1994 (2) TMI 227 - HC - Companies Law

Remuneration of directors Increase, Penalty where no specific penalty is provided elsewhere in the act

Summary

Issues Involved:
1. Obligation under Section 310 of the Companies Act, 1956
2. Applicability of Section 629A of the Companies Act, 1956
3. Interpretation of declaratory provisions in the Companies Act

Detailed Analysis:

1. Obligation under Section 310 of the Companies Act, 1956
The primary issue is whether Section 310 of the Companies Act, 1956, imposes an obligation on the petitioners to obtain approval from the Central Government for an increase in remuneration to non-wholetime directors. The complaint alleges that the company passed a special resolution authorizing payment of commission to non-wholetime directors, which was an increase in remuneration and required Central Government approval under Section 310. The petitioners argued that Section 310 does not cast any obligation to inform the Central Government about such a resolution. The court examined the language of Section 310, which states that any increase in remuneration shall not have any effect unless approved by the Central Government, but does not explicitly require communication of the resolution to the Central Government.

2. Applicability of Section 629A of the Companies Act, 1956
The second issue is whether the failure to obtain Central Government approval for the increase in remuneration constitutes an offence punishable under Section 629A of the Act. The respondent argued that the payment of Rs. 1,50,000 without approval violated Section 310, making Section 629A applicable. The court considered the language of Section 629A, which penalizes contraventions of the Act for which no specific penalty is provided. The court noted that the complaint did not allege any specific restriction imposed by the Government that was violated, thus failing to bring the case within the purview of Section 629A.

3. Interpretation of Declaratory Provisions in the Companies Act
The court also addressed the interpretation of declaratory provisions in the Companies Act, referencing previous judgments. The petitioners cited the case of Raghunath Swarup Mathur v. Raghuraj Bahadur Mathur, where the Allahabad High Court held that a void resolution does not contravene the Act, and the case of Registrar of Companies v. Bharat Produce Co. Ltd., where the Calcutta High Court ruled that declaratory provisions do not create an offence. The court agreed with these interpretations, concluding that Section 310 is merely declaratory and does not impose an actionable obligation on the petitioners.

Conclusion:
The court held that Section 310 of the Companies Act, 1956, is declaratory and does not cast any obligation on the petitioners to obtain Central Government approval for an increase in remuneration. Consequently, the failure to obtain such approval does not constitute an offence under Section 629A. The complaint was deemed misconceived and was quashed. The petition was allowed, and all further proceedings in E.O.C.C. No. 20 of 1991 on the file of the Additional Chief Judicial Magistrate, Madurai, were quashed.