1991 (10) TMI 206 - HC - Companies Law

Summary

Issues:
Restriction on remuneration payable to a director for professional services rendered.

Analysis:
The petition involved a public limited company's resolution passed at an annual general meeting to approve the payment of professional fees to a director for services rendered. The resolution was forwarded to the respondent for approval. The respondent expressed its opinion that the director possessed the requisite qualifications for rendering professional services but imposed a restriction on the remuneration payable to the director. The petition challenged this restriction, arguing that once the Central Government confirms the director's qualifications, there should be no limitation on the remuneration for professional services.

The key legal provision in question was section 309(1) of the Companies Act, 1956, which governs the remuneration payable to directors. The provision allows for remuneration to be determined by the company, subject to certain conditions. The proviso to section 309(1) specifies that remuneration for services of a professional nature should not be included in the overall remuneration payable to a director, provided the Central Government confirms the director's qualifications for the profession. The petition contended that this provision does not empower the Central Government to restrict the remuneration for professional services once qualifications are confirmed.

The court analyzed previous judgments, including Stup Consultants Ltd. v. Union of India, Ruby Mills Ltd. v. Union of India, and R.Gac Electrodes Ltd. v. Union of India, which supported the argument that the Central Government exceeded its powers by imposing a ceiling on the remuneration for professional services. The court agreed with the petition and held that the restriction on remuneration payable to the director for professional services was invalid. Consequently, the court quashed the part of the communication certificate that imposed the restriction, ruling in favor of the petitioners.

In conclusion, the judgment clarified that once the Central Government confirms a director's qualifications for rendering professional services, there should be no restriction on the remuneration payable for such services. The court's decision emphasized the importance of upholding the statutory provisions regarding director remuneration and the Central Government's role in confirming qualifications without imposing arbitrary limitations on remuneration for professional services.