1967 (10) TMI 46 - HC - Companies Law

Directors' Remuneration Claims Dismissed Under Companies Acts 1913 and 1956

Radhey Shyam Versus Official Liquidator

Radhey Shyam Versus Official Liquidator - [1969] 39 COMP. CAS. 340 (RAJ.) Issues Involved:1. Validity of the directors' remuneration claims under the Companies Act of 1913.2. Validity of the directors' remuneration claims under the Companies Act of 1956.3. Applicability of regulations in Table 'A' of the First Schedule to the Companies Act of 1913 after the commencement of the Companies Act of 1956.4. Nature of the claims (whether they are remuneration or daily expenses).Detailed Analysis:1. Validity of the directors' remuneration claims under the Companies Act of 1913:The company was registered under the Indian Companies Act of 1913, and its articles of association adopted the regulations in Table 'A' of the First Schedule to the Act of 1913. Regulation 8 of the articles of association stated that the management of the company would be entirely in the hands of its directors. However, Regulation 69 of Table 'A' required that the remuneration of the directors be determined by the company in a general meeting. Since no resolution was passed by the company in a general meeting to provide for the payment of remuneration to the directors, the claims made by the directors for remuneration were not valid under the Act of 1913. The official liquidator's rejection of the claims was justified as there was no valid determination of remuneration under the resolution of the directors dated June 22, 1952.2. Validity of the directors' remuneration claims under the Companies Act of 1956:The Companies Act of 1956 came into force on April 1, 1956. Section 309(9) of the Act of 1956 does not apply to a private company that is not a subsidiary of a public company, meaning there were no statutory restrictions on the remuneration of directors in such companies. However, the absence of statutory restrictions does not entitle directors to remuneration without a provision in the articles of association. The company was still governed by Regulation 71 of Table 'A' of the First Schedule to the Act of 1913, which required that the remuneration of directors be determined by the company in a general meeting. Since the resolutions dated May 20, 1957, and September 12, 1958, were not sanctioned at a general meeting, they were insufficient to sustain the claims of the appellants.3. Applicability of regulations in Table 'A' of the First Schedule to the Companies Act of 1913 after the commencement of the Companies Act of 1956:Section 657(c) of the Act of 1956 states that nothing in the Act shall affect Table 'A' in the First Schedule to the Indian Companies Act, 1913, as it applies to any company existing at the commencement of the Act of 1956. Therefore, the requirements of Regulation 71 and Regulation 69 of Table 'A' of the First Schedule to the Act of 1913 continued to apply to the company even after the commencement of the Act of 1956. The argument that the provisions of the Act of 1956 should override the regulations in Table 'A' of the Act of 1913 was not upheld.4. Nature of the claims (whether they are remuneration or daily expenses):The claims preferred by the appellants were styled as 'salary' in their submissions to the official liquidator. The word 'salary' was used in respect of the resolution dated June 22, 1952, and the resolution of May 20, 1957. The word 'remuneration' was also used in the subsequent resolution dated September 12, 1958. The argument that the claims were not on account of remuneration or salary but related to the recovery of daily expenses was considered an after-thought and was not accepted. The claims were indeed for remuneration, and since there was no approval from the general meeting, the claims were invalid.Conclusion:The three appeals were dismissed with costs, as the claims for remuneration made by the directors were not valid under both the Companies Act of 1913 and the Companies Act of 1956. The requirement for the approval of the general meeting continued to apply, and the claims were styled as 'salary,' making them subject to the same requirements.