1965 (9) TMI 36 - HC - Companies Law

remuneration of directors, Remuneration of directors Increase, Directors, etc. not to hold place of profit, Power of Central Government to accord approval etc., subject to conditions

Summary

Issues Involved:
1. Applicability of Sections 309 and 310 of the Companies Act to the resolutions.
2. Necessity of Central Government approval for the resolutions.
3. Competency of the Central Government to impose conditions and restrictions under Section 637A.
4. Validity of the remuneration paid to V.S. Kudva as a part-time technical adviser and director.

Issue-wise Detailed Analysis:

1. Applicability of Sections 309 and 310 of the Companies Act to the Resolutions:

The petitioner contended that the resolutions did not require Central Government approval under Sections 309 and 310 of the Companies Act. The respondent argued that approval was necessary under these sections. The court examined the applicability of these sections to the resolutions. It was found that Section 309(4) pertained to the remuneration of directors who are neither in whole-time employment nor managing directors and whose remuneration does not include monthly payments. The court concluded that the remuneration authorized by special resolution No. 2, which proposed additional remuneration for directorial work, required Central Government approval under Section 309.

2. Necessity of Central Government Approval for the Resolutions:

The petitioner argued that the approval sought was due to a mistaken belief and was unnecessary. However, the court found that special resolution No. 2 required approval under Section 309, as it involved additional remuneration for directorial work. The court also considered the applicability of Section 310, which requires Central Government approval for any increase in the remuneration of a director. Since the first resolution involved an increase in the remuneration of V.S. Kudva, it required approval under Section 310.

3. Competency of the Central Government to Impose Conditions and Restrictions under Section 637A:

The court examined the competency of the Central Government to impose conditions and restrictions under Section 637A. The court noted that the power under Section 637A is incidental and can only be exercised when the Central Government is required to accord approval, sanction, consent, confirmation, or recognition under any provision of the Act. The court concluded that the conditions and restrictions imposed must be relevant to the matter for which approval is sought. The court found that the conditions imposed by the Central Government in exhibit "L" were arbitrary and unauthorized, as they were based on irrelevant considerations, such as the income earned by V.S. Kudva and his family from another independent company.

4. Validity of the Remuneration Paid to V.S. Kudva as a Part-time Technical Adviser and Director:

The court considered whether the remuneration paid to V.S. Kudva as a part-time technical adviser required Central Government approval under Section 309. The court concluded that the remuneration for services rendered as a technical adviser did not come within the mischief of Section 309, which pertains to managerial remuneration payable to directors. The court held that the remuneration payable to V.S. Kudva for his services as a technical adviser did not require Central Government approval and that the incidental powers under Section 637A could not be availed of in respect of special resolution No. 1.

Separate Judgments:

Sadasivayya, J.:

Sadasivayya, J. concluded that the remuneration for services rendered by V.S. Kudva as a technical adviser did not require Central Government approval under Section 309. He also held that the conditions imposed by the Central Government in exhibit "L" were arbitrary and unauthorized.

Gopivallabha Iyengar, J.:

Gopivallabha Iyengar, J. disagreed with Sadasivayya, J. on the applicability of Section 309 to the remuneration for services rendered by V.S. Kudva as a technical adviser. He held that the remuneration paid to a director in any capacity came within the scope of Section 309 and required Central Government approval. He also found that the conditions imposed by the Central Government in exhibit "L" were unjustifiable and not in conformity with the principles of natural justice.

Order of the Court:

The court quashed the conditions imposed in the second paragraph of exhibit "L" and directed the Central Government to reconsider the conditions, if necessary, for the remuneration proposed in the second resolution. The court allowed the company to pay V.S. Kudva Rs. 12,000 per annum as an interim arrangement until further orders from the Central Government. No writ or direction was issued regarding the first resolution due to the differences of opinion among the judges. There was no order as to costs.