HIND CERAMICS LTD Vs. COMPANY LAW BOARD

JUDGEMENT

(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 : <FRM>JUDGEMENT_610_CC42_1972Html1.htm</FRM> 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 :

(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.