# COMP ANY LAW BOARD v. UPPER DOAB SUGAR MILLS LTD. ETC

- **Citation:** [1977] 2 S.C.R. 503
- **Court:** Supreme Court of India
- **Decided:** 1976-12-17
- **Case number:** civil appeals Nos. 1840, 1841 and 1842 of 1971
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/comp-any-law-board-v-upper-doab-sugar-mills-ltd-etc-7063
- **Pages:** 8

## Headnote

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COMP ANY LAW BOARD
v.
UPPER DOAB SUGAR MILLS LTD. ETC.
December 17, 1976
tH. R. KHANNA, A. C. GUPTA AND JASWANT SINGH, JJ.]
503
Companies Act, 1956-Ss. 19"8, 269, 309 and 637A...,..Scope of-Company
Law Board-If could fix overall maximum remuner11tion to managing directors
while giving approval under s. 269.
Section 198 ( 1) of the Companies Act, 1956 provides that the total managerial remuneration payable by a public company to its directors in respect of a
financial year shall not exceed eleven per cent of the net profits of that company
for that financial year. Sub-section (3) prescribes that within the limits of the
maximum remuneration specified in sub-s. ( 1) a company may pay a remuneration to its managing or whole-time director in accordance with the provisions
of s. 309. Section 309(3) provides that a dil;cctor who is either in the whole
time employment of the company or a managing director may be paid remuneration either by way of monthly payment or at a specified percentage of the net
profits of the company or partly by one way or partly by the other. The proviso provides that except_ with the approval of the Central Government such
remuneration shall not exceed five ll~- cent of the net profits for one such
director and if there is more than one such director ten per cent for all of
them together. Section .637A provides that where the Central Government is
required or authorised by any provision of the Act to accord approval
in
relation to any matter the Central Government may accord such approval
subject to such conditions, limitations, restrictions as it may think fit to impose.
In 1966 the respondent company appointed two managing din;ctol'8 and
~ought the approval of the Central Government under s. 269 of the Companies Act, 1956 for their appointment.
Granting its approval the Company
Law Board fixed a ceiling on the total remuneration payable to each managing
director by way of commission and salary. The Company's representation to
the Board to raise the ceiling of remuneration was rejected .
In a petition under art, 226 of the Constitution the High Court held that
the action of the Board in reducing the remuneration was arbitrary and void
and that any condition regarding the remuneration which is contrary to the
provisions of ss. 198 and 309 would not be germane to s. 269 and that section
does not include in its scope any element regarding the fixation of remuneration.
Allowing the appeals of the Board.
HELD : The High Court was in error in quashing the order of the .Board.
In view of the provisions of ss. 269 and 637 A there is no infirmity in
the
condition imposed by the Board. [510C; 509H]
Section 309 does not deal with the appointment of mana11ing directors but
pertains to the remuneration of managing or whole time directors who had
already been appointed. The effect of the proviso to s. 309(3) is that if the
tenure of a managing director already appointed continued after the coining into
force of the Act, the remuneration fo be paid to such managing director shall
not, after the coming into force of the Act, exceed 5 % of the net profits to
be paid for one such director and if there be more than one such director
10% for all of them together. {509D]
In the instant case since the managing director had been appointed for the
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first time after the coming into force of the Act their appointment had to be
approved in terms of s. 269.
The Board, while granting permission, inserted
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a condition regarding the total remuneration of each managing director. In so
doing the Board acted well within the power. [509F-GJ
16-1546 SCT /76
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504
SUPREME COURT REPORTS
[1977] 2 s.c.R.

## Text

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COMP ANY LAW BOARD
v.
UPPER DOAB SUGAR MILLS LTD. ETC.
December 17, 1976
tH. R. KHANNA, A. C. GUPTA AND JASWANT SINGH, JJ.]
503
Companies Act, 1956-Ss. 19"8, 269, 309 and 637A...,..Scope of-Company
Law Board-If could fix overall maximum remuner11tion to managing directors
while giving approval under s. 269.
Section 198 ( 1) of the Companies Act, 1956 provides that the total managerial remuneration payable by a public company to its directors in respect of a
financial year shall not exceed eleven per cent of the net profits of that company
for that financial year. Sub-section (3) prescribes that within the limits of the
maximum remuneration specified in sub-s. ( 1) a company may pay a remuneration to its managing or whole-time director in accordance with the provisions
of s. 309. Section 309(3) provides that a dil;cctor who is either in the whole
time employment of the company or a managing director may be paid remuneration either by way of monthly payment or at a specified percentage of the net
profits of the company or partly by one way or partly by the other. The proviso provides that except_ with the approval of the Central Government such
remuneration shall not exceed five ll~- cent of the net profits for one such
director and if there is more than one such director ten per cent for all of
them together. Section .637A provides that where the Central Government is
required or authorised by any provision of the Act to accord approval
in
relation to any matter the Central Government may accord such approval
subject to such conditions, limitations, restrictions as it may think fit to impose.
In 1966 the respondent company appointed two managing din;ctol'8 and
~ought the approval of the Central Government under s. 269 of the Companies Act, 1956 for their appointment.
Granting its approval the Company
Law Board fixed a ceiling on the total remuneration payable to each managing
director by way of commission and salary. The Company's representation to
the Board to raise the ceiling of remuneration was rejected .
In a petition under art, 226 of the Constitution the High Court held that
the action of the Board in reducing the remuneration was arbitrary and void
and that any condition regarding the remuneration which is contrary to the
provisions of ss. 198 and 309 would not be germane to s. 269 and that section
does not include in its scope any element regarding the fixation of remuneration.
Allowing the appeals of the Board.
HELD : The High Court was in error in quashing the order of the .Board.
In view of the provisions of ss. 269 and 637 A there is no infirmity in
the
condition imposed by the Board. [510C; 509H]
Section 309 does not deal with the appointment of mana11ing directors but
pertains to the remuneration of managing or whole time directors who had
already been appointed. The effect of the proviso to s. 309(3) is that if the
tenure of a managing director already appointed continued after the coining into
force of the Act, the remuneration fo be paid to such managing director shall
not, after the coming into force of the Act, exceed 5 % of the net profits to
be paid for one such director and if there be more than one such director
10% for all of them together. {509D]
In the instant case since the managing director had been appointed for the
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first time after the coming into force of the Act their appointment had to be
approved in terms of s. 269.
The Board, while granting permission, inserted
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a condition regarding the total remuneration of each managing director. In so
doing the Board acted well within the power. [509F-GJ
16-1546 SCT /76
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SUPREME COURT REPORTS
[1977] 2 s.c.R.
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. '1840-1842/i2.
Appeals from the Judgment and Orders dated the 15th April,
1971 of the Delhi High Court in Civil Writ Petitions Nos. 54, 1183
and 1184/69.
Mrs. Shyamla Pappu, R. N. Sachthey and Girish Chandra for the
appellant in C.A. 1840/71.
R. N. Sachthey and Girish Chandra for the Appellants m CAs.
1841-42/71.
H. K. Puri for the Respondents.
The Judgment of the Court was delivered by
KHANNA, J.-This Judgment would dispose
of civil
appeals
Nos. 1840, 1841 and 1842 of 1971 which have been filed on certificate by the Company Law Board against the common judgment or
Delhi High Court in three writ petitions by the respondent-company;
and its two managing directors to challenge order dated Septembe11 2 7,
1967.
The respondent company, Upper Doab Sugar MiHs Ltd., is a public
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limited company governed by the provisions of the Companies Act,
1956 (hereinafter referred to as the Act). The company has ils registered office at Shamli, district Muzaffarnagar (Uttar Pradesh). Its
main business is manufacture of sugar from sugar cane. It also manufactures spirits, industrial alcohols and rum from molasses. From 1951
onwards the respondent company was managed by a firm of managi11g
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agents. Two of the partners of that firm were Shri Rajinder Lal and
Shri Narinder Lal. The managing agency agreement of that firm was
to expire on January 14, 1967.
On October 4. 1966 the Board of
Directors of the company resolved not to continue the managing agency
of the said firm and decided to appoint two managing directors to conduct and manage the affairs of the company. Accordingly, on October
8, 1966 in exercise of the powers under article 117 of the articles of
association of the company the Board of Directors resolved to appoint
Shri Rajinder Lal and Shri Narinder Lal as the two managing directors
of the company.
The salary of each of the managing directors was
fixed at Rs. 5,000 per month. In addition to that, each managing
director was to get commission at the rate of 3t per cent of the net
profits of the company during a financial year computed in the manner
laid down in section 309 ( 5) of the Act. Besides that, other service
benefits such as gratuity, provident fund, free medical treatment, transportation and free furnished residential accommodation were to be
provided to each of the managing directors. · The resolution of the
Board of Directors was placed before the shareholders of the company
in a general meeting.
The shareholders approved the said resolution
to appoint Shri Rajinder Lal and Shri Narinder Lal as managing directors on the terms set out in that resolution. An application was thereafter made uncter section 269 of the Act to Company Law Board,
appellant, for obtaining approval to the appointment of Shri Rajinder
Lal and Shri Narinder Lal as managing directors.
The powers of the
Central Government, it may be stated, have been delegated to the
appellant Board for exercising, inter alia, powers under section 269 of
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COMPANY LAW BOARD v. U.D. SUGAR MILLS (Khanna J.)
505
the Act. The appellant Board after obtaining some additional information and after some further correspondence granted as per letter
dated September 28, 1967 approval to the appointment of Shri Rajinder
Lal and Shri Narinder Lal as managing directors of the company. The
said approval was granted subject to the various terms and included
the following condition :
~'The total remuneration of each managing director by way
· of commission and salary shall not exceed Rs. 1.20,000
(Rupees one lakh twenty thousand) per a!Jllum."
The company made a representation to the appellant Board that the
aforesaid ceiling of Rs. 1,20,000 would not adequately remunerate the
two managing directors and that the aforesaid ceiling be raised. The
Board rejected that representation. Three writ petitions were thereafter
filed in January 1969 by the company and Shri Rajinder Lal and Shri
Narinder Lal for restraining the appellant Board from giving effect to
the condition set out above that the total remuneration of each managing director should not exceed Rs. 1,20,000 per annum. Prayer was
mado that the appellant Board be directed to accord approval for payment to the managing directors the remuneration as passed in the resolution of the Board of Directors along with the necessary perquisites.
The petition was registered by the appellant Board and the affidavit
of tho Secretary of the Board was filed in opposition. At the hearing
in the High Court the following two questions were agitated on behalf
of the respondent company and its managing directors :
"(1) Whether the administrative ceiling imposed by the
Board on 28-9-1967 on the remuneration payable to ·the
Managing Directors by the Company is ultra vires or illegal?
(2) Whether the refusal by the Board to enhance the remuneration of the Managing Directors· above the ceiling of
Rs. 50,000/- for the loss year was bad because the Company
was not granted adequate hearing and because the order of
refusal did not state the reasons therefor ?"
The High Court answered the second question against the respondent
company. This question also no longer survives m these appeals. On
~e first question, the High Court after referring to the various provi-
~ons held that the action of the Board in reducing the remuneration of
the managing directors was arbitrary and void. In this connection the
High Court observed :
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"But any condition regarding remuneration which is contrary to the provisions of sections 198 and 309 would not be
regard.¢ as germane to section 269 inasmuch as the Legislature has exhaustively deaJt with remuneration in sections
198 and 309 with the effect that section 269 does not include
in its scope any element regarding the fixation of remuneration."
Referring to the general administrative policy of the Government of
fixing ceiling on managerial remuneration, the High Court observed
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that any such policy which resulted in placing a coiling boluw the legis"
lative ceilings fixed by sections 198 and 309 was illegal as being contrary to sections 198 and 309. In the result, the High Court quashed
the condition imposed by the Board fixing the remuneration of the
managing directors.
In appeal before us Mrs. Shymala Pappu has assailed the correctness of the judgment of the High Court. As against that, Mr. Puri on
behall of· the respondents has canvassed for the correctness of that
judgment.
In order to appreciate the respective argun?tnts, it may be necessary
to set out the necessary provisions of the Act, as they stood at the relevant time. Sub-sections (1), (2) and (3) of section 198 read as
under:
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"198. Overall maximum managerial· remuneration and
managerial remuneration. in. case of absence or adequacy of ·
profits.-(!) The total managerial remuneration payable by
a public company or a private company which is a subsidiary
of a public company, to its directors and its managing agents,
secretaries and treasurers or manager in respect of any financial year shall not exceed eleven per cent of the net profit~ of
that company for that financial year computed in the manner
laid down in sections 349, 350 and 351, except that the remuneration of the directors shall not be deducted from the
gross profits : ·
·
Provided that nothing in this section shall affect the operation of sections 352 to 354 and 356 to 360.
(2) The percentage aforesaid shall be exclusive of any
fees payable to directors under sub-section (2) of section 309.
(3) Within the limits of the maximum remuneration
specified in sub-section (1) a company may pay a monthly
remuneration to. its managing or whole-time director in accordance with the provisions of section 309 or to its manager
in_accordance with the provisions· of section 387."
Section 269 reads as under :
-"269. Appointment or ~e-appointment of managing or
whole-time director to require Government approval in ce11ain
cases.-(!) In the case of a public company or a private
company which is a subsidiary of a public company, whether
such public company or private company is an exis•Jng company or not, the appointment of a person for the first time
as a managing or whole time director shall not have any
unlesS" approved by the Central Government :
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Provided that in the case of a public company, or a private
company which is a subsidiary of a public company, incor~
porated after the commencement of the Companies (Amend- ,
men!) Act, 1960, the appointment of a per~on as a managing •
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COMPANY LAW BOARD v. U.D. SUGAR MILLS (Khanna J.)
507
or whole-time director for the first time after such incorporation may be made without the approval of the Central Government but such appointment shall cease to have effect after
the expiry of three months from the date of such incorporation unless the appointment has been :ipproved by that
Government.
(2) Where a public company or a private company which
is a subsidiary of a public company, is an existing company,
the re-appointment of a person as a managing or whole-time
director for the first time after the commencement of the
Companies (Amendment) Act, 1960, shall not have
any
effect unless approved by the Central Government."
Sub-sections (I), (2) and (3) of section 309 read as under:
"309. Remuneration of directors.-(!) The remuneration
payable to the directors of a company, including any managing or whole-time director, sha.M 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 rewlution 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 tho remuneration payable to such diro;tor for
services rendered by him in any other capacity :
Provided that any remuneration for services 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 qualifications for the practice of
the profession.
(2) A director may receive remuneration by way of a fee for
each meeting of the Board, or a committee thereof, attended
by him:
Provided that where immediately before the commencement
the Companies (Amendment) Act, 1960, fees for meetings of
the Board and any committee thereof, attend._'(f by a director
are paid on a monthly basis, snch fees may continue tg be
paid on that basis for a period of -two years after such commencement or for the remainder of the tenn of office of such
director, whichever is less, bu~ no longer.
(3) A director who is either in the whole-time employment of the company or a managing director may be paid
remuneration either by way of a monthly payment or at a
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specified percentage of the net profits of the company or
partly by ooe way and partly by the other :
-Provided that except with the approval of the Central
Government such remuneration shall not exceed five per cent
of the net profits for on~ such director, and if there is mor~
than one such director, ten per cent for all of them together.
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Sub-section ( 1) of section 63 7 A reads as under :
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"637A. Power of Central Government io accord approval,
etc., subject to conditions and to prescribe fe~ on ~pplicac
tions.-( 1) Where the Central Government is reqmred or
authorised by any provision of this Act,-
( a) to accord approval, sanction, consent, confirmation or
recognition to or in relation to, any matter;
·
(b) to give any direction in relation to any matter; or
(c) to grant any exemption in relation to any matter;
then, in tht? absence of anything to the contrary contained in
such or any other provision of this Act, the Central Government may accord, give or grant such approval, sanction, consent, confirmation, recognition, direction or exemption subject to such conditions, limitations or restrictions as it may
think fit to impose and may, in the case l)f contravention of
any such condition, limitation or restriction, rescind or withdraw such approval, sanction, consent, confirmation, recognition, direction or exemption."
After hearing learned counsel for the parties and giving the matter
our earnest consideration, we are of the opinion that the view taken
by the High Court in quashing tho condition imposed by the appellant
Board about the fixation of the remuneration of the managing directors
cannot be sustained. The High Court in arriving at its conclusion took
the view that section-198 and the proviso to sub-section (3) of section 309 specially dealt with the question which 'trose for determination.
Jn view of those provisions, the High Court ;n[erred that sections 269
and 637A upon which reliance had been placed by the appellant Board
could not be of much avail to the appellant. Mr. Puri on behalf of the
respondents has adopted tlie same reasoning in this Court and has contended that section 198 and tho proviso to sub-section (3) of ~ection
309 being special provisions relating to the remuneration of managing
directors, tliey would exclude so far as that question is concerned,
general provisions like those contained in sections 269 and 637A. The
above reasoning, we find, is vitiated by an innate fallacy. Section 198
deals with the overall maximum managerial remuneration and managerial remuneration in the case of absence or adequacy of profits. The
total managerial remuneration payable by a public company or a private
company which is a subsidiary of a public company to its managerial
staff, according to sub-section ( 1) of that section, cannot exceed 11
per cent of the net profits for a financial year. The total managerial
remuneration covers the remuneration not merely of the managing
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COMPANY LAW BOARD v. U.D. SUGAR MILLS (Khanrui J.)
509
directors but also of other managerial personnel like secretaries, treasurers and managers. Sub-section (3) of the section provides that
within the limits of the maximum remuneration, a company may pay
a monthly remuneration to its managing director i;i accordance ~!th
section 309. Sub-section (1) of section 309 prescnbes the formaht1es
which have to be complied with for fixing of the remuneration of a
· · managing or full-time director of a company.
We are not concerned
with sub-section (2) of that section. Sub-section (3), which constitutes
the main plank of the case of the respondents, provides that a director
who is either in the whole-time employment of the company or a
managing director may be paid remuneration ~ithcr by way of monthly
payment or at a specified percentage of the net profits of the company
or partly by one way or partly by the other. According to the proviso
to that sub-section, except with the approval of the Central Government,
such remuneration of the whole-time director or managing director shall
not exceed 5 per cent of the net profits for one such director and if there
is more than one such director 10 per cent for all of them together.
Perusal of section 309 shows that it does not deal with the appointment
of managing directors. It only pertains to the remuneration of managing or whole-time directors who have already been appointed. The
effect of the proviso to sub-section (3) of section 309 is that if the
tenure of a managing director who has already been appointed continues
after the coming into force of the Act, the remuneration to be paid to
such a managing director shall not after the coming into force of the
Act exceed 5 per cent of the net profits for one such director, and if
there be more then one such director, 10 per cent for all of them
together.
The present, however, is not a case of managing directors having
been appointed earlier and continuing to act as such after the coming
into force of the Act.
Shri Rajinder Lal and Shri Narinder Lal have
been appointed managing directors of the company for the first time
after the coming into force of the
ft.,.ct.
Their appointment as
managing directors had to be approved in terms of section 269 of the
Act.
The company consequently applied to the Central Government
for approving their appointment. The appellant Board, to whom the
powers of the Central Government have been delegated for this purpose, while granting approval to the appointment of the aforesaid two
persons as managing directors, inserted the condition that the total
remuneration of each managing director by way of commission and
salary shall not exceed rupees one lakh twenty thousand per annum.
The above remuneration is in addition to the benefit of certain perquisites which would be available to the managing directors.
The
Board, in our opinion, acted well within its power in imposing this
condition. Section 637A of the Act makes it clear inter alia that
where the Central Government is required or authorised by any provision of the Act to accord approval in relation to any matter,. then,
in the absence of anything to contrary contained in such or any other
provision of the Act, the Central Government may accord such
approval subject to such conditions, limitations or restrictions as it may
think fit to impose.
In view of the provisions of sections 269 and
637A of the Act, we find no infirmity in the condition imposed by the
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appellant Board.
The provisions of both sections 269 and 637A
expressly deal with the question which arises directly in this C'aSe.
We may observe that according to the affidavit filed on behalf of
the appellant Board, s·ince 1959 the said Board has been imposing a
waximum administrative ceiling on the total runounts payable to a
managing director.
The basic principle that has been kept in view ·
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by the Board is that no individual should
be paid
remuneration
exceeding Rs. 1,20,000 per annum or Rs. 10,000 per month.
A
large number of instances have also been given by the Boo.rd and it
would appear therefrom that the maximum remuneration which has
been allowed by the Board to tije managing director of any company
is Rs. 1,20,000.
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The High Court, in our opinion, was in error in quashing the
order of the Board. We accordingly accept the appeals, set aside the
judgment of the High Court and dismiss the writ petitions. Looking
to all the facts, we leave the parties to bear their own costs throughout.
P.B.R.
Appeals allowed.
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