Sree Gajanana Motor Transport Co. Ltd. and another vs Union of India

G.P. Shivaprakash, J.—This is a petition presented by a public limited company incorporated under the Mysore Companies Act, 1938,

having its registered office at Sagar, Shimoga District.

At the annual general meeting of the company held on December 30, 1983, the following resolution was passed :

Resolved that pursuant to the provisions of sections 309(1) and 310 and other applicable provision (if any) of the Companies Act, 1956, and

subject to the approval of the Central Government being obtained, and subject to such modifications as the Central Government may direct and be

agreed to by the Board (which the Board is hereby authorised to agree to), the company hereby accords its approval to the payment for a period

of five years from July 1, 1983, of professional fees, as approved by the Board subject to a maximum of Rs. 15,000 per year, to Sri Amarnath

Kamath, director of the company, for professional services being rendered by him to the company.

The second petitioner, who is a chartered accountant by profession, is a shareholder of the company. He was appointed as a director of the

company in the year 1972. He has been rendering professional services also to the company since July 1, 1973. With a view to secure his

professional services for a further period of five years from July 1, 1983, the aforesaid resolution was passed at the annual general meeting held on

December 30, 1983. The said resolution was required to be passed in view of certain provisions of the Companies Act, 1956, hereinafter referred

to as ""the Act"". Section 198 of the Act prescribes an overall maximum managerial remuneration payable by a public company or a private

company which is a subsidiary of a public company, to its directors, secretaries, treasurers, etc. Section 309 provides for payment of remuneration

to directors. The relevant part of section 309 is set out below :

(1) The remuneration payable to the directors of a company including any managing or wholetime director, shall be determined, in

accordance with and subject to the provisions of section 198 and this section, either by the articles of the company, or by a resolution or, if the

articles so require, by a special resolution, passed by the company in general meeting and the remuneration payable to any such director

determined as aforesaid shall be inclusive of the remuneration payable to such director for services rendered by him in any other capacity :

Provided that any remuneration for service rendered by any such director in any other capacity shall not be so included if -

(a) the services rendered are of a professional nature, and

(b) in the opinion of the Central Government, the director possesses the requisite qualification for the practice of the profession ...

After the aforesaid resolution was passed, the same was forwarded to the respondent requesting it to express its opinion in terms of the proviso

to section 309(1) of the Act indicating that the second petitioner possesses the requisite qualifications for functioning as a legal adviser of the

company. The respondent after obtaining the necessary particulars from the company sent a reply, copy of which is marked as annexure D,

expressing its opinion in terms of the proviso to sub-section (1) of section 309 of the Act, that the second petitioner possessed the requisite

qualifications for functioning as legal adviser of the company for rendering professional services. However, the respondent has further directed that

the remuneration payable to the second respondent shall not exceed Rs. 7,000 per annum for a period of five years with effect from July 1, 1983.

Aggrieved by the imposition of this restriction regarding payment of remuneration towards the professional services to be rendered by the

second petitioner to the company this petition is presented.

Sri K. S. Ramabhadran, learned counsel appearing for the petitioners, submitted that in terms of the proviso to sub-section (1) of section 309,

all that the respondent is required to do is to express its opinion that the said director possesses the requisite qualifications for the practice of the

profession and to render professional services to the company; and when once the Central Government is satisfied regarding the requisite

qualifications possessed by the director and expresses the opinion under the proviso to sub-section (1) of section 309 of the Act that the second

petitioner possesses the requisite qualifications for functioning as a legal adviser of the company and render professional services, the respondent

cannot put a ceiling on the remuneration payable to the said director for his professional services.

Learned counsel submitted that the remuneration payable on the second petitioner for the services rendered by him as a professional is

independent of the remuneration payable to him as a director. Therefore, the ceiling prescribed u/s 198 of the Act has no application to the

remuneration payable to the second petitioner towards his professional services.

The proviso to section 309(1) of the Act makes it clear that the remuneration for services rendered by a director in any other capacity shall not

be included in the remuneration payable to the director in that capacity, provided the services so rendered by him are of a professional nature. In

order to ensure that the overall maximum on managerial remuneration payable to the directors does not exceed the limit prescribed u/s 198, the

proviso to section 309(1) of the Act stipulates that the Central Government should express its opinion regarding the requisite qualifications

possessed by the director to render such professional services. There is nothing in section 309 of the Act which empowers the Central

Government to restrict the remuneration payable to a director for services rendered by him in a professional capacity. Once the Central

Government is satisfied that the director possessed the requisite qualifications to render professional services, it is not permissible for the Central

Government to put any restriction on the remuneration payable to him by the company in respect of the professional services.

The decisions in Stup Consultants Ltd. Vs. Union of India and Another, , Ruby Mills Limited and another Vs. Union of India and another, and

R. Gac Electrodes Ltd. v. Union of India [1982] 52 Comp Cas 288 (Ker), on which learned counsel relied, support the submission made by him

that the Central Government acted beyond its powers in fixing an upper limit of Rs. 7,000 per annum on the fee payable to a professional for

services of a professional nature rendered by a director, while expressing its opinion that the director concerned possesses the requisite

qualifications for the practice of the profession.

This petition, therefore, succeeds. In the result, I make the following order :

(i) Rule made absolute.

(ii) That part of the impugned communication certificate dated July 2, 1984, annexure D, which restricts the remuneration payable to the second

petitioner for rendering professional services to the first petitioner-company, is quashed.

(iii) No costs.