commission. In our view, the word commission in the Act of 1956 is not a word of art and there is no reason why we should not construe it in the ordinary way.17. It was next contended for the plaintiff that the agreements dated 18-12-1939 and 22-4-1941 were executed agreements. Shares to which reference was made in these agreements were already allotted to the plaintiff and other promoters. Payments in respect of the shares were also already made. In these circumstances it was contended for the plaintiff that the above said agreements would not fall within the purview of S. 76 of the Act. It was contended that the provisions of S. 76 were prospective provisions and that the section provided that a company might pay a commission to any person in consideration of the said person subscribing or agreeing to subscribe, for shares or debentures or procuring or agreeing to procure subscriptions for shares or debentures. Mr. Munshis argument was that if a commission had to be paid as consideration for his having already subscribed or agreed to subscribe, or having already procured or agreed to procure subscriptions, for shares or debentures before the coming into force of the Act, the provisions of S. 76 would not be attracted. Here the plaintiff and other promoters had already, before 1-4-1956, agreed to subscribe for shares and, therefore, said Mr. Munshi, the provisions of S. 76 would not apply to this case, and since S. 76 would not apply, the provisions of S. 9 also would not be attracted. We have examined this contention carefully, but we regret we are unable to accept it. The agreements dated 18-12-1939 and 22-04-1941 represented a contract between the parties. In pursuance of that contract, the Company agreed to pay a certain commission to the promoters; and the consideration for this was the agreement on the part of the promoters to subscribe for shares. That being so, we cannot accept the contention that the provisions of sub-s. (1) of S. 76 would not be attracted in this case. Whatever commission the plaintiff is asking the Company to pay to him under these agreements, he is claiming by way of a consideration for the agreement between himself and the Company, the agreement being one of subscription for shares. The learned counsel for the first defendant company has contended before us, and rightly, that after the coming into force of the Act of 1956, no such payment by way of commission could be legally made under sub-s. (1) of S. 76 as would contravene the provisions of sub clause (ii) of clause (b) of sub-s. (1). The claim which the plaintiff has made is in contravention of sub clause (ii) of clause (b) and cannot be sustained. We are of the view that S. 76 applies to these agreements and accordingly the provisions of S. 9 would also be attracted. Section 9 lays down that, save as otherwise expressly provided in the Act, the provisions of the Act shall have effect, notwithstanding anything to the contrary contained in the memorandum or articles of a company, or in any agreement executed by it, or in any resolution passed by the company in general meeting or by its Board of Directors, whether the same be registered, executed or passed, as the case may be, before or after the commencement of this Act. Mr. Tarkundes submission is that since both the agreements referred to above had already been executed before the coming into force of the Act,it would not be proper to interfere with the terms of the agreement. But, as S. 9 says, the provisions of the Act (i.e. S. 76 in the context of this case) shall have effect, notwithstanding the fact that the agreements were executed before the coming into force of this Act. Therefore, in view of S. 9 read with S. 76 of the Act, we must accept the contention of the first defendant company that the plaintiff would not be entitled to receive any commission from the company in contravention of sub-clause (ii) of clause (b) of sub-s. (1) of S. 76.18. Mr. Munshi has next contended that since the enactment of the Capital Issues (Continuance of Control) Act, XXIX of 1947, debenture would also be capital of the company. Mr. Munshi has referred us to S. 2 of the Capital Issues (Continuance of Control) Act. Section 2 says : "In this Act, (a) issue of capital means the issuing of any securities whether for cash or otherwise; (b) securities means any of the following instruments issued, or to be issued, by or for the benefit of a company, whether incorporated in the States or not, namely (i) shares, stocks and bonds; (ii) debentures". Relying upon S. 2. Mr. Munshi contends that the scope of the word capital has been enlarged so as to include securities and as securities mean debentures, the debentures would be capital of the company. It is to be remembered, however, that the important words in S. 2 of the Capital Issues (Continuance of Control) Act are "in this Act."Therefore, the definitions of securities and of the expression issue of capital as contained in the Capital Issues (Continuance of Control) Act would not govern the meaning of the term debenture as it occurs in the Companies Act, 1956. So far as the Companies Act, 1956, is concerned, I have already stated, for the reasons given in the previous part of this judgment, that debenture is an instrument under seat evidencing a debt. It is not capital.

Decision:
0[ds]With respect, we are unable to agree with Mr. Munshi. By the agreement datedthe changes made in the prior agreement were mainly two. The Managing Directors rights, which each of the promoters was to enjoy by turn, were surrendered and the aggregate commission payable to the promoters was reduced to a sum equal to 6 1/4 per cent from 12 1/2 per cent of the net profit of the Company. The essential character of the original agreement, viz. that the commission was to be paid in consideration of the promoters subscribing or agreeing to subscribe for shares or debentures was preserved. It was because of that agreement that the commission, in all aggregating to 6 1/4 per cent of the net profit was agreed to be paid to the plaintiff, defendant No. 2, defendant No. 3 and the father of defendants Nos. 7 to 10 by the agreement datedThe words "we hereby further agree to receive 6 1/4 per cent as promoters commission instead of 12 1/2 per cent as provided in our respective agreements with the Company" are clearly referable to the agreement datedwhich was indisputably an agreement for subscribing for shares or debentures. In our view, therefore, the agreement datedis an agreement to pay commission in consideration of an agreement to subscribe for shares or debentures or procure subscriptions for shares or debentures. Besides, it is to be noted that in the plaint there is no pleading that the character of the original agreement datedwas so thoroughly changed that the agreement datedceased to be an agreement for subscribing for shares or debentures. On the contrary, in paragraph 25 of the plaint, the plaintiff averred that the amounts of the commission were payable as before by the Company. The words "as before" would destroy the present contention of the plaintiff that the agreement datedwas not an agreement to pay commission in consideration of subscribing or agreeing to subscribe for shares orare unable to agree. The English Acts regulated the structure of limited companies in England and concerned themselves with the powers of the said companies and the limits within which they were free to act. The Indian enactment of 1956 was passed with a view to regulate the affairs of the companies in India, and that being so it would not be right, in our view, to turn to the English Acts for construing the provisions of the Indian Act ofIn our view, S. 76,(1) is both an enabling and a restrictive provision. It enables the companies to pay commission on shares and debentures, but restricts and regulates the quantum of the commission. The words "5 per cent of the price at which the shares are issued" and the words "2 1/2 per cent of the price at which the debentures are issued" which occur in(1) are indicative of the quantum of the commission to be paid. They are not indicative, in our view, of the source from which the payment of the commission may proceed. In our opinion, therefore, upon a natural construction of the language of(ii) of clause (b) of(I) of S. 76, it must be held that the payment of commission on shares and debentures might proceed from any source, capital monies or profit, but it is to be restricted up to a certain percentage, the percentage being different in the case of shares and debentures.There is another reason also why we feel we must reject Mr. Munshis contention that the restriction upon payment of a commission imposed by(1) of S. 76 extends only to the application of the capital of a company and not to the profit of the company. As I have said in the earlier part of this judgment, the restriction envisaged by(1) applies to the payment of a commission, not only on shares, but on the debentures as well. In other words,(1) places debentures on the same footing as. shares so far as the payment of a commission is concerned. This must serve, in our opinion, as a serious obstacle to the contention that(1) is only an enabling provision permitting the companies to pay commission out of capital. So far as the Companies Act is concerned, debentures are not a capital of a company. As Palmer has said in his Company Precedents, the word debenture is employed to describe an instrument under seal evidencing a debt. The essence of a debenture is originally an admission of indebtedness and that is its essential characteristic, the centralhave examined this contention carefully, but we regret we are unable to accept it. The agreements dated41 represented a contract between the parties. In pursuance of that contract, the Company agreed to pay a certain commission to the promoters; and the consideration for this was the agreement on the part of the promoters to subscribe for shares. That being so, we cannot accept the contention that the provisions of(1) of S. 76 would not be attracted in this case. Whatever commission the plaintiff is asking the Company to pay to him under these agreements, he is claiming by way of a consideration for the agreement between himself and the Company, the agreement being one of subscription for shares. The learned counsel for the first defendant company has contended before us, and rightly, that after the coming into force of the Act of 1956, no such payment by way of commission could be legally made under(1) of S. 76 as would contravene the provisions of sub clause(ii) of clause (b) of(1). The claim which the plaintiff has made is in contravention of sub clause (ii) of clause (b) and cannot be sustained. We are of the view that S. 76 applies to these agreements and accordingly the provisions of S. 9 would also be attracted. Section 9 lays down that, save as otherwise expressly provided in the Act, the provisions of the Act shall have effect, notwithstanding anything to the contrary contained in the memorandum or articles of a company, or in any agreement executed by it, or in any resolution passed by the company in general meeting or by its Board of Directors, whether the same be registered, executed or passed, as the case may be, before or after the commencement of thisas S. 9 says, the provisions of the Act (i.e. S. 76 in the context of this case) shall have effect, notwithstanding the fact that the agreements were executed before the coming into force of this Act. Therefore, in view of S. 9 read with S. 76 of the Act, we must accept the contention of the first defendant company that the plaintiff would not be entitled to receive any commission from the company in contravention of(ii) of clause (b) of(1) of S.is to be remembered, however, that the important words in S. 2 of the Capital Issues (Continuance of Control) Act are "in this Act."Therefore, the definitions of securities and of the expression issue of capital as contained in the Capital Issues (Continuance of Control) Act would not govern the meaning of the term debenture as it occurs in the Companies Act, 1956. So far as the Companies Act, 1956, is concerned, I have already stated, for the reasons given in the previous part of this judgment, that debenture is an instrument under seat evidencing a debt. It is not capital.