1976 (12) TMI 115 - SC - Companies Law

Whether the administrative ceiling imposed by the Board on September 28, 1967, on the remuneration payable to the managing directors by the company is ultra vires or illegal ? Whether the refusal by the Board to enhance the remuneration of the managing directors above the ceiling of Rs. 50,000 for the loss year was bad because the company was not granted adequate hearing and because the order of refusal did not state the reasons there for ? Held that - Appeal allowed.The High Court was in error in quashing the order of the Board. 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 there from that the maximum remuneration which has been allowed by the Board to the managing director of any company is Rs. 1,20,000.

Issues Involved:
1. Whether the administrative ceiling imposed by the Board on September 28, 1967, on the remuneration payable to the managing directors by the company is ultra vires or illegal.
2. Whether the refusal by the Board to enhance the remuneration of the managing directors above the ceiling of Rs. 50,000 for the loss year was bad because the company was not granted adequate hearing and because the order of refusal did not state the reasons therefor.

Issue-Wise Detailed Analysis:

Issue 1: Administrative Ceiling on Remuneration
The primary issue was whether the administrative ceiling of Rs. 1,20,000 per annum imposed by the Company Law Board on the remuneration payable to the managing directors was ultra vires or illegal. The respondent-company, Upper Doab Sugar Mills Ltd., challenged this ceiling, arguing that it was arbitrary and contrary to the provisions of Sections 198 and 309 of the Companies Act, 1956.

The High Court initially held that the action of the Board in reducing the remuneration was arbitrary and void. It observed that any condition regarding remuneration contrary to Sections 198 and 309 would not be germane to Section 269, as the legislature had exhaustively dealt with remuneration in Sections 198 and 309. The High Court concluded that the general administrative policy of the Government, which placed a ceiling below the legislative ceilings fixed by Sections 198 and 309, was illegal.

However, the Supreme Court found this reasoning to be flawed. It clarified that Section 198 deals with the overall maximum managerial remuneration, which cannot exceed 11% of the net profits of the company for a financial year. Section 309 pertains to the remuneration of managing or whole-time directors who have already been appointed. The Supreme Court emphasized that the present case involved the appointment of managing directors for the first time after the coming into force of the Act, which required approval under Section 269.

The Supreme Court held that the Company Law Board acted within its powers under Sections 269 and 637A of the Act by imposing the condition on remuneration. Section 637A allows the Central Government to accord approval subject to conditions, limitations, or restrictions it deems fit. Thus, the ceiling of Rs. 1,20,000 per annum was valid and within the Board's authority.

Issue 2: Refusal to Enhance Remuneration
The second issue was whether the refusal by the Board to enhance the remuneration above the ceiling of Rs. 50,000 for the loss year was bad due to inadequate hearing and lack of stated reasons. The High Court had answered this question against the respondent-company, and this issue no longer survived in the appeals.

The Supreme Court did not delve into this issue in detail, as it had already been resolved by the High Court and was not a subject of the current appeals.

Conclusion
The Supreme Court concluded that the High Court erred in quashing the order of the Company Law Board. It set aside the judgment of the High Court and dismissed the writ petitions, upholding the administrative ceiling of Rs. 1,20,000 per annum on the remuneration of the managing directors. The decision reaffirmed the Board's authority to impose such conditions under Sections 269 and 637A of the Companies Act, 1956.

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