Decided on August 04,1970



K.L. Roy, J. - (1.) The petitioner-company has a paid up share capital of Rs. 6,25,000 consisting of 6,250 shares of Rs. 100 each. The company is a director controlled company. Some time in 1965, M/s. Dalmia Cement (Bharat) Ltd. acquired 99.97 per cent. of the issued shares of the company and the petitioner became a 100 per cent. subsidiary of the Dalmia company. There was a consequent change in the petitioner's board of directors and the following directors, as nominated by the Dalmia company, were appointed to the board of the petitioner : (1) Shri M. H. Dalmia, (2) Shri R. S. Lodha, (3) Shri P. K. Khaitan and (4) Shri A, K. Jalan. These directors are paid Rs. 100 as sitting fee for each meeting of the board attended by them and no other remuneration. It is claimed that prior to the present board of directors taking over the management, the company incurred very heavy losses as stated below : JUDGEMENT_610_CC42_1972Html1.htm It is further claimed that under the management of the present board of directors, the company made trading profits of Rs. 1.70 lakhs and Rs. 2.42 lakhs for the years 1966 and 1967 respectively and it is stated that the company is expected to earn even higher profits in the subsequent years and to be put on a sound financial position. In these circumstances it was felt that the directors should be allowed some reason able remuneration in addition to the sitting fee and accordingly the board of directors recommended that they be paid a commission of 3 per cent. on the net profits as determined under the Companies Act and further that in view of the accumulated losses of the past years as there would be no net profits of the company in the next few years, the directors be jointly paid a minimum remuneration of Rs. 10,000 per annum for a period of five years. This recommendation was placed before the annual general meeting of the petitioner held on the 5th April, 1968, and the following resolution was passed, namely : " Resolved that pursuant to Section 309 of the Companies Act, 1956, and other applicable provisions a commission of 3 per cent. of net profits be payable to the board of directors for a period of 5 years with effect from 1st January, 1968, to be shared by the directors in such manner as the board may from time to time determine, provided that in the event of absence or inadequacy of profits in any year a sum of Rs. 10,000 per annum be payable to the board of directors as minimum remuneration." On the 17th May, 1968, the petitioner forwarded two applications in Form No. 26 and in Form No. 25C in the Appendix to the Companies Act respectively to the respondent, Company Law Board, asking for its sanction to the proposal for payment of commission at 3 per cent. of the net profits as aforesaid and in the absence of or inadequacy of profits a minimum remuneration of Rs. 10,000 per annum to be shared by the directors in addition to the sitting fee of Rs. 100 per meeting with effect from 1st January, 1968. Along with the applications all the relevant documents were enclosed including a statement of the past history of the trading of the company, the improvements effected by the present directors and the fact of the absence of any managing agents, manager or whole-time director. It was also pointed out that of the four directors one was industrialist and a qualified chemical engineer, one a chartered accountant, one a solicitor and the fourth also an industrialist and an economics graduate. By its letter dated the 20th July, 1968, the Company Law Board informed the petitioner that it had carefully considered the said applications but having regard to all the facts and circumstances of the case the Board regretted its inability to approve the same and the applications were rejected. But the said letter went on to give, what appears to me, some gratuitous advice to the petitioner, viz., that if it chose to appoint a managing director or a whole-time director to look after its business, the Board would be favourably inclined to consider such appointment and the payment of some reasonable minimum remuneration to the proposed managing director or whole-time director.
(2.) It is to be mentioned that there is no dispute that at the time of the application for approval by the Board, the petitioner's total accumulated losses brought forward amounted to Rs. 11,41,362 and this fact together with the other liabilities were fully stated in the two applications.
(3.) This rule was issued on the 18th July, 1969, calling on the respondents, the Company Law Board, the Union of India and the Registrar, Joint Stock Companies, West Bengal, to show cause why appropriate writs and/or directions should not issue for quashing the decision contained in the aforesaid letter dated the 20th July, 1968, and for directing the respondents not to give effect to the said decision and further to show cause why the respondents should not be directed to approve the aforesaid applications by the petitioner.;

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