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TMI Blog1956 (10) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... es which were noticed in the working of companies and especially in the institution of the managing agency which is peculiar to our country, should not have been couched in clear and more precise language. That, however, is a matter for Parliament. Our concern is to take the law as we find it and do the best that we can. The plaintiff in this case is a shareholder of defendant No. 1 company and defendants No. 2 are the managing agents. They were appointed managing agents by an agreement dated April 10, 1951. Defendant No. 3 is a partner of defendant No. 2 firm, the other partner being one Dinubhai Amin. Defendant No. 3 is also a director of defendant No. 1 company and he was also appointed a technical adviser, he being qualified as an electrical and mechanical engineer, on a salary of Rs. 3,000 on January 1, 1944. His appointment as director came subsequently, he being appointed in April, 1944, and the questions which call for a construction at our hands relate to the remuneration to be paid to the managing agents and the remuneration also to be paid to defendant No. 3. Under the agreement the managing agents were to receive 10 per cent. of the annual net profits and under certai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred to in sub-section (2) is clearly the remuneration paid to the director in his capacity as a director and in no other capacity. Further, sub-section (3) speaks of a director in the whole-time employment of the company, and that expression is put in juxtaposition to the alternative case of a managing director. If the remuneration was with reference to the managing director, then it is clear that the remuneration of a managing director is with reference to the work done by the director as a director for the purpose of managing the company. The expression "whole-time director" also occurs in section 310 and section 311. Under section 310 in order to increase the remuneration the sanction of the Government is required, and section 311 also deals with increase in remuneration of a managing director or a whole-time director appointed after the Act and such increase requires the sanction of Government, In the context it seems to us that the expression "whole-time director" must refer to a director who spends his whole time in the management of the company in the same sense as a managing director does. It will also be noticed that if it was intended by the Legislature that the remuner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al remuneration, and sub-section (1) provides: "(1) Save as otherwise expressly provided in this Act, in the case of a public company or a private company which is a subsidiary of a public company, the total remuneration payable by the company to its director, its managing agent or secretaries and treasurers, if any, its manager, if any, shall not exceed eleven per cent. of the net profits of the company, computed in the manner laid down in sections 349, 350 and 351, except that the remuneration of the directors shall not be deducted from the gross profits." The question that is raised is whether the amount of Rs. 3,000 paid to defendant No. 3 as a technical adviser and not as a director is included in the limit of 11 per cent. fixed by section 198. One possible view of section 198 is that we must calculate the total amount which the company pays to its directors, managing agent or secretaries and treasurers and the manager and such total amount must not exceed 11 per cent. of the net profits of the company, and it may be suggested that what the Legislature intended was that there should be some limit put upon the company paying out sums to the various authorities mentioned in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 from April 1, 1956, and therefore, it is said that this section would apply to this company with regard to the net profits made by it and the amount expended by it for management for the financial year 1956. Now, that contention cannot be accepted because section 198 provides that the net profits have to be computed in the manner laid down in sections 349, 350 and 351, and when we turn to section 349, the net profits of the company have to be computed in any financial year. It is a truism well known to taxing law that net profits of a business cannot be ascertained till the end of the year of account or a financial year of the business, and therefore, in the case of defendant No. 1 company the net profits could not be ascertained till December 31, 1956. But in ascertaining those profits the period from January 1, 1956, to March 31, 1956, would have to be taken into consideration because what has to be ascertained is the net profits of the whole financial year, and if that were done, then a period antecedent to the coming into force of the Act would have to be taken into consideration. That, as was rightly pointed out, would be giving to the section a retrospective effect and that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extra amounts to each one of the partners of the managing agents if the managing agency happened to be a firm. That would put a firm in an infinitely more advantageous position than an individual. If the managing agent was an individual, he would have to content himself with the remuneration fixed under section 348, but if he showed the wisdom and the foresight of having a partner and starting a partnership firm, then he and his partner individually could get out of the limitation placed in section 348 and each separately and individually could receive from the company any amount without any limit whatsoever. It is said by Mr. Desai that although in the managing agency commission which defendant No. 2 firm receives defendant No. 3 has a share and interest, the firm has no share or interest in the sum of Rs. 3,000 paid to defendant No. 3 as a director. In our opinion, that is not the correct way to look at the matter. The correct way is that defendant No. 3 not only receives a share in the managing agency commission as a partner in defendant No. 2 firm, but over and above the commission he receives a sum of Rs. 3,000, and the law says that he cannot receive in any capacity a sum ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... every managing agent holding office at the commencement of this Act, with effect from such commencement." Mr. Rege says that there seems to be a clear inconsistency between sections 331 and 348 as to when the provisions of section 348 should come into operation. Section 331 applies the various provisions of the Act with effect from the commencement of the Act, but we have to turn to the provisions themselves to find out what they are, and although section 348 may apply to the managing agent from the commencement of the Act, the provisions of the section make it clear in respect of what remuneration and from when the limitation is to apply. It may be that the Legislature overlooked section 331 when it enacted section 348 or it overlooked the fact when it enacted section 331 that it was going to enact section 348. But the language of section 348 is clear and that language cannot be controlled by the language of section 331. Therefore we answer the question* as follows (1)In the negative. (2)Does not arise. (3)Does not arise. (4)In the negative, after deleting sections 349 and 350. (5)Unnecessary. (6)In the negative. The question to stop at the words " . referred t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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