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Radhey Shyam and anr. Vs. Official Liquidator - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtRajasthan High Court
Decided On
Case NumberCompany Appeal Nos. 6, 7 and 8 of 1966
Judge
Reported inAIR1968Raj220
ActsCompanies Act, 1913 - Sections 17(2); Companies Regulations - Regulations 8, 69 and 71; Companies (Amendment) Act, 1956 - Sections 9, 291, 309(9) and 357
AppellantRadhey Shyam and anr.
RespondentOfficial Liquidator
Appellant Advocate L.R. Bhansali, Adv.
Respondent Advocate S.K.M. Lodha, Adv.
DispositionAppeal dismissed
Excerpt:
.....that the remuneration of the directors of a private company like the present shall be decided by the directors themselves or that it need not be determined in a general meeting of the company......there was no sanction for the payment of any remuneration by any resolution of the company in its general meeting. in this view of the matter, he rejected the claims of the three appellants by his three separate decisions referred to above and this has given rise to the present three appeals. 5. it has been argued by mr. bhansali, learned counsel for the appellants, that regulation 8 of the articles of association of the company, referred to above, authorised the directors to determine their remuneration or allowances and that after the coming into force of the indian companies act of 1956 (hereinafter referred to as the act of 1956) on april 1, 1956, there was no restriction at all on the remuneration of the directors of a private company which was not a subsidiary of a public company.....
Judgment:

P.N. Shinghal, J.

1. These three appeals arise from three different decisions of the Official Liquidator dated September 3, 1966 in respect of the proof of the claims preferred by the appellants before him during the course of the winding up of the Bharatpur Oil Mills (Private) Limited. As common question of fact and law arise in all these three appeals, they have been heard together at the instance of the learned counsel for the parties and will be disposed of by this common judgment.

2. The three appellants Radhey Shyam, Raghunath Prasad and Ramesh Chandra were three out of the four directors of the Company which, it is admitted, was registered under the Indian Companies Act of 1913 (hereinafter referred to as the Act of 1913) as a private limited company. It is admitted that the Company was not a subsidiary of a public company. The Company adopted the regulations contained in Table A of the First Schedule to the Act of 1913 subject to certain regulations which were specified in the articles of association. Regulation No. 8 is important and it runs as follows:--

'8. The management of the Company shall be entirely in the hands of its Directors who may pay all such expenses of and preliminary and incidental to the promotion, formation, establishment and registration of the Company as they think fit and shall discharge all their responsibilities and exercise all their powers and privileges through their representatives appointed amongst themselves or from outside upon such terms and conditions, subject to such powers and privileges and for such period as they may determine. The business of the concern shall be managed by the Board of directors in majority '

3. Three resolutions were passed by the Company in respect of the remuneration or maintenance of its directors. The first of these was the resolution dated June 22, 1952 by which the directors took the decision that each director shall receive Rs. 250/- a month plus 2 1/2 per cent out of the net profits as his remuneration' for managing the Company and that, apart from this, the 'maintenance charges of the directors residing at the Mills' shall be borne by the Company and that each direct for shall receive Rs. 10/- per attendance' in the board of directors' meeting. This was followed by a resolution of the Board of directors dated May 20, 1957 to the effect that for the purpose of giving a better form to the business of the Company, it was necessary that the four directors should devote more time to its affair' and that the directors who worked in the Mill would receive a sum of Rs. 400 per mensem for their daily expenses from the Mill. The third relevant resolution is dated September 12, 1958 and it provided that the directors were unanimously of the opinion that the amount of ''remuneration which had already been determined for them should be kept as it was, but that only those directors would be entitled to receive the remuneration' who worked for the mill by living in the premises, or from outside.

4. It appears that the directors did not draw any remuneration or allowance. The Company unfortunately went into liquidation by an order of this Court dated October 4, 1960 and the Official Liquidator was appointed to take it over. It was then that the present appellants preferred their claims for what was styled by them as salary.' Each of them claimed a sum of Rs. 14,750/-for the period June 22, 1952 to May 19, 1957 at the rate of Rs. 250 per mensem, and a sum of Rs. 16,000/- for the period after May 20, 1957 at the rate of Rs. 400 per mensem, making a total of Rs. 30,750/-, The Official Liquidator examined the proof and reached the conclusion that the claims were wholly inadmissible because there was no provision in the articles of association of the Company for the payment of remuneration to the directors and there was no sanction for the payment of any remuneration by any resolution of the Company in its general meeting. In this view of the matter, he rejected the claims of the three appellants by his three separate decisions referred to above and this has given rise to the present three appeals.

5. It has been argued by Mr. Bhansali, learned Counsel for the appellants, that Regulation 8 of the Articles of Association of the Company, referred to above, authorised the directors to determine their remuneration or allowances and that after the coming into force of the Indian Companies Act of 1956 (hereinafter referred to as the Act of 1956) on April 1, 1956, there was no restriction at all on the remuneration of the directors of a private company which was not a subsidiary of a public company because of the provision contained in Sub-section (9) of Section 309 of that Act. It has, therefore, been argued that the Official Liquidator erred in rejecting the claims of the appellants

6. As the Act of 1913 was in force when the Company was registered and for quite some time thereafter, and the Act of 1956 came into force while the Company was still in existence. I shall examine the merits of these appeals separately under each of those Acts.

7. I shall first deal with the claims under the Act of 1913 for it was under that Act that the Company was registered in 1952. As has been mentioned, the articles of association of the Company provided that 'subject as hereinafter provided the regulations contained in Table 'A' of the First Schedule to the Indian Companies Act shall apply to the Company.' The Company therefore specifically adopted 'Table 'A' of the First Schedule to the Act of 1913 and incorporated, among others Regulation 8 in its articles which has been reproduced above. The other regulations in the articles of association did not contain any provision regarding the mode of determination of the remuneration or allowances of the directors. However, by virtue of Section 17(2) of the Act of 1913, the articles of association of the Company were deemed to contain, inter alia, regulations identical with Regulation 71 contained in Table 'A' of the First Schedule. That regulation provided that the business of the Company shall be managed by the directors who may exercise all such powers of the Company as were not 'by the Indian Companies Act, 1913, or any statutory modification thereof for the time being in force, or by these articles, required to be exercised by the company in general meeting 'subject nevertheless to any regulation of the articles contained in Table 'A' and the provisions of the Act etc. It is therefore obvious that by virtue of the law which governed the Company at the time of its registration, the directors were to exercise all such powers as did not, inter alia require the sanction of the general meeting of the Company under any other regulations contained in Table 'A' of the First Schedule. Regulation 69 of Table 'A' providing that the remuneration of the directors shall 'from time to time be determined by the Company in general meeting' became therefore, applicable to the Company. It is admitted that no resolution was at all passed by the Company in general meeting providing for the payment of remuneration to the directors, and it cannot therefore be said that there was a valid determination of the remuneration under the resolution of the directors, dated June 22, 1952. As such, the rejection of the claims by the Official Liquidator cannot he said to be unjustified.

8. The Act of 1956 came into force on April 1, 1956 and the question is whether the other resolutions of the directors dated May 20, 1957 and Smptember 12, 1958 were in order?

9. It is admitted that the Act of 1956 does not place any restriction regarding the mode of determination of the remuneration of the directors in the case of a private company which is not a subsidiary of a public company Section 309 which deals with the remuneration of the directors does not by virtue of its Sub-section (9) apply to a private company like the present Nonetheless, it is well settled that, prima facie the directors, of a company cannot claim any remuneration and so the mere absence of any statutory restriction in the case of a private company cannot mean that its directors are in all circumstances, entitled to remuneration merely because of the coming into force of the Act of 1956. It is necessary that there should be a provision in the Articles of Association of a Company for payment of remuneration to its directors before a claim therefor can be entertained. So it has to be examined whether it can be said that there was any such provision in the articles of association of the Company after the commencement of the Act of 1956. Mr. Bhansali has argued that in the absence of any restriction in the Act of 1956, Regulation 8 of the Articles of Association should be given full effect, without the requirement that the remuneration should be determined in a general meeting of the Company. This argument cannot be accepted as correct because, as has been mentioned above, the Company having been registered before the commencement of the Act of 1956, it was governed by Regulation 71 of Table 'A' of the First Schedule to the Act of 1913 which, in its turn, brought into application the requirement of Regulation 69 that the remuneration of the directors shall be determined by the Company in general meeting. When these restrictions are deemed to be contained in the articles of the Company in addition to Regulation 8, it is futile to contend that effect should be given to Regulation 8 even though there was no resolution at a general meeting of the Company for the determination of the remuneration suggested or fixed by the resolutions of the directors dated May 20, 1957 or September 12, 1958. It is admitted that these resolutions were not sanctioned or approved at the general meeting of the Company, and they cannot be held to be sufficient for the purpose of sustaining the claims of the appellants.

10. It has been argued by Mr. Bhansali that by virtue of Section 9 of the Act of 1956 any provision in the Articles of the Company contrary to that contained in the Act would be rendered nugatory and that the provisions of the Act shall have overriding effect. It has, therefore, been submitted that Regulations 71 and 69 of Table 'A' of the Act of 1913 will not apply because the Act of 1956 does not contain any such restrictions so far as the remuneration of the directors of a private company is concerned. The argument cannot however be upheld because the Act of 1956 does not provide that the remuneration of the directors of a private company like the present shall be decided by the directors themselves or that it need not be determined in a general meeting of the company. There is therefore nothing which can be said to be overridden by virtue of Section 9. On the other hand, there is Section 657(c) of the Act of 1956 which lays down that nothing in that Act shall affect:--

'(c) Table A in the First Schedule to the Indian Companies Act, 1913 (7 of 1913) either as originally contained in that Schedule or as altered in pursuance of Section 151 of that Act so far as the same applies to any company existing at the commencement of this Act .'

So when the requirement of Regulation171 and, thereby, of Regulation 69, of Table'A' of the First Schedule to the Act of 1913,continues to apply and govern the articlesof association of the Company even afterthe commencement of the Act of 1956, these restrictions shall continue to operate by virtue of a specific provision contained in the Act of 1956.

11. An argument has also been advanced with reference to Sections 291 and 309(9) of the Act of 1956 that when these Sections deal with the general powers of the board of directors and the remuneration payable to them, and do not place any restriction of the nature contemplated by Regulations 69 and 71 of Table 'A' of the Act of 1913 in the case of private companies, it would be anomalous if those restrictions are al--lowed to continue after April 1, 1956 when the new Act came into force, It has been urged that any other interpretation would defeat the purpose of the new scheme brought in force by the Act of 1956 and that it would deny a benefit to an old company which is available to any new company registered after April 1, 1956.

12. This argument also does not bear scrutiny. As I have pointed out all that Sub-section (9) of Section 309 provides is that the restrictions imposed by the section regarding the remuneration of directors shall not apply to a private company unless it is a subsidiary of a public company. But that is far from saying that a 'post 1956' private company cannot make a regulation in its Articles of Association, while providing for the remuneration of its directors the approval of the general meeting of the company. In fact even the first proviso to Section 291 lavs down that the board of directors shall not exercise any power or do any act or thing which is directed or required, whether by the Act of 1956 or any other Act or by the memorandum or articles of the company or otherwise, to be exercised or done by the company in general meeting. On closer examination of the argument of the learned counsel, therefore, it appears that there is really no anomaly of the nature suggested by him in taking the view that the restriction regarding the approval of the general meeting continued to apply in the case of the remuneration of the directors even after the Act of 1956 came into force.

13. This does not however conclude the controversy, for two more submissions have been made by Mr. Bhansali. The learned counsel has argued that the claims preferred by the appellants before the Official Liquidator were not in the nature of remuneration and that the claim for the allowance of Rs. 400 was merely on account of the daily expenses of the directors and it did not therefore require the approval of the general meeting. The argument cannot be accepted as correct for the simple reason that a perusal of the claims shows that the appellants themselves styled the claims as those on account of 'salary' The word 'salary' has been used in the claims both in respect of the resolution dated June 22, 1952 and the resolution of May 20, 1957, at a number of places. Moreover, the word 'remuneration' has also been used in the subsequent resolution dated September 12, 1958 and it is quite clear that the argument that the claim was not on account of any remuneration or salary but related to the recovery of daily expenses, is an afterthought' and it did not deserve to be accepted in the facts and circumstances of the case.

14. The remaining argument is that Regulation 69(1) of the Articles of Association of the Company also authorised the directors to pass the resolutions dated June 22, 1952, May 20, 1967 and September 12, 1958 authorising the payment of the remuneration or allowances to them. I have gone through the regulation and I have no doubt that it has no such effect, for it refers to the other matters mentioned in it.

15. For the reasons mentioned above, I see no force in the three appeals and they are dismissed with costs.


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