Commission for share subscription: statutory ceiling under the Companies Act was held to bar profit-based payment too.

Section 76 of the Companies Act, 1956 was treated by the majority as imposing an absolute ceiling on commission payable for subscribing for shares or debentures, and not as a restriction limited to commission paid out of capital. Read as an integrated provision, section 76(1) and section 76(2) were held to prevent payment through direct or indirect devices, including arrangements routed through profits. A pre-existing agreement could not survive where it conflicted with the Act, because sections 9 and 645 displace inconsistent agreements and articles. On that basis, an agreement for commission expressed as payable out of profits was held unenforceable. The dissent considered section 76(1) only an enabling provision confined to capital-based commission.

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Issues: Whether section 76 of the Companies Act, 1956 prohibits payment of commission for subscribing for shares out of the profits of a company, and whether the pre-existing agreement for such commission remained enforceable after the Act came into force.

Analysis: The majority held that section 76(1) imposes an absolute ceiling on commission payable for subscribing for shares or debentures and does not confine the prohibition to commission paid only out of capital. Section 76(2), read with section 76(1), was treated as part of one integrated provision intended to prevent payment of commission by direct or indirect devices, including payments routed through capital moneys or other forms. The inclusion of debentures, the scheme of the section, and the need to give effect to the ceiling on commission all supported the conclusion that the statutory restriction was not limited to capital payments. The contention that the agreement pre-dated the Act was rejected because section 9 and section 645 prevented inconsistent agreements and articles from prevailing over the Act.

Conclusion: The agreement for commission, though expressed as payable out of profits, was held to be hit by section 76 and unenforceable.

Dissenting Opinion: Sarkar J. held that section 76(1) was only an enabling provision concerned with commission out of capital, and that commission payable out of profits remained outside its scope. On that view, the agreement would have remained valid.

Ratio Decidendi: Where a statute prescribes a ceiling on commission payable for subscribing to shares or debentures, the restriction applies according to the statutory language and scheme, and cannot be confined to capital-based payments merely because the commission is described as payable out of profits.

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