9911796707
TMI Blog1994 (2) TMI 227X X X X Extracts X X X X X X X X Extracts X X X X ..... e officer authorised by the Central Government inspected the affairs of the company from September 5, 1990, to September 18, 1990. During the course of inspection, it was found that clause 92 of the articles of association of the company empowered it to pay remuneration to non-wholetime directors. The company had passed a special resolution in the meeting of the shareholders held on December 30, 1986, authorising payment of commission to non-wholetime directors at the rate of one per cent, of the net profits, subject to the maximum of Rs. 1,50,000 in any year and holding that such authorisation was not given effect during the years ending with August 31, 1987, to August 31, 1989. During the year ending with March 31, 1990, the company had earned sufficient net profits and made a provision for payment of commission to the tune of Rs. 1,50,000 to non-wholetime directors, which was later paid on August 23, 1990. The payment of the said commission over and above the sitting fees to non-wholetime directors is an increase in the remuneration within the meaning of section 310 of the Act. The approval of the Central Government ought to have been obtained under section 310 of the Act. No su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 310 of the Act. However, it was found during the course of inspection such approval has not been obtained and accordingly the accused herein have contravened the provisions of section 310 of the Act which is punishable under section 629A of the Act." The positive case set out in the complaint is that the approval of the Central Government ought to have been obtained under section 310 of the Act and in this case since such approval had not been obtained, there was a contravention of section 310 of the Act, and thus an offence was committed. To consider whether the stand taken in the complaint is correct or not section 310 of the Act needs extraction and it reads as follows : " Provision for increase in remuneration to require Government sanction. In the case of a public company, or a private company which is a subsidiary of a public company, any provision relating to the remuneration of any director including a managing or wholetime director, or any amendment thereof, which purports to increase, or has the effect of increasing, whether directly or indirectly, the amount thereof, whether that provision be contained in the company's memorandum or articles, or in any agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rely declaratory that such a resolution would not have any effect, unless it is approved by the Central Government. Mr. Ramasubramanian, learned senior counsel for the petitioners, would rely upon the case in Raghunath Swarup Mathur v. Raghuraj Bahadur Mathur [1967] 37 Comp Cas 304 ; AIR 1967 All 145, in which a Division Bench of the Allahabad High Court had occasion to consider section 263 of the Act. The material portion of section 263 of the Act is in the following terms : "263. (1) At a general meeting of a public company or of a private company which is a subsidiary of a public company, a motion shall not be made for the appointment of two or more persons as directors of the company by a single resolution unless a resolution that it shall be so made has first been agreed to by the meeting without any vote being given against it. (2) A resolution in contravention of sub-section (1) shall be void whether or not objection was taken at the time to its being so moved". The appellants before the Allahabad High Court were convicted of an offence under section 263 read with section 629A of the Act. While construing section 263, the learned judges had held as follows (at pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to function as wholetime director on such reappointment, by the company, they violated the implied prohibition and thereby contravened section 269(2) for which they are liable for prosecution under section 629A of the Act, argued Mr. Ghosh. Mr. Dhar, the learned advocate appearing for the opposite parties, on the other hand, contends that section 269(2) is declaratory in nature and does not contain any prohibition against acting under such reappointment. Mr. Dhar further argues that there can be a contravention only when there is a direction or prohibition and since there is no such direction or prohibition in section 269(2), there cannot be any contravention of the said provision so as to make any person liable under section 629A of the Act. In support of his contention, Mr. Dhar relies upon a Division Bench judgment of the Allahabad High Court, in the case of Raghunath Swarup Mathur v. Har Swamp Mathur [1968] Crl. LJ 670 ; [1967] 37 Comp Cas 802 (All) and a judgment of the Queens' Bench in the case of Sales-Matic Ltd. v. Hinchcliffe [1959] 1 WLR 1005. There cannot be any manner of doubt that before a person can be said to have contravened any provision of the Act there m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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