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R. Ganesa Ayyar Vs. the Lakshmi Co-operative Building Society - Court Judgment

LegalCrystal Citation
CourtChennai
Decided On
Judge
Reported inAIR1937Mad379; 171Ind.Cas.518
AppellantR. Ganesa Ayyar
RespondentThe Lakshmi Co-operative Building Society
Cases ReferredMoriarty v. Regent
Excerpt:
company - directors--remuneration, if can be given--'honorarium', meaning of--services of director to be gratuitous under by-law--director acting as secretary entitled to share profits under another by-law--held, company could not withhold payment of honorarium--interpretation of by-law. - .....of the year 1929-30. 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 by-laws of the society is necessary. under by-law no. 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 no. 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.....
Judgment:

Venkataramana Rao, J.

1. The question in this case is whether the petitioner is entitled to recover a sum of Rs. 242-1-0 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 1928-29 and a portion of the year 1929-30. 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 by-laws of the Society is necessary. Under by-law No. 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 No. 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 No. 28 the services of the members of the Board of Directors shall be gratuitous. Under by-law No. 29 the ultimate authority in all matters relating to the administration of the Society shall be the genera-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 No. 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: (V one-fourth to the reserve fund: (2) one-fourth to be paid as honorarium to the Secretary and Terasurer 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 No 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 No. 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 Be Anglo-Austrian Printing & Publishing Union Issac's case (1892) 2 Ch. 158 : 66 L.T. 293 : 40 W.R. 518 : 8 T.L.R. 301 [Ed.].

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. To use the language of the present Master of the Rolls in Swabey v. Port Darwin Gold Mining Co. (1889) 1 Meg. 385 'the articles do not themselves form a contract, but from them you get the terms upon which the directors are serving'.

2. This principle has been held to be applicable to persons who take office as directors whether members or non-members. See Sterling, J. in Re International Gable Co., Ex parte Official Liquidator (1892) 66 L.T. 253 : 8 T.L.R. 316 : 36 SJ 293. It seems tome that the same principle has to be applied in this case also. Though by-law No. 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 No. 60. But two arguments seem to have prevailed with the lower Court, namely (1) that Clause (2) of by-law No. 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 No. 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'. 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'. In Oxford Dictionary it is defined thus: 'Honorary reward, a fee for services rendered'. 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 bylaw No. 60, Clause 2 on account of the character of the services rendered. Prom 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, Maccordie, J., made the following Observations in Moriarty v. Regent's Garage Co. (1921) 1 K.B. 423[Ed.] 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 than 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.

3. 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 profita 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 No. 2:9 seems to be fallacious. It is open to the general body to alter the by-law: but until the by-law No. 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 No. 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 No. 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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