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

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

Explanation:
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.