Interest on advances/guarantee commission paid to directors ‑ Whether the same are to be included in remuneration of directors for purposes of the section - Companies Law - Letter : No. 8/26(309)/76‑CL‑V,

Letter : No. 8/26(309)/76 ‑ CL ‑ V, dated 9 ‑ 1-1978. Subject:- Managerial remuneration - Basis for determination of director s remuneration ‑ Interest on advances/guarantee commission paid to directors ‑ Whether the same are to be included in remuneration of directors for purposes of the section Query : Section 309 provides, inter alia, that the remuneration payable to the directors of a company as determined by sub‑section (1) of section 309 shall be inclusive of the remuneration payable to such director for services rendered by him in any other capacity. Directors in their day‑to-day business normally render advances of a temporary nature to the company. Would interest that accrues on such advances when paid to the directors be included in the expression remuneration for purposes of section 309 ? In other words, the question is whether the services rendered by a director in any other capacity include financial services as well. Again, payment of guarantee commission to a director on the guarantee furnished by him to the banks for credit facilities granted by the bank to the company every year would appear to fall within the purview of section 309 read with section 310. This needs to be clarified in view of the fact that financial services of this nature may not be rendered by directors in any other capacity. Answer : Payment of guarantee commission to a director of the company is a remuneration received by him for doing some service to the company, viz., undertaking liability in respect of the guarantee of the loan taken by the company. Such a remuneration would, therefore, fall within the purview of section 309. The payment of interest to directors for advancing loans to the companies, on the other hand, is a return for investment which they could have even otherwise earned by investing their money either in a bank or at any other place. Such an amount, therefore, cannot be termed as remuneration within the meaning of section 309.