Decided on November 14,1983

UNION OF INDIA Respondents

Cited Judgements :-



G.C. Jain, J. - (1.)Petitioner No. 1, Suessen Textile Bearings Limited (for short 'the Company') is a public company incorporated under the Companies Act 1956 (for short 'the Act'). Manherlal Dwarkadas Mehta, Suresh Manherlal Mehta and Chempaklal Jivraj Mehta, petitioners 2 to 4, are some of its present directors. The Company manufactures textile equipment. For its business it took loans and arranged credit facilities, which were provided, inter alia, by the Gujarat State Financial Corporation, Bank of India and Central Bank of India to the tune of Rs. 42.5 lakhs to Rs. 95.85 lakhs during the relevant years, i.e. year ending 30/9/1965 upto 30/9/1971. While allowing these loan and credit facilities these financial institutions insisted on personal guarantees and the personal guarantees were furnished by petitioners 2 to 4 and Hansmukhlal Gordhandas Dalal and Shantilal Jivraj Mehta, respondents 3 and 4 herein.
(2.)On February 24. 1965 the Board of Directors of the Company adopted a resolution authorising the payment of guarantee commission to the persons who had stood surety for the loans and credit facilities advanced to the Company by the financial institutions (but excluding Managing Directors) at the rate of 0.6 per cent in all per annum on the amounts so guaranteed for a period of one year. Another resolution was passed on 1/11/1966 authorising the payment at the rate of one per cent per annum on the amounts guaranteed by the guarantors other than the Joint Managing Directors for the period 1/10/1965 onwards. The payment of the guarantee commission was approved by the Company at its eleventh annual general meeting held on April 27, l 969. In pursuance of the resolution dated 24/2/1965 the Company paid a sum of Rs. 21,269.41 as guarantee commission for the financial year ending 30/9/1965 to petitioners 3 & 4 and respondents 3 & 4 who had furnished their personal guarantees to the financial institutions. For the year ending 30/9/1966 a sum of Rs. 44,662.27 was paid to petitioners 2, 3, and 4 and respondents 3 and 4. For a certain period during this year petitioners 2 and 3 were joint-Managing Directors and consequently no commission was paid to them for that period. The amounts of guarantee commissions paid and the balance payable to the guarantors for the financial year ending 30/9/1965 to 30/9/1971 have been shown in Annexure '1' to the petition.
(3.)The Company by its letter dated 13/3/1968 requested the Company Law Board (for short 'the Board') for increasing the minimum remuneration payable to petitioner No. 3 as Joint-Managing Director. The Board vide its letter dated 1/3/1968 raised certain queries and asked the Company to intimate the Board about the circumstances in which the approval of the Board was not obtained for payment of the guarantee commission to certain directors of the Company. The Company by its letter dated 15/6/1968 explained that the guarantee commission could not be regarded as remuneration within the meaning of Section 309 of the Act. The Board, however, by its letter dated 2/8/1968 took the stand that the provisions contained in Section 309 were attracted to the payment of guarantee commission and advised the Company to seek its approval. The Company's attorney by their letter dated 21/8/1968 informed the Board that without admitting the correctness of the contention of the Board they had asked the Company to prefer the necessary application for its approval. Ultimately the Company by its letter dated 28/1/1971 approached the Board for the approval ofthe payment of the guarantee commission to its Directors. This was without prejudice to its contention that no such approval was required. The request of the Company was rejected by the Board vide letter dated 5/5/1971 (Annexure 'K') on the ground of the present policy being followed by the Board in this behalf. The Company by its letter dated 21/5/1971 requested the Board to reconsider its decision.. The Board, however, did not give any reply.

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