Page 161 - DCOM106_COMPANY_LAW

Company Law

Notes Section 309 contemplates three kinds of directors, i.e., (i) Managing Director; (ii) Whole-time
director; (iii) Director pure and simple. Further, s.309 provides that subject to the general
provisions of s.198, dealing with the total managerial remuneration, the remuneration be
determined by the articles, or by a resolution or, if the articles so require, by a special resolution,
passed by the company in general meeting. Any remuneration paid for services in any other
capacity shall not be 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.
A director who is neither in the whole-time employment of the company nor a managing
director may be paid remuneration. (a) by way of a monthly, quarterly or annual payment with
the approval of the Central Government; or (b) by way of commission, if the company by
special resolution authorises such payment; or (c) by both.

Task X holds shares and directorship in a number of companies. X is proposed to be a
Director of a company named Asian Ltd. State the requirements of law necessary to be
complied with by him before and after he joins the Board of Asian Ltd. [Hint: (i) X should
resign one of the directorships, if he is already a director of more than 15 companies,
(ii) He should give his consent in writing before joining the Board of Asian Ltd. (s.264)
(iii) He should file his consent with the Registrar within 30 days of the date of joining.
(iv) He should disclose the nature and extent of his interest in other companies (s.299).
(v) He should acquire the qualification shares, if any prescribed by the Articles of Asian
Ltd. in case he does not own the same already.]
However, in either of the above cases, the remuneration paid to such director, or where there is
more than one such director, shall not exceed: (i) one per cent of the net profit of the company,
if the company has managing or whole-time director or manager; (ii) three per cent of the net
profits of the company in any other case. The company in general meeting may, however, with
the approval of the Central Government, authorise the payment of a commission at a rate
higher than one per cent, or as the case may be, three per cent of its net profits.

Each director is entitled to receive a sitting fee for each meeting of the Board or a committee
thereof, provided the same is authorised by the articles.
A whole-time director or a managing director may be paid remuneration either by way of a
monthly payment or at a specified percentage of the net profits of the company or partly by one
way and partly by the other; provided that except with the approval of the Central Government
such remuneration 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. Furthermore, a managing or
whole-time director who is in receipt of any commission from the company cannot receive any
remuneration from any subsidiary of the company.
If any director draws or receives, directly or indirectly, by way of remuneration any sum in
excess of the limits stated above, without the sanction of the Central Government, where it is
required, he shall have to refund such sums to the company and until the refund is made the
money will be held by him in trust for the company. The company cannot waive the recovery of
any sum refundable to it, unless permitted by the Central Government.
The provisions of s.309 will not apply to a private company unless it is a subsidiary of a public
company.

156 LOVELY PROFESSIONAL UNIVERSITY