- (1.) 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 of Delhi High Court* in three writ petitions by the respondent-company and its two managing directors to challenge order dated September 27,1967. * 1971 Tax LR 1675 (Delhi)
(2.) The respondent company, Upper Doab Sugar Mills Ltd., is a public limited company governed by the provisions of the Companies Act, 1956 (hereinafter referred to as the Act). The company had its registered office at Shamli, district Muzaffarnagar (Uttar Pradesh). Its main business is manufacture of sugar from sugar cane. It also manufactures spirits, industrial alcohol's and rum from molasses. From 1951 onwards the respondent company was managed by a firm of managing agents. Two of the partners of that firm were Shri Rajinder Lal and Shri Harinder 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 Harinder 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 3 1/2 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 share-holders approved the said resolution to appoint Shri Rajinder Lal and Shri Harinder Lal as managing directors on the terms set out in that resolution. An application was thereafter made under Section 269 of the Act to Company Law Board, appellant, for obtaining approval to the appointment of Shri Rajinder Lal and Shri Harinder 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 the Act. The appellant Board after obtaining some additional information and after some further correspondence granted as per latter 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 annum." 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 Harinder 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 Rupees 1,20,000 per annum. Prayar was made 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.
(3.) The petition was resisted by the appellant Board and the affidavit of the Secretary of the Board was filled 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 in these appeals. On the first question, the High Court after referring to the various provisions 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: "But any condition regarding remuneration which is contrary to the provisions of Sections 198 and 309 would not be regarded as germane to Section 269 inasmuch as the Legislature has exhaustively dealt with remuneration in Section 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 that any such policy which resulted in placing a ceiling below the legislative ceilings fixed by Section 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 .;