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R. Ganesa Aiyar Vs. the Lakshmi Co-operative Building Society by Secretary R.S. Ramachandra Aiyar - Court Judgment

LegalCrystal Citation
SubjectService;Trusts and Societies
CourtChennai
Decided On
Reported in(1937)1MLJ511
AppellantR. Ganesa Aiyar
RespondentThe Lakshmi Co-operative Building Society by Secretary R.S. Ramachandra Aiyar
Cases ReferredMoriarty v. Regent
Excerpt:
- - from the mere use of the word 'honorarium' it is unsafe to designate it as a gratuitous payment. 150. the by-law distinctly provides that the profits shall be distributed in accordance with that rule. in fact the board of directors recommended in their report that the petitioner would be entitled to rs......of the year 1929-1930. the learned subordinate judge negatived his claim on the ground that the general body has refused sanction for the payment claimed by him and has therefore no right to sue therefor. it is contended before me that this view is wrong. to appreciate the contention, reference to a few bylaws of the society is necessary. under by-law 17 the executive management of the affairs of the society shall vest in a board of directors which shall consist of not more than five members under by-law 18 the members of the board of directors shall be elected by the general body for a period of two years from among the members of the society. after the board of directors is elected they shall elect from among themselves a president and a secretary and treasurer. under by-law 28 the.....
Judgment:

Venkataramana Rao, J.

1. The question in this case is whether the petitioner is entitled to recover a sum of Rs. 242-4-0 as and for remuneration for the services rendered by him as Secretary of the defendant, The Lakshmi Co-operative Building Society, Limited, for the year 1928-1929 and a portion of the year 1929-1930. The learned Subordinate Judge negatived his claim on the ground that the general body has refused sanction for the payment claimed by him and has therefore no right to sue therefor. It is contended before me that this view is wrong. To appreciate the contention, reference to a few bylaws of the Society is necessary. Under by-law 17 the executive management of the affairs of the Society shall vest in a Board of Directors which shall consist of not more than five members Under by-law 18 the members of the Board of Directors shall be elected by the general body for a period of two years from among the members of the Society. After the Board of Directors is elected they shall elect from among themselves a president and a secretary and treasurer. Under by-law 28 the services of the members of the Board of Directors shall be gratuitous. Under by-law 29 the ultimate authority in all matters relating to the administration of the Society shall be the general body of the members who shall meet from time to time and among other matters which may be dealt with by the general body is the amendment or repeal of any existing by-law or the enactment of a new by-law. By-law 60 provides for the distribution of profits thus : the net profits of the society as declared by the Registrar year after year shall be divided as follows: (1) one-fourth to the reserve fund; (2) one-fourth to be paid as honorarium to the secretary and treasurer not exceeding Rs. 150; (3) the remainder subject to a maximum of 9 per cent, per annum on the paid-up share capital may be declared as dividend. The dividend declared shall not be actually distributed as long as any loan is outstanding against them. The amount found due to each member shall be credited to his loan account. By-law 63 provides that no amendment to, alteration in or cancellation of a by-law nor the enactment of a new by-law shall be made except at a general meeting of the members or shall take effect until it shall have been approved by the Registrar. It will thus be seen that none but a member can hold the office of the Secretary and he must be one of the Board of Directors and that the services of the Board of Directors shall be gratuitous. This is in accordance with the general principle that the directors of a company cannot claim any remuneration unless the articles expressly provide for it. It is also clear law that if the articles provide for payment of any remuneration the director can sue for it. The question in this case is, what is the right which the Secretary has under by-law 60 for the payment of the honorarium provided therein? With reference to the right of a director to claim remuneration from a company the rule of law is thus stated by Sterling, J., in In re Anglo-Austrian Printing and Publishing Union Issac's case (1892) 2 Ch. 158 at 164:

Where a man has accepted the office of director and acted as such,, there ought to be inferred an agreement between him and the company, on his part that he will serve the company on the terms as to qualifications and otherwise contained in the articles of association, and on the part of the company that he shall receive the remuneration and all the benefits which those articles provide for directors.

2. To use the language of the present Master of the Rolls in Swabey v. Port Darwin Gold Mining Co. (1889) 1 Megone 385:

The articles do not themselves form a contract, but from them you get the terms upon which the directors are serving.

3. This principle has been held to be applicable to persons who take office as directors whether members or non-members. See Sterling, J., in International Cable Co. (1892) 66 L.T. 253. It seems to me that the same principle has to be applied in this case also. Though by-law 28 provides that the services of a director are gratuitous it does not prevent the director who holds the office of the secretary from sharing benefits which are provided by the by-laws one of which is the benefit conferred under by-law 60. But two arguments seem to have prevailed with the lower Court, namely, (1) that Clause (2) of by-law 60 says that the amount is to be paid as honorarium, and (2) that such honorarium is dependent upon the will of the general body and it was open to the general body under by-law 29 to withhold or sanction the payment of the honorarium. No doubt honorarium prima facie implies a gratuitous payment, but it also means a fee for services rendered. Wharton in his Law Lexicon defines 'honorarium' thus:

A recompense for services rendered; a voluntary fee to one exercising a liberal profession, e.g., a barrister's fee.

4. In Standard Dictionary 'honorarium' is defined thus:

A fee or payment to a professional man for services on which the custom requires that no fixed remuneration be placed, as a physician's honorarium and honorarium for literary work.

5. In Oxford Dictionary it is defined thus:

Honorary reward, a fee for services rendered.

6. Thus it will be seen honorarium might according to context connote a purely gratuitous payment or a fee for services rendered. It is called 'honorarium' in by-law 60, Clause 2 on account of the character of the services rendered. From the mere use of the word 'honorarium' it is unsafe to designate it as a gratuitous payment. In dealing with a case where the articles of association provided that a person acting as a director shall get 150 per annum, McCardie, J., made the following observations in Moriarty v. Regent's Garage Co. (1921) 1 K.B. 423 to which I can usefully refer, viz.:

The question is not whether the word 'salary' is employed. It may or may not be employed. The word 'reward' or 'emolument' or 'remuneration' may be used. In each case the substance rather that the actual word is to be looked at. Here the agreement says by Clause 4 that the fees of the plaintiff for acting as director shall be 150 per annum, that is, in my view a fixed yearly remuneration for a substantial office to be held for a substantial period of time.

7. In this case the Secretary has a right to a yearly payment contingent on profits. Under Clause 2 he is entitled to one-fourth of the profits not exceeding a sum of Rs. 150. The by-law distinctly provides that the profits shall be distributed in accordance with that rule. It is not dependent upon the vote of the general body. The argument based on by-law 29 seems to be fallacious. It is open to the general body to alter the by-law; but until the by-law 60 is altered, it is not open to the general body to vary that by-law and to withhold payment of one-fourth of the annual profits. Thus the secretary prima facie will be entitled to claim payment of the profits in accordance with by-law 60(2). It is not disputed that profits have been earned during the period of his service. In fact the Board of Directors recommended in their report that the petitioner would be entitled to Rs. 120-3-0 as remuneration for 1928-29 and Rs. 56 as remuneration for 1929-30 for the period served by him in that year. The general body, in my opinion, was not competent to withhold the payment. So far as Rs. 120-3-0 due for 1928-29 is concerned, there seems to be no question that the plaintiff is entitled to it. But will he be entitled to claim the remuneration of Rs. 56 for the broken period 1929-30? In my opinion, by-law 60 contemplates the payment of an annual lump sum contingent on a person serving as secretary for the entire period and he is not entitled to claim any portion of the profits for the year 1929-30. The plaintiff is thus entitled only to a decree for Rs. 120-3-0. I therefore reverse the decree of the lower Court and pass a decree in favour of the plaintiff for the sum of Rs. 120-3-0 with interest at 6 per cent, per annum from the date of plaint with costs on the amount decreed both here and in the Court below.


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