Case: Company Law Board Vs. Upper Doab Sugar Mills Limited Etc

or exemption."6. After hearing learned counsel for the parties and giving the matter our earnest consideration, w e are of the opinion that the view taken by the High Court in quashing the condition imposed by the appellant Board about the fixation of the remuneration of the managing directors cannot be sustained. The High Court in arriving at its conclusion took: the view that section--198 and the proviso to sub-section (3) of Section 309 specially dealt with the question which arose for determination. In view of those provisions, the High Court inferred that sections 269 and 637A upon which reliance had been placed by the appellant Board could not be of much avail to the appellant. Mr. Puri on behalf of the respondents has adopted the same reasoning in this Court and has contended that section 198 and the proviso to sub section (3) of section 309 being special provisions relating to the remuneration of managing directors, they would exclude so far as that question is concerned, general provisions like those contained in sections 269 and 637A. The above reasoning, we find, is vitiated by an innate fallacy. Section 198 deals with the overall maximum managerial remuneration and managerial remuneration in the case of absence or adequacy of profits. The total managerial remuneration payable by a public company or a private company which is a subsidiary of a public company to its managerial staff, according to sub-section (1) of that section, cannot exceed 11 per cent of the net profits for a financial year. The total managerial remuneration covers the remuneration not merely of the managing directors but also of other managerial personnel like secretaries, treasurers and managers. Sub-section (3) of the section provides that Within the limits of the maximum remuneration, a company may pay a monthly remuneration to its managing director in accordance with section 309. Sub section (1) of section 309 prescribes the formalities which have to be complied with for fixing of the remuneration of a managing or full-time director of a company. We are not concerned with sub-section (2) of that section. Sub-section (3). which constitutes the main plank of the case of the respondents, provides that a director who is either in the whole-time employment of the company or a managing director may be paid remuneration either by way of monthly pay- ment or at a specified percentage of the net profits of the company or partly by one way or partly by the other. According to the proviso to that sub-section, except with the approval of the Central Government, such remuneration of the whole-time director or managing director shall not exceed 5 per cent of the net pro fits for one such director and if there is more than one such director 10 per cent for all of them together. Perusal of section 309 shows that it does not deal with the appointment of managing directors. It only perta ins to the remuneration of managing or whole-time directors who have already been appointed. The effect of the proviso to sub-section (3) of section 309 is that if the tenure of a managing director who has already been appointed continues after the coming into force of the Act, the remuneration to be paid to such a managing director shall not after the coming into force of the Act exceed 5 per cent of the net profits for one such director, and if there be more then one such director, 10 per cent for all of them together.The present, however, is not a case of managing direc- tors having been appointed earlier and continuing to act as such after the coming into force of the Act. Shri Rajinder Lal and Shri Narinder Lal have been appointed managing directors of the company for the first time after the coming into force of the Act. Their appointment as managing directors had to be approved in terms of section 269 of the Act. The company consequently applied to the Central Government for approving their appointment. The appellant Board, to whom the powers of the Central Government have been delegated for this purpose, while granting approval to the appointment of the aforesaid two persons as managing directors, inserted the condition that the total remuneration of each managing director by way of commission and salary shall not exceed rupees one lakh twenty thousand per annum. The above remuneration is in addition to the benefit of certain perquisites which would be available t o the managing directors. The Board, in our opinion, acted well within its power in imposing this condition. Section 637A of the Act makes it clear inter alia that where the Central Government is required or authorised by any provision of the Act to accord approval in relation to any matter, then, in the absence of anything to contrary contained in such or any other provision of the Act, the Central Government may accord such approval subject to such conditions, limitations or restrictions as it may think fit to impose. In view of the provisions of sections 269 and 637A of the Act, we find no infirmity in the condition imposed by appellant Board. The provisions of both sections 269 and 637A expressly deal with the question which arises directly in this ease.7. We may observe that according to the affidavit filed on behalf of the appellant Board , since 1959 the said Board has been imposing a maximum administrative ceiling on the total amounts payable to a managing director. The basic principle that has been kept in view by the Board is that no individual should be paid remuneration exceeding Rs. 1, 20, 000 per annum or Rs. 10, 000 per month. A large number of instances have also been given by the Board and it would appear therefrom that the maximum remuneration which has been allowed by the Board to the managing director of any company is Rs. 1, 20, 000.The High Court, in our opinion, was in error in quashing the order of the Board.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]After hearing learned counsel for the parties and giving the matter our earnest consideration, w e are of the opinion that the view taken by the High Court in quashing the condition imposed by the appellant Board about the fixation of the remuneration of the managing directors cannot be sustained. The High Court in arriving at its conclusion took: the view that section--198 and the proviso to sub-section (3) of Section 309 specially dealt with the question which arose for determination. In view of those provisions, the High Court inferred that sections 269 and 637A upon which reliance had been placed by the appellant Board could not be of much avail to the appellant. Mr. Puri on behalf of the respondents has adopted the same reasoning in this Court and has contended that section 198 and the proviso to sub section (3) of section 309 being special provisions relating to the remuneration of managing directors, they would exclude so far as that question is concerned, general provisions like those contained in sections 269 and 637A. The above reasoning, we find, is vitiated by an innate fallacy. Section 198 deals with the overall maximum managerial remuneration and managerial remuneration in the case of absence or adequacy of profits. The total managerial remuneration payable by a public company or a private company which is a subsidiary of a public company to its managerial staff, according to sub-section (1) of that section, cannot exceed 11 per cent of the net profits for a financial year. The total managerial remuneration covers the remuneration not merely of the managing directors but also of other managerial personnel like secretaries, treasurers and managers. Sub-section (3) of the section provides that Within the limits of the maximum remuneration, a company may pay a monthly remuneration to its managing director in accordance with section 309. Sub section (1) of section 309 prescribes the formalities which have to be complied with for fixing of the remuneration of a managing or full-time director of a company. We are not concerned with sub-section (2) of that section. Sub-section (3). which constitutes the main plank of the case of the respondents, provides that a director who is either in the whole-time employment of the company or a managing director may be paid remuneration either by way of monthly pay- ment or at a specified percentage of the net profits of the company or partly by one way or partly by the other. According to the proviso to that sub-section, except with the approval of the Central Government, such remuneration of the whole-time director or managing director shall not exceed 5 per cent of the net pro fits for one such director and if there is more than one such director 10 per cent for all of them together. Perusal of section 309 shows that it does not deal with the appointment of managing directors. It only perta ins to the remuneration of managing or whole-time directors who have already been appointed. The effect of the proviso to sub-section (3) of section 309 is that if the tenure of a managing director who has already been appointed continues after the coming into force of the Act, the remuneration to be paid to such a managing director shall not after the coming into force of the Act exceed 5 per cent of the net profits for one such director, and if there be more then one such director, 10 per cent for all of them together.The present, however, is not a case of managing direc- tors having been appointed earlier and continuing to act as such after the coming into force of the Act. Shri Rajinder Lal and Shri Narinder Lal have been appointed managing directors of the company for the first time after the coming into force of the Act. Their appointment as managing directors had to be approved in terms of section 269 of the Act. The company consequently applied to the Central Government for approving their appointment. The appellant Board, to whom the powers of the Central Government have been delegated for this purpose, while granting approval to the appointment of the aforesaid two persons as managing directors, inserted the condition that the total remuneration of each managing director by way of commission and salary shall not exceed rupees one lakh twenty thousand per annum. The above remuneration is in addition to the benefit of certain perquisites which would be available t o the managing directors. The Board, in our opinion, acted well within its power in imposing this condition. Section 637A of the Act makes it clear inter alia that where the Central Government is required or authorised by any provision of the Act to accord approval in relation to any matter, then, in the absence of anything to contrary contained in such or any other provision of the Act, the Central Government may accord such approval subject to such conditions, limitations or restrictions as it may think fit to impose. In view of the provisions of sections 269 and 637A of the Act, we find no infirmity in the condition imposed by appellant Board. The provisions of both sections 269 and 637A expressly deal with the question which arises directly in thismay observe that according to the affidavit filed on behalf of the appellant Board , since 1959 the said Board has been imposing a maximum administrative ceiling on the total amounts payable to a managing director. The basic principle that has been kept in view by the Board is that no individual should be paid remuneration exceeding Rs. 1, 20, 000 per annum or Rs. 10, 000 per month. A large number of instances have also been given by the Board and it would appear therefrom that the maximum remuneration which has been allowed by the Board to the managing director of any company is Rs. 1, 20, 000.The High Court, in our opinion, was in error in quashing the order of the Board.