1956 (10) TMI 22 - HC - Companies Law

Court clarifies remuneration for director as technical adviser not under Companies Act, 1956 Section 309.

Ramaben A. Thanawala Versus Jyoti Ltd.

The court ruled that the remuneration paid to a director as a technical adviser does not fall under Section 309 of the Companies Act, 1956. Section 309 ... Overall maximum managerial remuneration, Remuneration of directors and Remuneration to managing agent Issues Involved:1. Applicability of Section 309 of the Companies Act, 1956, to remuneration paid to a director in capacities other than as a director.2. Applicability of Section 309 for the calendar year 1956.3. Applicability of Section 309 for the period from January 1, 1956, to March 31, 1956.4. Applicability of Sections 348, 349, and 350 to the remuneration of managing agents for the year 1956.5. Applicability of Sections 348, 349, and 350 for the period from January 1, 1956, to March 31, 1956.6. Inclusion of the monthly salary paid to a director as a technical employee in the overall managerial remuneration limit of 11% of net profits as per Section 198(1).7. Applicability of the overall managerial remuneration limit for the year 1956 or any part thereof.8. Inclusion of remuneration paid to a technical adviser in the 10% limit laid down in Section 348.Issue-wise Detailed Analysis:1. Applicability of Section 309 of the Companies Act, 1956, to remuneration paid to a director in capacities other than as a director:The court examined whether the remuneration paid to a director in capacities other than as a director, such as a technical adviser, falls under Section 309. The judgment clarified that Section 309(3) refers to remuneration paid to a director in his capacity as a director managing the affairs of the company. The court observed that the language of Section 309(3) does not extend to remuneration paid to a director in any other capacity. Therefore, the Rs. 3,000 paid to the third defendant as a technical adviser does not fall under the purview of Section 309.2. Applicability of Section 309 for the calendar year 1956:The court stated that Section 309(1) refers to Section 198, and both sections are overriding sections concerning the remuneration to be paid to a director. Since the financial year of the company is the calendar year, Section 309 would apply to the company from January 1, 1957, as the new Act came into force in April 1956. Hence, Section 309 does not apply to the remuneration for the calendar year 1956.3. Applicability of Section 309 for the period from January 1, 1956, to March 31, 1956:Given that Section 309 would apply to the company from January 1, 1957, the court concluded that Section 309 does not apply to the remuneration for the period from January 1, 1956, to March 31, 1956.4. Applicability of Sections 348, 349, and 350 to the remuneration of managing agents for the year 1956:The court examined Section 348, which deals with the remuneration of managing agents, stating that the managing agent cannot receive remuneration exceeding 10% of the net profits of the company for the financial year. The court highlighted that Section 348 applies to the company from January 1, 1957. Therefore, Sections 348, 349, and 350 do not apply to the remuneration of managing agents for the year 1956.5. Applicability of Sections 348, 349, and 350 for the period from January 1, 1956, to March 31, 1956:As Sections 348, 349, and 350 would apply to the company from January 1, 1957, the court concluded that these sections do not apply to the remuneration for the period from January 1, 1956, to March 31, 1956.6. Inclusion of the monthly salary paid to a director as a technical employee in the overall managerial remuneration limit of 11% of net profits as per Section 198(1):The court considered whether the Rs. 3,000 paid to the third defendant as a technical adviser should be included in the 11% limit of net profits for managerial remuneration under Section 198. The court noted that Section 198 deals with managerial remuneration and aims to control the cost of management. It concluded that the Rs. 3,000 paid to the third defendant as a technical adviser should not be included in the 11% limit under Section 198.7. Applicability of the overall managerial remuneration limit for the year 1956 or any part thereof:The court clarified that Section 198 would come into operation for the company from January 1, 1957. Therefore, the overall managerial remuneration limit does not apply to the year 1956 or any part thereof.8. Inclusion of remuneration paid to a technical adviser in the 10% limit laid down in Section 348:The court emphasized that Section 348 clearly states that the managing agent cannot receive more than 10% of net profits, whether in the capacity of managing agent or any other capacity. Therefore, the Rs. 3,000 paid to the third defendant as a technical adviser must be included in the 10% limit laid down in Section 348. This provision would apply to the company from January 1, 1957.Conclusion:The court answered the questions 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 to in section 198(1) of the said Act.' The further question 'whether in any event the said overall limit applies for the year 1956 or any part thereof and if so whichRs.'-does not apply to the year 1956.7. In the negative.8. The remuneration of Rs. 3,000 paid to the third defendant as a technical adviser is to be included in the limit of 10% laid down in Section 348, effective from January 1, 1957.No order as to costs.