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PETITIONER: MADANLAL FAKIRCHAND DUDHEDIYA

       Vs.

RESPONDENT: SHREE CHANGDEO SUGAR MILLS LTD.

DATE OF JUDGMENT: 20/03/1962

BENCH: GAJENDRAGADKAR, P.B. BENCH: GAJENDRAGADKAR, P.B. SARKAR, A.K. WANCHOO, K.N.

CITATION:  1962 AIR 1543            1962 SCR  Supl. (3) 973

ACT: Company-Agreement  to  pay commission  from  profits  beyond specified limit-Validity-Companies Act, 1956 (1 of 1956), s. 76(1) & (2).

HEADNOTE: There was an agreement between the respondent company, which was  incorporated as a Private Limited Company in 1939,  and its   promoters,   the  appellant  and  the  rest   of   the respondents,  that in consideration of the promoters  having each  purchased sharers worth 1-1 1/2 lakhs of the  company, the company would pay them 12-1/2% of the net profits  every year.   That agreement was put in art. 3 of the Articles  of Association  of  the company.  In 1941 there  was  a  second agreement between the company, its promoters and a firm, and by  it the said firm was appointed as the managing agent  of the company and the commission payable to the promoters  was reduced to 6-1/40’ and art 3 amended accordingly.  There was litigation  between  the  parties and  the  consent  decrees passed.  there  in left the promoters’ commission  in  tact. Meanwhile  the Companies Act, 1956, came into force and  the company  served  a notice to the appellant saving  that  the promoters’  commission was no longer lawful and that art.  3 would be deleted.  The appellant then brought the suit,  out of  which the present appeal arose, for a  declaration  that the  agreement  to  pay  commission was  valid  and  for  an injunction  restraining the company from deleting  the  said art. 3.  It was urged on behalf of the company that  s.76(1) and  (2) of the said Act had made the agreement invalid  and unenforceable.   The  trial  court found in  favour  of  the company  and  dismissed  the  suit.   The  court  of  appeal agreeing with the trial court dismissed the appeal- 974 Section 76 of the Companies Act, 1956, before it was amended in 1960, was in its material parts as follows                "(1).  A company may pay a commission to  any               person in consideration of               (a)   his    subscribing   or   agreeing    to               subscribe,      whether     absolutely      or               conditionally,   for   any   shares   in,   or               debentures of the company, or

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             (b)   his  procuring  or agreeing  to  procure               subscriptions,     whether     absolute     or               conditional, for any shares in, or  debentures               of,  the company, if the following conditions               are fulfilled, viz.                (i)  the payment of commission is  authorised               by the     articles;               (ii)  the commission paid or agreed to be said               does  not  exceed in the case of shares,  five               per cent. of the price at which the shares are               issued or the amount or rate authorised by the               Articles,  whichever is less, and in the  case               of debentures, two and a half per cent.-of the               price  at which the debentures are  issued  or               the amount or rate authorised by the articles,               whichever is less;               (iii) the  amount  or rate per  cent.  of  the               commission paid or agreed to be paid is in the               case  of shares or debentures offered  to  the               public  for  subscription,  disclosed  in  the               prospectus; and .............. I                                    (iv)               (2)   Save  as aforesaid and save as  provided               in  section 79; no company shall allot any  of               its  shares or debentures or apply any of  its               capital moneys, either directly or indirectly,               in  payment  of any  commission,  discount  or               allowance, to any person in consideration of               (a)   his   subscribing   or   agreeing     to               subscribe, whether absolutely or conditionally               for any shares               in, or debentures of, the company  or                                    (b) By  Amending Act 65 of 1960 the word ’capital’ occurring  in that s. 76(2) deleted.                             975 Held,  (per Gajendra-adkar, and Wanchoo, JJ.) that s. 76  of the Act must be construed by itself, in the light of its own scheme  and object and not by reference to what the  English law  on the point may be.  So judged there can be  no  doubt that s. 76(1) clearly prescribes the payment of  commission, whatever the source from which it is paid may be. It is  not merely  an  enabling provision, but also  prohibits  payment beyond the prescribed ceiling.  It is clear that the section covers commission paid both out of capital and profits. Hilder v. Dexter, (1902) A.C. 472, explained. The  Ooregum Gold Mining Co. of India Ltd. v.  George  Rover and Charles Henry Wallroth, (1892) A.C. 125, considered. There  can be no repugnancy between s. 76(1) thus  construed and s. 76(2).  The Legislature was aware that capital  money was often applied to payment of commission under the garb of ostensible lawful payments.  In view of the devices  adopted to defeat the limit imposed by s.76(1), it is provided by s. 76(2) that such devices must also conform to the prescribed limit The two subsections constitute in integrated provision one of the objects of which was to impose a limit on the Payment  of commission whether for shares or for  debentures in order to save the property of the company. The  deletion  of the word ’capital" from s.  76(2)  by  the Amending  Act of 1960 made the intention of the  Legislature clear that the limit imposed on the payment of commission in respect of shares and debentures applies as much to commiss- ions paid out of capital as to those paid out of profits. Per Sarkar,.J There is nothing in, S. 76(1) of the Companies Act, 1956, to suggest that it intended in any way to  change

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the  preexisting law under which a company was free  to  pay any  commission  it liked out of its profits to  any  person subscribing for shares in it, and the proper way to construe that  sub-section would be to confine its terms to  payments or commission out of capital. Hilder v. Dexter, (1902) A. C. 474, held applicable. Oorgeoum  Gold  Minning Co. of India Ltd. v.  George  Roper, (1892) A.C. 125, referred to. The  words  ,it shall be lawful" used in s.  105(1)  of  the Indian Companies Act, 1913, and the word ’may’ used in s. 76 (1) of the Companies Act, 1956, mean the same thing and both these  sections  were enabling provisions that  intended  to legalise something which was previously illegal. 976

JUDGMENT: CIVIL  APPELLATE  JURISDICTION : Civil Appeal    No.  64  of 1959. Appeal  by special leave from the judgment and decree  dated July 24, 1957, of the Bombay High Court in Appeal No. 23  of 1957. A.  V.  Viswanatha ,Sastri, Jaswantlal Mathubai  and  I.  N. Shroff, for the appellant. C.   B.  Agarwala,  I.  P.  Dadachanji,  O.  C.  Mathur  and Ravinder Narain, for respondent No. 1. 1962.   March  20.   The  Judgment  of  Gajendragadkar   and Wanchoo,  JJ., was delivered by Gajendragadkar, J.,  Sarkar, J., delivered a separate Judgment. GAJENDRAGADKAR,  J.-The principal question which  arises  in this appeal relates to the construction of s. 76(1) and  (2) of  the Companies Act, 1956 (1 of 1956) (hereinafter  called the  Act) before the amendment of sub-s.(2) in  1960.   That question  arises  in  this  way.   The  appellant,  Madanlal Fakirchand Dudhediya, and respondents Nos. 2 and 3     and the father of respondents Nos. 7 to 10 were  the   promoters of the 1st respondent Co., Shree   Changdeo Sugar Mills Ltd. The  said Co. was incorporated in 1939 as a Private  Limited Company.  It was, however, converted into a Public Ltd.  Co. in  1944.  At the time of the original incorporation of  the Co.,  a Promoter’s Agreement was arrived at whereby the  Co. agreed  during its existence to pay a sum equal  to  3-1/80% every  year  out  of its net profits to  each  of  the  four promoters.   As a result of. this agreement,  the  aggregate consideration  payable every year to the promoters  came  to 12-1/2%  of  the  not profits of the Co. Article  3  of  the Articles  of Association of the Co. justified the making  of this  agreement.   In  1941  the  Co.  came  into  financial difficulties and                             977 in  consequence,  on  the 22nd  April,  1941,  a  tripartite Agreement was arrived at between the Company, M/s.  Ardeshir Hormusji Bhiwandiwalla & Co., and the Promoters.  Under this agreement,  it  was agreed inter-alia, to appoint  the  said firm  of Bhiwandiwalla & Co. or its nominee as the  Managing Agents of the Co. for 10 years with an option to the Co.  to extend  the said period upon certain terms.  At  this  time, the  earlier agreement as to the payment of  the  promoters’ commission  was modified and the said commission payable  to the  promoters  was  reduced to 6-1/4% and  Art.  3  of  the Articles  of  Association was  accordingly  amended.   Three years later, dispute arose between the parties and they  led to three suits filed on the original side of the Bombay High Court.   All the said suits were compromised and decrees  by

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consent  were  passed  in them.  One of  the  terms  of  the compromise was that the promoters’ commission payable to the four promoters which was Rs. 1-9-0 to each of them and which came  6-1/4%  in the  aggregate payable to  them  under  the agreement entered into between them and the Managing  Agents shall remain in force as in the Agreement and the promoters’ right of commission shall continue accordingly.  Thus. as  a result  of the compromise, the promoters’  commission  which was payable to them under the earlier Agreement was saved. After the Act came into force on the 1st of April, 1956, the appellant received a letter from respondent No. 1  informing him that respondent No. 1 had been advised that as from  the date of the commencement of the, Act, the agreement  between the  parties as to the payment of the promoters’  commission had  become  illegal and void and that  the  1st  respondent would  not,  therefore,  pay any  more,  commission,%  after April,  1956.   In October, 1956 the  appellant  received  a notice from the let respondent that an extraordinary general 978 meeting  of the shareholders of the 1st respondent  Co.  was going  to be held, inter alia, for the purpose  of  amending certain  Articles  of  Association of the Co.  One,  of  the amendments proposed to be put before the said meeting was to delete Article 3 from the Articles of Association of the Co. On  receipt of this notice, the appellant filed the  present suit on the 13th December 1956.  By his plaint, he claimed a declaration that the agreement between the parties was valid and  legal  and  he  asked  for  an  injunction  restraining respondent  No.  1  from  passing  any  resolution  deleting Article  3 of the Articles of Association of the  respondent Co.  or  from taking any action on the basis that  the  said agreement  had  become illegal and void.  Respondent  No.  1 resisted  this suit.  It was urged on its behalf that  as  a result  of  the provisions of section 76(1) and (2)  of  the Act, the agreement in question had become void and could not be  en.  forced.   Respondents Nos. 2 to 10  are  the  other beneficiaries  under the said agreement and they  ,supported the  appellant.  The learned Judge who tried the  suit  held that the defence raised by respondent No. 1 was well-founded and  that the agreement in question having become  void  and unenforceable  under the relevant provisions of the Act,  no declaration  could  be  granted or no  injunction  could  be issued in favour of the appellant as claimed by him.  In the result, the appellant’s suit was dismissed with costs.   The appellant then preferred an appeal challenging the  correct- ness  of  the decision of the Trial.  Court.  The  Court  of Appeal,  however, agreed with the view taken by the  learned Trial  Judge  and  dismissed the  appeal  preferred  by  the appellant.   The appellant then applied for and  obtained  a Certificate  from  the High Court and it is  with  the  said certificate  that he has come to this Court by  his  present appeal.   That  is how the principal point  which  has  been raised for our decision in the  present appeal is about  the construction of section 76(1) and (2).  979 Mr.  Sastri contends that in coming to the  conclusion  that the  appellant’s claim to enforce the agreement in  question in  respect  of  the profits made by  respondent  No.  1  is affected  by s. 76, the Courts below have  misconstrued  the provisions  of  the  said section.  It is  conceded  by  Mr. Sastri that the promoters have so far received an  aggregate amount  of over ’Rs. 5,80,000 which is far in excess of  the maximum  amount  now  permissible  under  a.  76(1).But  his argument is that the statutory provision imposing the  limit in  regard to the payment of commission on which  respondent

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No.  1  relies  is inapplicable to a  case  where  the  said commission  is  claimed not out of capital but  out  of  the profits of the Company. Before  dealing  with  this  point,  however,  it  would  be convenient  to  dispose of another objection raised  by  Mr. Sastri.   He  contends  that the agreement  in  question  is really  outside  the purview of s. 76.   Section  76  refers inter alia, to the commissions payable to any person for his subscribing or agreeing to subscribe, whether absolutely  or conditionally, for any shares of a Co. That being so,  since the   presents   agreement  has  been  ’entered   into   for consideration  other  than  those specified in  s.  76,  its enforcement cannot be resisted on the ground that it is  hit by  a. 76.  The decision of the question  naturally  depends upon  the  construction, of the two agreements.   The  first agreement  of 1939 provides that for the help  rendered  and pains  taken by the promoters and because each of  them  had agreed to purchase and had purchased shares worth Rs.  1-1/2 lakhs out of the Co.’s capital, the Co. was entering into an agreement with them for the payment of the commission.   The agreement provided that the said commission would be payable as  long  as the Co. was in- existence.  It  is  thus  clear that  though  the help rendered by the promoters  and  pains taken by them are incidentally referred to the agreement 980 is substantially, if not entirely, based upon the fact  that the  promoters  had  agreed to purchase  and  had  purchased shares  worth  As. 1-1/2 lakhs and so there cm be  no  doubt that this agreement clearly falls within the mischief of  s. 76.  It is, however, urged that the completion of the  first agreement  changed completely when the second agreement  was entered  into in 1941.  In this latter agreement  which  was entered  into  between the promoters and  the  new  Managing Agents,  the former agreed to receive 6-1/4%  as  promoters’ commission   instead  of  12-1/2%  ,,as  provided   in   our respective  agreements  with  the  Company."  That  is   the substance  of the agreement.  However, Mr. Sastri relies  on the  other  recitals  in  the document  in  support  of  his argument that the latter agreement was not in  consideration for the purchase of shares by the promoters.  These recitals refer  to  the fact that the promoters  had  resigned  their office and surrendered and renounced their rights to act  as the  Managing Director or Managing Directors  of  respondent No.  1  and it was in consideration of this  fact  that  the agreement was made.  We are not impressed by this  argument. It  is  true that before this agreement was  made,  the  new Managing  Agents  were appointed and that was no  doubt  the occasion for the making of the agreement.  But the essential part  of  the new agreement was the reduction  made  in  the commission  payable  to  the promoters; for  the  rest,  the earlier agreement continued and so, in determining the scope and  nature of this latter agreement, we have inevitably  to go  back to the &A agreement.  As we have just pointed  out, the  operative clause in the agreement, in terms  refers  to the  earlier agreements between the respective  parties  and avers  that  Instead  of 12-1/20% as provided  by  the  said agreement 6-1/4% would hereafter be paid.  Therefore, we are satisfied  that  the  payment claimed by  the  appellant  is payment by way of commission to which s. 76 would apply.                             981 Then it is argued that though the purchase of shares by  the promoters may partly be the consideration for the agreement, the service rendered by them and the pains taken by them  in promoting  the Co. were also set out in the first  agreement as  forming  part  of  the consideration  and  even  if  the

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agreement as to the payment of commission may fall within s. 76   part  of  the  agreement  which  is  based   on   other considerations  would  be outside a. 76 and  the  two  parts being  severable, it is necessary to determine how much  the appellant would be entitled to claim under the part which is valid.   In  our opinion, this argument is not open  to  the appellant  at  this  stage.  It appears that  in  the  trial Court,  an  attempt was made on behalf of the  appellant  to lead  oral evidence for the purpose of saying that  the  two considerations  could be severed and so, the amount  payable to  the appellant in respect of that part of  the  agreement which  was valid, should be determined.  The  learned  Trial Judge did not allow oral evidence to be led as suggested  by the  appellant because he found that the case sought  to  be made by adducing the said oral evidence was not made out  by any  averments  in the plaint nor was any  attempt  made  to raise  any issue in that behalf at the time when the  issues were  framed.  Indeed, it appears from the judgement of  the learned Trial Judge that the attempt made by the-  appellant in  that behalf was feeble and half-hearted.  Thus,  in  the Trial Court, the appellant was not allowed to make out  this case and when he went before the court of Appeal, he,  appa- rently  made  no grievance about the decision of  the  Trial Court; otherwise the Appeal Court would have dealt with this point.  Therefore, we do not think that the appellant can be permitted, to raise this point before us in this appeal. That takes us to the principal point of controversy, between the  parties in regard to the construction of section  76(1) and (2) of the Act.-- Mr. Sastri contends that in construing the relevant statutory 982 provisions,  it would be necessary to bear in mind that  the provisions of the Indian Company Law are substantially based on the provisions of the English Company Law and so it would be necessary to enquire what the corresponding provision  of the English Law has been construed to mean.  The pattern  of the Indian Company Law is set by the English Company Law and the  principles enunciated by English decisions  in  dealing with the corresponding provisions of the English Company Law should  be followed when we are interpreting the  provisions of  the Indian company Law.  This argument proceeds  on  the assumption  that the ,Corresponding provision of the English Company  Law  permits  the payment of  commission  for  sub- scribing  for shares out of the profits of the Co. with  out any  limitation.   It is, therefore,  necessary  to  examine briefly this argument. The provision in the Company Law in regard to the payment of commission for subscribing for any shares was introduced  in the  English  Companies  Act  in the  form  of  an  enabling provision  in 1900 and it became necessary to make the  said enabling  provision  because of an earlier decision  of  the House of Lords in The Ooregum Gold Mining Co. of India, Ltd. And  George Roper  and Charles Henry Wallroth (1).  In  that case, the House of Lords had held that a company limited  by shares, formed and registered under the Act of 1862, had no, power  to  issue  shares  as  fully  paid  up  for  a  money consideration  less  than their nominal value.   It  appears that  the memorandum of association of a company  registered under  the,  Act  of 1862 stated that  the  capital  of  the company  was 125,000 divided into 125,000 shares of pound  1 each, and that the shares of which the original or increased capital  might  consist  might  be  divided  into  different classes  and  issued  with such  preference,  privilege,  or guarantee as the company might direct.  The company being in want of money

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(1)  (1892) A.C. 125.134.133.                             983 and  the  original  shares being At a  great  discount,  the directors in accordance with resolutions duly passed  issued preference  shares  of E1 each with 15s. credited  as  paid, leaving  a liability of only 5s. per share.  A  contract  to this  effect was registered under the Companies Act of  1867 s.25.  The transaction was bona fide and for the benefit  of the  company.   In an action by an ordinary  shareholder  to test the validity of the issue, it was held that reading the Companies  Acts  of 1862 and 1867 together,  the  issue  was beyond  the powers of the company, and that  the  preference shares  so far as the same were held by  original  allottees were held subject to the liability of the holder  to pay  to the  company ’m cash the full amount unpaid on  the  shares. In his ,speech, Lord Halsbury observed that "Two things were manifest in s. 25 of the Act of .1867. The shares to be held &abject  to the payment, and the payment is to be  in  cash. The amount is to be paid and the whole amount to be paid  in cash,  and to me it appears, looking at the latter  part  of the  section whereby a contract made and filed may.  qualify and  cut  down the form of payment, and that it  may  be  in goods  or  in value received in some. form,  instead  of  in cash,  it must nevertheless be payment." He also added  that "the capital is fixed and certain, and every creditor of the company  is  entitled  to  look  to  that  capital  as   his security."  Thus,  as a result of this decision,  it  become obvious  that no commission could be paid to any person  for his  subscribing  to the shares of the Company  out  of  the capital of the Co. It  was  as  a result of this decision that  section  8  was enacted  in the Act which was passed to amend the  Companies Act, in 1900.  Section 8(1) provided that               "Upon  any  offer of share to the  public  for               subscription,  it  shall  be  lawful  ’for   a               company to pay a commission to: any person               984               in   consideration  of  this  subscribing   or               agreeing  to subscribe, whether absolutely  or               conditionally, for any shares in the  company,               or   procuring   or   agreeing   to    procure               subscriptions whether absolute or conditional,               for any shares in the company, if the  payment               of  the commission and the amount or rate  per               cent.  of the commission paid of agreed to  be               paid   are  respectively   authorised   by-the               articles  of association and disclosed in  the               prospectus, and the commission paid or  agreed               to  be paid does exceed the amount or rate  so               authorised."               Sub-see. (2) provided that:               "’Save  as aforesaid, no company  shall  apply               for any of its shares or capital money  either               directly  or  indirectly  in  payment  of  any               commission,  discount,  or  allowance  to  any               person in consideration of his subscribing  or               agreeing  to subscribe, whether absolutely  or               conditionally, for any shares of the  company,               or   procuring   or   agreeing   to    procure               subscriptions,     whether     absolute     or               conditional,  for any shares in  the  company,               whether  the shares or money be so applied  by               being  added  to  the purchase  money  of  any               property  acquired  by the company or  to  the               contract price of any work to be executed  for

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             the  company, or the money be paid out of  the               nominal  purchase money or contract price,  or               otherwise."               Sub-sec.(3) added that               "But nothing in this section shall affect  the               power  of any company to pay such broke.  rage               as it has heretofore been lawful for a company               to pay." It  would  thus be seen that the difficulty created  by  the decision  of the House of Lords in the case of  The  Ooregum Gold Mining Co.’ of India Ltd. was                             985 overcome by this statutory provision and in consequence,  it became  lawful for the company to pay commission subject  to the conditions specified in the section.  It was because the legal  difficulty  created by the decision of the  House  of Lords was intended to be cured that the Legislature  enacted the  section  by providing that it shall be lawful  for  the company  to pay commission on the terms specified.  That  is the  genesis  of the expression "it shall be  lawful  for  a company to pay" with which the section begins. Then followed the Consolidating Act of 1908.  S. 89 of  this Act  dealt with the power of the company to  pay  commission and  discounts.  This section is more elaborate than s.8  of the Act of 1900, but in substance, the pattern. remained the same. Sec. 43 of the Act of 1929 introduced an important change by making an additional provision by which the. commission paid or  agreed to be paid was not to exceed 10% of the price  at which the shares are issued or the amount or rate authorised by the articles, whichever is the less.  In other words,  in 1929,  a ceiling was placed on the payment of commission  at 10%  of  the price.  After this Act was  passed,  commission paid  could not exceed 10% of the price at which the  shares were issued. The  Companies  Act, 1948 by s.53 has  maintained  the  same provisions  as those contained in s.43 of the  earlier  Act. That,  in  brief,  is  the  position  of  the  corresponding provisions in the English Companies Acts.  Mr.  Sastri  contends that the relevant provisions  of  the English Companies  Act have been construed to mean that  the ceiling on the payment of commission to which they refer  is payment  of co ion out of capital and not out-  of  profits. In  other  words,  the  argument  is  that  the  payment  of commission out of profits is outside the mischief of 986 the  relevant  English  provisions.   In  support  of   this argument  reliance  has been placed on the decision  of  the House  of Lords in Hilder And Dexter (1).  In that case,  to raise working capital a company offered shares at par to the appellant  and  some other persons with an  option  to  take further shares at par within a certain time.  The  appellant subscribed for shares, and the market price having risen  to a  premium, desired to take up the further shares.   It  was held  :  "that  this was not an  application  of  shares  of capital   money  directly  or  indirectly  in   payment   of commission, discount, or allowance within the meaning of the Companies  Act,  1900, s.8. Sub-s. 2  and  (the  transaction being  otherwise  unobjectionable  that  the  appellant  was entitled  to exercise the option," It would be noticed  that what  the  House of Lords was called upon  to  consider  was whether  an  application made by the appellant  for  further shares  offended  against the provisions of s. 8(2)  of  the English Act and the House of Lords held that it did not.  It is  true that the shareholder would have been able  to  sell

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his  shares at a premium and thereby obtain a  benefit,  but the said benefit cannot be said to have been obtained by him at  the  expense  of  the  company’s  capital.   Thus,   the application   made   by  the  appellant  was   outside   the prohibition  contained  in s. 8(2).  In  other  words,  this decision is directly a decision the construction of  s.8(2). It  has, however, been urged by Mr. Sastri that  in  dealing with  the construction of s. 8(2), Lord Davey in his  speech has considered s. 8(1) and observed that : "this sub-section permits  a limited application of the company’s  capital  in payment  of  a  commission." The whole  of  the  appellant’s argument  is  base on this sentence.  It is  suggested  that this  sentence amounts to a decision that the provisions  of a.  8(1) have reference to the payment of commission out  of capital and, therefore, have no reference to the payment  of commission (1)  (1902) A.C. 474, 479.                             987 out  of  profits.   We  are  not  inclined  to  accept  this contention.   It  is clear that in the case of  Hilder,  the House  of Lords bad no occasion to consider whether  or  not commission could be paid out of profits.  That point  simply did not arise in that litigation.  The question which  arose was whether that was a case of payment out of capital  which was  prohibited  by s. 8(2) and it is in  that  context  and while  dealing  with  the  narrow  controversy  between  the parties  that  an observation has no doubt  been  made  that section 8(1) permits an application of the company’s capital in payment of a commission in a limited way.  This statement cannot  be  taken to be an exhaustive interpretation  of  s. 8(1) so that it should be possible to hold that by necessary implication  it  was intended ’to lay down that  payment  of commission out of profit was not within the purview of  this section.   Therefore,  we  are not prepared  to  accept  the assumption  made  by the appellant that this decision  is  a direct  authority on the’ point that payment  of  commission out of profits is not covered by a. 8(1) or by  the-relevant provisions in the subsequent English Companies Acts. It is then argued that authoritative text. books on  Company Law  support  the view that payment, of  commission  out  of profits is not prohibited by the English Companies Law.   In the  "Handbook on Joint Stock Companies" by Gore-Browne,  it is  observed : that there is no prohibition  against  paving commission unconditionally ‘out of profits’, ’and this would seem to be lawful unless contrary to any stipulation in the, Articles.,"  (p.  191).   Buckley Oil  the  Companies  Acts’ observes that : ’,the prohibition is against application  of "shares  or capital money,’ and payment of commission    out of  a fund of undistributed profit is not, a all events  not expressly, forbidden by the section." (p. 132).  It in clear that this statement is somewhat cautious 988 and  not  as unqualified as the statement in  Gore  Browne’s Handbook.   In  Palmer’s Company Precedents it  is  observed that the provisions of s. 53(2) of the Act of 1948 "leave it company  at liberty to apply any of its ‘profit’  in  paying commissions  in accordance with the practice above  referred to  as  existing  before the Act of  1900."  (p.  179).   In Palmer’s  Company  Law,  however,  the  position  is  stated somewhat  differently.   Referring to section 53(2),  it  is observed that : "if the words used are intended to  restrict sub-sec.(1)  so as to make it only lawful to pay  commission out  of the newly issued ,shares or capital money,  received for  them,  the payment of commission out of  profits  would appear  to be prohibited by a. 54 which prohibits a  company

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to  give any financial assistance in connection with,  inter alia, the subscription of its own shares.  If, on the  other hand,  sub-sec. (2) does not intend to restrict  sub-sec.(1) but  contains  a  separate and  independent  provision,  the application  of profit of the company within the  limits  of sub-section  (1)(b)  of s.53 would be  permissible.   It  is thought  that the latter interpretation is correct and  that the  words, in sub-sec.(2) of s.53 are intended to  make  it clear that the former practice may be continued under  which a  company  could  use  its  profits  for  the  payment   of commission within the permitted limits." (p. 200).  It would thus  appear that the last observation seems to support  the view  that the prohibition contained in s.53(1)  applies  as much to payments made out of capital as to payments made out of profits. It  is thus clear that the views expressed by the  different writers on Company Law disclose a difference of approach and do  not  appear to be based on any  judicial  decision.   In fiat,  though Mr. Sastri conceded that there was  no  direct decision on this point, he contended that the absence of any judicial decision shows, that the point was never  disputed. On the other hand, Mr. Aggarwala                             989 contends  that the absence of any judicial  decision  speaks for  the  fact  that nobody ever  thought  that  payment  of commission  could be made out of profits beyond  the  limits prescribed  by the relevant  statutory  provision.   However that may be, in view of the material placed before us, we do not  think  it  would  be safe for us  to  assume  that  the position under the English Law is established either one way or the other and for obvious reasons, we would be  reluctant to  embark  upon  an enquiry on that  point  by  seeking  to interpret the relevant English provisions ourselves. Let  us, however, assume that the true legal position  under the  relevant  provision of the English statute  is  as  the appellant contends.  Does it follow therefrom that we should approach  the  problem  of construing s. 76  with  the  pre- conceived  notion that s. 76 provides exactly for  the  same position  ? In our opinion, the answer to this question  has to  be against the appellant.  Lot us first read a.  105  of the.   Indian Companies Act of 1913 and s. 76 of the Act  of 1956 side by side.  Section 105 reads thus :-               "Power   to   pay  certain   commissions   and               prohibition  of payment of all  other  commis-               sions, discounts, etc.               (1)   It shall be lawful for a company to  pay               a commission to any person in consideration of               his  subscribing  or  agreeing  to  subscribe,               whether  absolute  or conditionally,  for  any               Shares  in  the  cow  any,  or  procuring   or               agreeing  to  procure  subscriptions,  whether               absolute or conditional, for any shares in the               company, if the- payment of the commission  is               authorised by the articles and the  commission               paid or agreed to be paid does not exceed  the               amount or rate so authorised and if the               990               amount  or  rate per cent. of  the  commission               paid or agreed to be paid is-               (a)   in  the  case of shares offered  to  the               public  for  subscription,  disclosed  in  the               prospectus; or               (b)   in the cases of share not offered to the               public  for  subscription,  disclosed  in  the               statement  in  lieu  of prospectus.  or  in  a

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             statement  in  the prescribed form  signed  in               like   manner  as  a  statement  in  lieu   of               prospectus  and filed with the Registrar  and,               where  a  circular  or notice,  ’not  being  a               prospectus   inviting  subscription  for   the               shares  is  issued,  also  disclosed  in  that               circular or notice.               (2)   Save  as aforesaid and save as  provided               in a. 105A, no company shall apply any of  its               shares  or  capital money either  directly  or               indirectly  in  payment  of  any   commission,               discount  or allowance, to any person in  con-               sideration  of his subscribing or agreeing  to               subscribe,      whether     absolutely      or               conditionally, for any shares of the  company,               or   procuring   or   agreeing   to    procure               subscriptions,     whether     absolute     or               conditional,  for any shares in  the  company.               where  the  shares or money be so  applied  by               being  added  to  the purchase  money  of  any               property  acquired  by the company or  to  the               contract price of any work to be executed  for               the  company. or the money be paid out of  the               nominal  purchase-money or contract price,  or               otherwise."               Section 76(1) and (2) reads thus :               "(1)  A  company may pay a commission  to  any               person in consideration of               (a)   his    subscribing   or   agreeing    to               subscribe,   whether  absolutely  or    condi-               tionally, for any shares in, or debenture,                991               of, the company, or               (b)   his  procuring  or agreeing  to  procure               subscriptions, whether absolute or conditional               for.  any  shares in, or  debentures  of,  the               company,  if  the  following  conditions   are               fulfilled,               (i)   the   payment  of  the   commission   is               authorised by the articles ;               (ii)  the commission paid or agreed to be paid               does  not exceed in the case of  shares,  five               per cent of the price at which the shares  are               issued or the amount or rate authorised by the               articles, whichever is less,, and in the  case               of debentures, two and a half per cent of  the               price  at Which the debentures are  issued  or               the  amount  of  the rate  authorised  by  the               articles, whichever is less ;               (iii) the  amount  of rate per  cent.  of  the               commission paid or agreed to be paid is-in the               case  of shares or debentures offered  to  the               public for subscription, disclosed in the pro-               spectus : and in the case of shares or  deben-               tures   not   offered  to   the   public   for               subscription,  disclosed in the  statement  in               lieu of prospectus, or in a statement in  ’the               prescribed  form  signed in like manner  as  a               statement  in  lieu of  prospectus  and  filed               before the payment of the commission with  the               Registrar and, where a circular or notice, not               being  a prospectus inviting subscription  for               the  shares  or debentures,  is  issued,  also               disclosed in that circular or notice ; and               (iv)  the number of shares or

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             992               debentures  which  persons have agreed  for  a               commission   to   subscribe   absolutely    or               conditionally  is  disclosed  in  the   manner               aforesaid               (2)   Save  as aforesaid and save as  provided               in section 79, no company shall, allot any  of               its  shares or debentures or apply any of  its               capital moneys, either directly or indirectly,               in  payment  of any  Commission,  discount  or               allowance, to any person in consideration of-               (a)   his    subscribing   or   agreeing    to               subscribe,   whether  absolutely"  or   condi-               tionally for any shares in, or debentures  of,               the company or,               (b)   his  procuring  or agreeing  to  procure               subscriptions,     whether     absolute     or               conditional, for any shares in, or  debentures               of, the company,               whether the shares, debentures or money be  so               allotted  or  applied by being  added  to  the               Purchase money of any property acquired by the               company  or to the contract price of any  work               to be executed for the company or the money be               paid  out  of the nominal  purchase  money  or               contract price, or other- A  comparison of the two sections will show that a.  76  has made  three  departures  from s. 105 ; first  it  begins  by saving  that  "a  company may pay  a  commission"  and  this expression has substituted the earlier expression "it  shall be lawful for a company to pay commission".  It is true that this  change  is  not very significant;  but  it  cannot  be treated as of no significance at all and it may be 993 that  by  adopting the present expression,  the  Legislature wanted to indicate that s. 76 unlike its predecessor a. 105, was  not intended to be merely an enabling provision.   Then it  would be noticed that the substantial part of a.  105(1) has  now been put more categorically and definitely  in  the form  Of conditions in s. 76 and that may suggest that  what a.  76(1)  purports to, do is to authorise  the  payment  of commission but subject only to the limitations prescribed by it.   In other words, it is a section which enables  payment to be made and prohibits payment being made beyond the limit prescribed.  The third change which is very material is that debenture  are  included within its purview.  It  is  common ground  that so far as, commission payable on debentures  is concerned,  there never was any prohibition in the-  English Law  or in the Indian Law; and so, if s. 76(1) was  intended merely  to be an enabling provision it was hardly  necessary to  include debentures within its scope.  The  inclusion  of debenture  marks  an important departure from  the  position under  s.  105  of  the. earlier Act as  well  as  from  the position  under the corresponding Provisions of the  English statute.   Therefore,  having regard to the  scheme  of  the present  s. 76(1), it would, we think, not be legitimate  to attempt  the  task of construing the said provision  with  a preconceived notion as suggested by the appellant for it may well be that the object intended to be achieved by this sub- section is different from the object intended to be achieved by the corresponding provision in the English Law. Besides,  it  would be relevant to recall that  one  of  the objects   of  the  Act  clearly  was  to  impose   stringent restrictions upon payments out of profits ’of the company to the  Managing  Agents, Directors,  Managing  Directors,  and

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others  concerned with the management of the affairs of  the company.  This object has been expressly achieved by several provisions in the Act, such as sections 348, 352 and 994 387.   The  anxiety of the Legislature to save  the  profits made  by  the company and to  prevent  extravagant  payments being made out of them which is a distinguishing feature  of the Act, also shows that it would not be safe to assume that s.76(1)  must  have  intended to achieve  exactly  what  the corresponding  provision in the English statute intended  to achieve.   Therefore, we do not think it would be  right  to assume at the very outset that the payment of commission out of profits is outside the provisions of s. 76 because it  is not  included in the corresponding provision in the  English law. After all, the question which has been raised before us in the present appeal must be determine by us on a fair  and reasonable construction of s.76(1) and (2) and it is to that problem that we must now turn. In construing section 76 (1) and (2), it would be  necessary to  bear  in mind the relevant rules of  construction.   The first rule of construction which is elementary, is that  the words  used  in  the  section  must  be  given  their  plain grammatical  meaning.   Since we are dealing with  two  sub- sections  of s. 76, it is necessary that the said  two  sub- sections must be construed as a whole "each portion throwing light,  if need be, on the rest." The two sub-sections  must be  read as parts of an integral whole and as  being  inter- dependent;  an attempt should be made in construing them  to reconcile them if it is reasonably possible to do so, and to avoid repugnancy. if repugnancy cannot possibly be  avoided, then  a  question may arise as to which of  the  two  should prevail.   But  that question can arise only  if  repugnancy cannot be avoided. The  important part in s. 76(1) with which we  are  directly concerned is the one that provides that the commission  paid or  agreed  to  be paid does not exceed  the  limit  therein prescribed.  One of the conditions which has to be satisfied in the matter 995 of  payment  of commission to a person subscribing  for  any shares  is’ that the said commission shall not exceed 5%  of the  price at which the shares are issued or the  amount  or rate  authorised by the articles, whichever is less.  It  is significant  that this provision seeks to place an  absolute ceiling  on  the payment of commission and in doing  so,  it refers  to  the commission generally as such  and  does  not refer to the commission paid either out of capital or out of profits,  so that a. 76(1) read by itself unambiguously  and clearly  prescribes a ceiling on the payment  of  commission what  ever may be the source from which the said  commission may  be paid.  We have already seen that a. 76(1) cannot  be treated  merely as an enabling section.  This  position  has been  conceded by the appellant before us, and so there  can be  no  doubt  that the ceiling placed  on  the  payment  of commission  is intended to act as a prohibition against  the payment   of  any  commission  beyond  the   said   ceiling. Therefore,  s. 76(1)(i)(ii) leaves no doubt that  it  covers commission paid either out of capital or out of profits. Section  76(1)(b)(i) prescribes another condition  that  the payment’ of commission is authorised by the articles.  Since the  payment  of commission. which is referred  to  in  this clause  is commission payable either for the shares  or  for the  debentures, it may be relevant to consider whether  the commission  here referred to can be commission only  out  of capital.   Ordinarily, commission paid for debentures  would

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be  commission out of debenture money or profit* though,  of course  it is conceivable that the commission  on  debenture may  also  be paid out of capital.  ’But  if  commission  on debentures can be paid out of profits. then it would not  be unreasonable  to  assume that the Raid provision  refers  to commission  payable  not  only out of  capital  but  out  of profits  as  well.  The inclusion of debentures  within  the scope   s. 76 suggests that the commission  mentioned  scope 76(1) (c)(i) would not 996 on  a  reasonable construction be confined to  a  commission payable out of capital alone. Clause  (iii)  of  s. 76 (1)(b) seems to  suggest  the  same conclusion.   Under  this clause, the condition  imposed  is that  the amount or rate per cent of the commission paid  or agreed to be paid is in the case of shares or debentures not offered  to  the public for subscription, disclosed  in  the statement  in lieu of prospectus, or in a statement  in  the prescribed form signed in like manner as a statement in lieu of prospectus and filed before the payment of the commission with  the Registrar.  In construing this clause, it  may  be useful  to refer to section III of the Act of  1913.   Under that   section,  particulars  in  case  of   commission   on debentures  had to be filed and it cannot be  disputed  that the  said  particulars would also refer  to  particulars  of commission  paid out of profits.  Now that  debentures  have been brought under s. 76, would it be unreasonable to assume that  under  the  particulars required  to  be  filed  under condition (iii), particulars in regard to commission payable out  of  profits are also required to be  filed?   In  other words, the word ,commission" used in cl. (i) and (iii) seems to refer to commission paid not only out of capital but also out of profits in relation to debentures.  That incidentally supports the construction that the word "commission" used in clause  (ii)  cannot  be confined  only  to  the  commission payable  out  of capital.  Indeed, if s. 76(1)  is  read  by itself, there can be no doubt or difficulty in coming to the conclusion that commission there contemplated is  commission payable both out of capital as well as profits. The  argument,  however,  is that if  this  construction  is accepted,  there  would be repugnancy between the  two  sub- clauses of, a. 76.  It is therefore, necessary to examine s’ 76(2)  because as we have already seen,  before  determining the  true scope and effect of a. 76(1) and (2) we must  read them together as parts of an integral who e. Now what does                             997 S.   76(2) provide?  It provides that no company shall allot any of its shares or debentures or apply any of its  capital moneys,  either  directly or indirectly, in payment  of  any commission, discount or allowance, to   any    person     in consideration of the objects therein    specified,  save  as aforesaid and as provided in a.    79. In other words,  what is prohibited by sub-s. 2 is  gave as aforesaid in s.  76(1) just  as it is save as provided in s. 79.  That  means  that prohibition enacted by s. 76(2) has to be worked out in  the light of s. 76(1) and s. 79.  The prohibition imposed by  s. 76(1) is in general terms and it includes payments from  any source  or  fund.  The  Legislature  knew  that  payment  of commission may be made by adopting several devices and  what sub-s. (2) intends to achieve is to prohibit the adoption of such devices by making it clear that whatever be the  nature of the device adopted, if the object of the device is to pay commission, then it must conform to the limit prescribed  by s.  76(1),  It  is  well-known  that  sometimes  shares   or debentures  are  allotted  or capital money  is  applied  in

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payment  of commission.  Similarly, under the garb  of  what ’may ostensibly be lawful payments, for instance, in respect of purchase money of any property acquired by the company or the  contract  price  of ’any work to be  executed  for  the company,  commission may be paid; the purchase price of  any property  or the contract price of any work may be fixed  so as  to  include  something  more than  its  real  value  the difference being intended to be paid as commission.  It  was in  view  of these devices which the Legislature  knew  were being  adopted for the payment of commission that  s.  76(2) has  been inserted in the form which it has taken.   As  has been observed by Craies "On Statute Law’, provisos are often inserted  "to  allay fears" or to  remove  misapprehensions. Just  as s. 76(2) has to be read in the light of s.  79  and subject  to  its provision, so it has to, be  ’read  in  the light of s. 76(1) and subject to its provision.  In 998 other  words, in order to clarify the position in regard  to the devices which may be adopted to defeat the limit imposed by s. 76 (1), the Legislature has provided by s. 76 (2) that these devices are also subject to s. 76(1) and payments  can be  made under those garbs or devices, provided they do  not exceed  the  limit prescribed by 8. 76(1). In  our  opinion, therefore,  far from there being any conflict or  repugnancy between s. 76(1) and a. 76(2) they constitute one integrated provision, one of the objects of which is to impose a  limit on the payment of commission either in respect of shares  or in  respect of debentures.  The anxiety to save the  profits of  the company is as much in evidence in s. 76(1) as it  is in other sections to which we have already referred. Mr. Sastri however, contends that the proper way to read  a. 76(1)  and  (2)  would  be to  treat  s.76(2)  as  the  main provision and s. 76(1) as a proviso to it.  His argument was that  s.  76(2) puts a blanket ban on the allotment  of  any shares  or  debentures  or the application  of  any  capital moneys and s.76(1)relaxes the ban by allowing the payment to be  made  within the limits prescribed and  subject  to  the conditions  therein specified.  The ban imposed by s.  76(2) is  in respect of capital and not in respect of profits  and so  the relaxation from the ban prescribed by a. 76(1)  must likewise  be confined to capital and cannot be  extended  to profits.    In   our  opinion,  this  is  an   argument   of desperation.   What we are asked to do by Mr. Sastri  is  in substance,  to rewrite the two subsection of s. 76 and  that we   cannot  legitimately  do,  particularly  when  on   the alternative  construction  it  is found  that  there  is  no repugnance between the two sub-sections.  On the appellant’s view,  we have to ignore the opening words in a.  76(2)  and substitute the said words in s. 76(1).  That clearly is  the function of the Legislature which enacts laws and not of the Court  which interprets them.  Therefore..’ in our  opinion, the learned Judges of the High Court were right when                             999 they held that a claim for commission out of the profits  of the company which the appellant seeks to make in the present suit is hit by is. 76(1) and cannot be entertained. In  this connection, there are two other points  which  have been urged before us by Mr. Aggarwala.  He contents that  if s.  76(1)  and (2) are read as confined to  the  payment  of commission  from  out  of the capital,  there  would  be  no provision  for payment of commission out of profits  at  all and  so the plaintiff’s claim would have to be dismissed  on that  ground.   The argument is that the Act is  a  Consoli- dating  Act  and as such, it would be legitimate  to  assume that the relevant provisions of s. 76 deal exhaustively with

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the topic of the payment of commission in respect of  shares and debentures.  If that be so, whatever is not provided for by  s.  76  could not be claimed after the  passing  of  the Consolidating   Act.   Similarly,  it  is  urged   that   if commission  payable out of profits in respect  of  dividends was intended to be saved a provision would have been made in s..  76 corresponding to the provision made by s.  76(3)  in regard to brokerage. a. 76(3) provides that nothing in  this section  shall affect the power of any company to  pay  such brokerage as it has heretofore been lawful for a company  to pay.   There is no such provision in respect of  payment  of commission out of profits in relation to debentures.   There may be some force in these contentions.  Before  we part with this subject, it would be relevant  to state  that in 1960, s. 76(2) has been amended by s.  22  of the  Amending Act (No. 65 of 1960) and as a result  of  this amendment,  the  word  ’capital’ has been  deleted.   It  is common  ground  that after this amendment was  effected,  a. 76(1)  and  (2) both refer to payment of commission  out  of profits  as  well as out of capital.  As.  we  have  already seen,  the whole of the argument urged by the  appellant  on the construction of’ s. 76(2) was substantially based on the use of the expression "any of its 1000 capital  moneys".  The word "capital" having  been  deleted, the  provision  of  s.  76 (2) is  wide  enough  to  include profits.  Therefore, there can be no doubt that after  1960, the limit imposed on the payment of commission in respect of shares and debentures applies as much to commissions out  of capital  as to those which are paid out of profits.  It  May be permissible to assume that by the amendment made in 1960, the Legislature hat; attempted to remove doubt that may have arisen  owing to the use of the .word "capital" in s.  76(2) and  has  now made its intentions clear  beyond  any  doubt. This amendment along with several others which were made  in 1960 was presumably the result of the recommendation of  the Committee  appointed  in that behalf.  In  its  report,  the Committee  observed that "in order to remove any  doubt,  we would  recommend the deletion of the word "capital" from  s. 76(2)",  Thus,  it  is clear that the point  raised  in  the present appeal cannot arise under the amended provisions  of s. 76. That leaves one minor point-still to be considered.  It  was urged  in  the  Courts below that the provisions  of  a.  76 cannot   be  invoked  against  the  appellant  because   the agreement  on which the appellant rests his claim  was  made prior  to the 1st April, 1956 when the Act came into  force. The  contention appears to have been that in’  invoking  the provisions  of s. 76, respondent No. 1 was seeking  to  make the  said provision retrospective which it is not.   In  our opinion, there is no substance in this argument.  Section  9 of  the Act is a clear answer to this contention.  Under  s. 9(a)  any.  agreement  executed by’  the  company  cannot  I prevail if it is inconsistent with the provisions of the Act and under a. 9(b) the articles shall likewise not prevail if they  are  inconsistent  with the’ provisions  of  the  Act. Section 645 leads to the same conclusion. The result is, the appeal fails and is dismissed with costs.                             1001 SARKAR.,  J.-The respondent Shri Changdeo Sugar  Mills  Ltd. was incorporated as a ’private company on September 1, 1939. The  appellant,  the  respondents  Nos.  2  and  3  and  one Kasturchand  Srikrishna,  since deceased, had  promoted  its formation.   On  December 18, 1939, the  respondent  company entered   into  separate  agreements  with   the   promoters

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providing  that  "In  consideration of the  help  given  and trouble taken by you promoters and in consideration of  each of you having agreed to take shares of the value of one  and half lac of rupees in the capital of the company and  having taken  the said shares the company enters into an  agreement with  you as well as with other three promoters as  follows: (1)  The company............... will ............ pay a  sum equal  to  3-  1/8 per cent out of the net  profits  of  the company   to  each  of  you  promoters  or  his  heirs   and representatives, executors, administrators or assigns".  The promoters  duly took the shares mentioned in the  agreements and  became entitled to receive, taken all together,  12-1/2 per cent of the profits of the respondent company.   Article 3 (of the Articles of Association of the respondent  company provided  that it would enter into the aforesaid  agreements with the promoters. In  1941, the respondent company was involved  in  financial difficulties  and on April 22, 1941, a tripartite  agreement was  made  between it and a firm  called  Ardeshir  Harmusji Bhiwandiwalla  and Co. and the promoters under which it  was provided  that  the  firm or its nominee  would  become  the managing  agent of the respondent company and the  promoters all  together  would receive "6-1/4  percent  as  promoters’ commission  instead  of 12-1/2 per cent as provided  in  our respective agreements with the company" that is to say,  the agreements of December 18, 1939.  In terms of this agreement article 3 of the Articles of Association of the company  was duly  amended.  An agreement was also  specifically  entered into by 1002 the respondent company with each of the promoters. In  1944,the respondent company was converted into a  public limited  company.  On June 10, 1944, Kasturchand  Srikrishan died   and  his  interest  under  the  agreements   is   now represented  by  respondents  Nos.  7  to  10.    Presumably respondent  No. 3 had taken the shares and entered into  the agreements as representing a joint family, for it is not  in dispute  that on a partition between respondent No.  3  ’and his  co-sharers, respondents Nos. 4 to 6 became entitled  to participate  in the interest of respondent No. 3  under  the agreements and in the shares. In September 1944, three suits were pending in the Hi, Court at Bombay between the respondent company, the  beneficiaries under the agreements and the said Bhiwandiwalla & Co. to the details  of  which it is unnecessary to refer for  the  said suits  were  however compromised.  The terms  of  settlement provided that (a) all the suits would be mutually withdrawn; and, (b) "The promoters commission payable to us four  which is Rs. 1-9-0 to each of us and which comes to 6-1/4  percent in the aggregate payable out; four under the agreement shall remain  in.  force  as in the agreement  and  our  right  of commission shall continue accordingly".  The word us’ in the terms  of  settlement  means  the  beneficiaries  under  the agreements. The respondent company paid the commission at the said  rate of  6-1/4 percent to the beneficiaries under the  agreements upto September 30, 1955.  On October 1, 1956, the respondent company  informed the appellant and the other  beneficiaries that  as from April 1, 1956, when the Companies  Act,  1956, had  come into force, the agreements had become illegal  and void.   It was said that so; 76 of the Companies Act,  1966, prohibited  all  payment of commission for  subscribing  for shares in excess of 5 per                             1003 cent  of the price at which the shares were issued.   It  is

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not  in  dispute  that  what the  appellant  and  the  other beneficiaries had been paid as commission exceeded five  per cent of the price, at which the shares had been issued.  The respondent  company therefore contended that  the  appellant and the other beneficiaries were not entitled to any further commission. The  appellant  disputed the contention of’  the  respondent company and filed a suit in the High Court at Bombay against it   in  which  the  other  beneficiaries  were  also   made defendants for a declaration that the agreements of December 19, 1939, as modified on April, 22, 1941, were valid and for an  injunction  restraining  the  respondent  company   from passing  a resolution deleting article 3 of its Articles  of Association  as  it-proposed to do and from  acting  on  the footing  as  if  the  said  agreements  were  illegal.   The appellant contended that s. 76 of the Companies Apt of  1956 prohibited payment of commission for subscribing for  shares beyond  the limit specified out of capital only and  as  the agreements   provided for payment of the commission  out  of profits, they were not affected by that section at all. The  suit  was contested by the respondent company  but  the other   defendant  supported  the  appellant’s  case.    The respondent  company  contended that the section  applied  to payment of commission both out of capital as well as out  of profits.  The suit was heard in the first instance by S.  T. Desai,  J,  and was dismissed.  An appeal  to  an  appellate Bench  of  the High Court was also  dismissed.  The  present appeal  is  against the judgment of the Appellate  Bench  by special leave granted by this Court. I  shall have presently to refer to the provisions of a.  76 but  before doing so.  I think it necessary to refer to  the previous state of the law.. In 1004 England,  prior to the Companies Act of 1900, there  was  no statutory  provision  concerning payment of  commission  for subscribing  for  shares  and such  a  provision  was  first enacted by s. 8 of that Companies Act.  Even before the  Act of  1900, however, the law was that anybody subscribing  for shares  in a company had to pay the amount of the shares  in frill.   That  was considered to be one of  the  fundamental principles of Company law.  Ooregum Gold Mining Co. of India Ltd, V. George, Roper (1) was a case which turned on the law as it stood before 1900.  There a company had issued  shares of  pound  1  each with 15s credited as paid  up  leaving  a liability  of only 5s per share.  A shareholder  brought  an action to test the validity of the issue.  It was held  that the  issue  was invalid.  Lord Halsbury  observed  (p.)  "It seems  to me that the system thus created 133, by which  the shareholder’s  liability  is  to be limited  by  the  amount unpaid  upon  his  shares, renders  it  impossible  for  the company  to  depart  from  that  requirement,  and  by   any expedient to arrange with their shareholders that they shall not be liable for the amount unpaid on the shares,  although the amount of those shares has been,, in accordance with the Act of Parliament, fixed, at a certain sum of money.  It  is manifest  that if the company could do so the  provision  in question would operate nothing".  The provision referred  to by Lord Halsbury was the section which required the memoran- dum  of  association to state the amount  of  the  companies capital  as divided into shares of a certain  fixed  amount. Such a provision of course occurs in our Companies Act too. This decision made it impossible for a company to pay out of its capital any commission to any person for subscribing for its   shares.    It  was  felt  that   this   created   some inconvenience to a company in the management of its  affairs

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and therefore a. 8 was incorporated in the Companies Act, 1900 (1) (1892) A.C. 125, 133. 1005 with  the  intention of granting some  relief  against  that inconvenience.   Sub-section  (1) of this  section  provided that it would be lawful for a company to pay commission to a person in consideration of his subscribing for any shares in the  company if the amount or rate of it  were  respectively authorised  by the Articles of Association and disclosed  in the  prospectus and the commission paid, did not exceed  the amount or rate so authorised.  Sub-section (2) provided that save as aforesaid no company could apply any of its  capital money,  either  directly or indirectly, in  payment  of  any commission to any person in consideration of his subscribing for  any shares in the company.  This provision came up  for consideration before the House of Lords in Hilder v.  Dexter (1).  There a company had in consideration of person  taking up  some  of its shares entered into an agreement  with  him that  he would have an option to take further shares at  par within  a  certain time.  A little later the  price  of  the shares  ’went up and the person then exercised  his  option. An action was thereupon brought by a shareholder to test the validity of this agreement, and it was held by the House  of Lords  that the agreement was valid.  Lord  Davey  observed, "In  this  case  the question is as to  the  powers  of  the company  itself,  and  not as to the  due  exercise  of  the directors’  powers.   I have come to the conclusion  from  a consideration  of the language of s. 8, sub-s. 2,  that  the prohibition   therein   contained  extends   only   to   the application, direct or indirect, of the company’s capital in payment of a commission by the company, and the  transaction impeached in this case is not within it.  It is satisfactory to  find that the conclusion to which I have come  will  not have the effect of extending the prohibition to  transaction which  were legitimate before the Act, and not, so far as  I am  aware, open to objection on any other around."  He  also said  referring  to  sub-s.  1 of  s.  8  ,This  subsection, therefore,, permits a limited application (1)  (1902).  A.C. 474,481, 479. 1006 of the company’s capital in payment of a commission". Now there is no doubt to the Act of 1900 there ,was  nothing to  prevent  the payment of commission for  subscribing  for shares  out  of a company’s profits.  The  decision  in  the Ooregum Gold Mining Company case (1) only laid down that the amount of the shares must be paid in full.  It. would not be so  paid  if  the  capital  was  utilised  for  payment   of commission  for subscribing for shares.  It was,  therefore, the legitimacy of transactions providing for payment of  the commission out of profits that Lord Davey was happy to  feel that his decision would not affect.  It is hence, plain that the  House of Lords was of the opinion in Hilder  v.  Dexter (2) that s. 8, sub-s. 2 of the Act of 1900 was not concerned with payment of commission out of profits.  That is how that case  has been understood in England:’ see Palmer’s  Company Precedents,  17th ed; vol. I p, 179, Palmer’s  Company  Law, 20th ed. p. 200.  See also Sarkar & Sen’s.  Indian Companies Act, 1913, p. 302. It  seems  to me that no other view is possible.   There  is nothing in any Companies Act, except where it expressly does so,  to. restrict in any way the power of a company to  deal with  its profits.  A company is, therefore, free  to  enter into  any  agreement entitling any person to a part  of  its profits  in consideration of his subscribing for  shares  in

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it.  That was the law as it existed before the Act of 1,900. The  view taken in Hilder v. Dexter (2) was that  there  was nothing  in s. 8 of that Act which effected a change in  the pre-existing law.  In spite therefore of that Act, a company retained  fully  its  powers  to  pay  out  of  its  profits commission  for  subscribing for shares in it.  I  think  it right. to remind here that we are dealing with the powers of a company and not of its directors. Section 8 of the Act 1900 was replaced by a. 89    of    the English Companies Act of 1908 and this (1) (1892) A.C. 125, 133.  (2) (1902) A.C. 474,481, 479. 1007 in  its  turn  was  substituted by  s.  43  of  the  English Companies Act of 1929 and the corresponding provision is now contained  in  s. 53 of the English Companies Act  of  1948. Substantially the provision in this regard has remained  the same in England throughout from 1900 except. that in 1929  a further  restriction was put on the right to pay  commission for subscribing for shares by providing that the  commission paid shall not exceed 10 per cent of the price for which the shares  were issued or the amount or rate authorised by  the articles  whichever  was less.  That restriction  could  not have  effected a change in the law as it previously  existed in  England  in  regard  to payment  of  commission  out  of profits. Now  in our country a. 105 of the Companies Act of 1913  for the  first  time introduced the provision  corresponding  to that  contained  in s. 8 of the English Act of  1900.  Both, therefore, on the general principles underlying Company law, under  which  a company, except in cases  where  an  express provision to the contrary is made, is free to deaf with  its profits  in such manner as it likes and on the authority  of Hilder v. Dexter (1) which in my view would  be        fully applicable to our Companies Act of 1913,     a  company   in our country could enter into a valid    agreement to pay any commission  it liked out of its profits  to any  person  for subscribing for shares in it.  I may here add that s. 105 of the Companies Act, 1913 was in terms substantially the  same as s. 8 of the English Companies Act of 1900.  It  contained no provision restricting the amount of the commission to be, paid. I now turn to a. 76 of our Companies Act 1956.  It  provides by  sub-s. (1) that "a company may pay a commission  to  any person in consideration of his subscribing......... for  any shares  in  or  debentures of the  company.........  if  the following conditions are fulfilled." These conditions are, (1)  (1902) A.C. 475, 481, 479. 1008 (i)  the  payment  of the commission is  authorised  by  the articles., (ii) the  commission-paid  does not exceed in  the  case  of shares,  5  per cent of the price at which  the  shares  are issued  or  the amount or rate authorised by  the  articles. whichever is less, and in the case of debentures, 2-1/2  per cent of the pride at which the debentures are issued or  the amount  or  rate authorised by the  articles,  whichever  is less; (iii)     the  amount or rate of the commission paid  ...... is,  in  the  case of shares or debentures  offered  to  the public for subscription, disclosed in the prospectus, in the case  of shares or debentures not offered to the public  for subscription,   disclosed  in  the  statement  in  lien   of prospectus,  or in a statement in the prescribed  form.  and duly  signed and filed before the payment of the  commission with  the  Registrar and, where a circular  or  notice,  not

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being  a prospectus inviting subscription for the shares  or debentures  is  issued, also disclosed in that  circular  or notice. Now,  the question that arises is whether  this  sub-section has made any alteration in the law which previously  existed and which, for the reasons earlier stated, I think permitted commission  to  be  paid freely out of  profits.   In  other words,  does  this  sub-section, as  it  stands,  Prevent  a company from paving any commission it likes out of its  pro- fits to any person for subscribing for shires in it?  I find nothing  in  it  to indicate that a change in  the  law  was intended.   It is said that the permission granted  by  sub- s.(1)   is  not  expressly  confined        to  payment   of commission  out of capital only.  Neither, however, does  it say  that  the enabling provision contained in it is  to  be applied  to payment of commission out of profits also.   How then  is this sub-section to be construed?  Now one  of  the established rules of construction of statutes is that it  is to be presumed "that the legislature does not intend to make any substantial alteration in the law beyond 1009 what  it explicitly declares, either in express terms or  by clear implications, or, in other words, beyond the immediate scope  and  object of the statute.  In all  general  matters outside those limits the law remains undisturbed.  It is  in the  last  degree  improbable  that  the  legislature  would overthrow fundamental principles, infringe rights, of depart from  the  general  system of law,  without  expressing  its intention with irresistible clearness. and to give any  such effect to general words, simply because they have a  meaning that  would lead thereto when used in either  their  widest; their usual, or their natural sense, would be to give them a meaning  other  than  that  which  was  actually   intended. General  words  and  phrases, therefore,  however  with  and comprehensive  they  may be in their  literal  sense,  must, usually, be construed as being limited to the actual objects of  the Act." (Maxwell on Interpretation of  Statutes,  10th ed., p.(81-82). I  have earlier stated that under the Act of 1913 a  company was  free to pay any commission out of its profits it  liked to persons subscribing for shares in it.  I find nothing  in sub-s.  (1) of a. 76 to indicate that rule of law  which  is based  on  the fundamental principles of  Company  law,  was intended  to  be affected by it.  The only  substantial  de- parture  made  in  s. 76(1) of the, Act  of  1956  from  the provisions  in a. 105 of the Act of 1913, except another  to which I will later refer, is the imposition of a restriction on the amount of commission that can be paid.  That  cannot, to  my  mind, furnish any reason for holding that  the  pre- existing  ’law  giving  full liberty to  a  company  to  pay commission out of profits was intended to be changed.   That restriction  will have full scope if applied to payment  out of  capital and does not itself indicate any source  out  of which the restricted commission  is to be paid.   Therefore, it seems to me that the proper way of reading sub-s. (1)  of s.  76 is to restrict its general words so as not to  affect the preexisting law.  So 1010 read  the  terms  contained  in it has  to  be  confined  to payment  of  commission  out of the capital  moneys  of  the companies.     Again, in s. 105(1) of our Companies Act of 1913 it  was said, "It shall be lawful for a company to pay a  commission to  any  person  in consideration of  his  subscribing’  for shares  in it.  The words ,it shall be lawful" are  enabling

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words.   They are used in a statute when it is  intended  to permit  something  to  be done which  previously  could  not legally  be done.  In Craies on Statute Law, 5th ed.  at  p. 263, it has been said, "-Statutes passed for the purpose  of enabling  something  to  be done are  usually  expressed  in permissive language, that is to say, it is enacted that  "it shall be lawful", etc., or that such and such a thing may be done".  In Julius v. Bishop of Oxford (1) it was said,  "The words it shall be lawful’ are not equivocal.  They are plain and  unambiguous.  They are words merely  making that  legal and  possible  which there would otherwise be  no  right  or authority  to do.  They confer a faculty or power, and  they do  not  of  themselves do more than  confer  a  faculty  or power." It would follow from the use of the words it  "shall be  lawful"  in  a.  105(1) of the  Act  of  1913  that  the legislature intended to make that payment of commission  for subscribing for shares legal, which was not so before.   The legislature,  therefore, intended to permit and  make  legal the payment of commission out of capital to a person on  his subscribing  for  shares  in a  company  which  payment  was previously  illegal.   Payment  of such  commission  out  of profits had always been legal and there was no necessity for any statutory provision to make such payment legal or paw an enabling enactment in regard to it.  It would follow that s. 105  was  not concerned with putting any  restriction  on  a company’s power to pay commission out of profits. (1)  (1880) 5 A.C. 214,222.                             1011 Now  sub-s  (1) of s. 76 of our Companies Act of  1956  uses instead  of the words "it shall be lawful" the  word  "may". That however makes no difference.  As has been stated in the passage  in Craies which I have earlier read, both mean  the same  thing.   They are both used in a statute  to  indicate that  something may be done which prior to it could  not  be done.  It would follow that s. 76(1) of the Act of 1956  was intended to have the same effect as a. 105(1) of the Act  of 1913, namely, the legalising of a payment of commission  out of  capital  which-before the Act of 1913  was  illegal  and which became illegal on the repeal of that Act by the Act of 1956.  That would be another reason for saying that a. 76(1) of  the  Act of 1956 was not concerned with any  payment  of commission out of profits.  I   pass on now to sub-s. (2) of a. 76 of the Act of  1956. That sub-section says:-               "’Save  as aforesaid and save as  provided  in               section 79, no company shall allot any of  its               shares  or  debentures  or apply  any  of  its               capital moneys, either directly or indirectly,               in  payment  of any  commission,  discount  or               allowance, to any person in consideration of--               (a)   his  subscribing  or agreeing  to  subs-               cribe,  whether absolutely  or  conditionally,               for  any  shares  in  or  debentures  of,  the               company, or               (b)   his  procuring. of agreeing  to  procure               subscriptions,     whether     absolute     or               conditional, for any shares in or,  debentures               of the company,               whether the shares, debentures or money be  so               allotted  or  applied by being  added  to  the               purchase money of any property acquired by the               company, or to the contract price of any  work               to be executed for the company, or               1012               the money be paid out of the nominal  purchase

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             money or contract ]price, or otherwise." This  sub-section strongly suggests that subs. (1) is to  be read  as  confined  only to payment  of  commission  out  of capital,  for  it says that save to the extent  provided  by sub-s.  (1) no commission shall be paid out of  the  capital moneys of the company.  If sub-s. (1) were exhaustive of the powers  of  a  company to pay commission  both  out  of  its capital  and its profits so that nothing could be  paid’  as commission  either out of capital, or out of profits or  out of  any  other  moneys  of the  company  except  as  therein provided,  as the respondent company is contention  is  then sub-a.  (2)  would-be  wholly  redundant;  the   prohibition contained  in it would in that case be totally  unnecessary. It  was said that sub-s. (2) is used only to make sure  that the  limits prescribed by sub-s. (,I) would not be  departed from by indirect method.  But surely it was not necessary to make any provision for that purpose only.  What could not be done   directly   could  also  not   be   done   indirectly. Furthermore;  if it was necessary to provide, as sub-s.  (2) is said to do, that the capital moneys of the company should not be used indirectly for payment of commission, why was it not  provided that the profits should not also be  used  for the  same  purpose indirectly.  This clearly, for  the  same reason  should  have  been done if  sub-a.  (1)  dealt  with payment  of  commission  out of profits  also.   The  reason suggested  on  behalf  of the  respondent  company  for  the enactment of sub-a. (2) ’does not therefore seem to me to be well founded. Furthermore,  the  two sub-sections must be  read  together. Sub-section (2) contains a general prohibition of payment of commission out of capital and an exception to it is provided in  sub-a. (1).  That seems’ to be the inevitable result  of the words "save as aforesaid", that is, save as provided  in sub-a. (1), with which sub-s. (2) opens it necessarily  1013 follows that sub-s. (1) contains an exception to the general prohibition  of  payment of commission out of  the  capital. It, therefore, has nothing to do with payment of  commission out of profits. The  other substantial feature in which s. 76 of the Act  of 1956  has departed from the provisions of a. 105 of the  Act of  1913, is by inclusion in the former of a  Provision  for the  payment of commission for subscribing  for  debentures. While a. 105 dealt only with payment of commission for subs- cribing  for shares, s. 76 deals with payment of  commission both  for subscribing for shares as well as debentures.   An argument was based on this innovation made in a. 76.  It was pointed  out  that  in regard to debentures  a  company  was before  the Act of 1956 free to pay any commission it  liked for  subscribing for them, either out of its capital or  out of its profits and only certain particulars had to be  filed as  required  by  s.  111  of the  Act  of  1913.   It  has, therefore,  been contended that the inclusion of  debentures in a. 76 of the Act of 1956 would show that the power to pay commission whether out of capital or profits for subscribing for shares as well as debentures was exhaustively  contained in  subs. (1) of that section.  I am unable to’ accept  this argument. If I am right in my view that sub-s. (1) of s.76 of the  Act of  1956  is only an exception to  the  general  prohibition contained   in  sub-s.  (2),  it  would  follow   that   the restriction imposed by sub-a. (1) is confined to payment  of commission  for  subscribing for debentures out  of  capital only.  It is true that so read there would after the Act  of 1956 be no power in a company to pay out of its capital  any

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commission  for  subscribing for its debentures,  except  as provided  in a. 76 (1) of that Act.  The law would no  doubt thereby have been changed but it would have been so  changed because the Act of 1956 made that change in express words by the  prohibition  contained  in sub-s. (2) of  a.  76.   But suppose sub-s. (1) is 1014 exhaustive  as regards a company’s power to  pay  commission for  subscribing  for debentures whether out of  capital  or profits, then also the subsection would clearly be  altering the pre-existing law; it would then be putting a restriction on  the’  power  to  pay  commission  for  subscribing   for debentures out of profits which power was previously free of all restrictions.  If it were not so, then sub-s. (1) in  so far  as it relates to payment of commission for  subscribing for  debentures  out of profits  would  become  infructuous. Therefore,  it  would  have  in that case  to  be-  read  as altering  the pre-existing law by a  necessary  implication. It is of some interest to point out here that a. 111 of  the Act   of  1913  provided  that  an  omission  to  file   the particulars as required by it would not affect the  validity of  the  debentures  issued  and,  therefore,  perhaps,  the validity of the agreement to pay commission on them. Coming  back  now to the point under consideration  find  it impossible to say that a necessary implication of sub-s. (1) of  s.  76 of the Act of 1956 is to alter the  previous  law which  permitted payment of commission for  subscribing  for shares  freely  out  of profits.  In regard  to  payment  of commission out of capital for subscribing for shares, it was only  an enabling section and not a restrictive one,  though in  regard  to  payment of commission  for  subscribing  for debentures whether out of capital or out of profits, on  the assumption that we have made, it would be a restrictive  and exhaustive  provision with no power to pay  such  commission except  in accordance with its terms.  In regard to  payment of commission out of capital for subscribing for shares, the section  being only an enabling provision, it cannot  affect the  pre-existing power to pay out of profits  a  commission for  subscribing  for shares.  The fact that  in  regard  to payment  of  commission for subscribing for  debentures  the section  may  have to be read at; restrictive, that  is,  as containing  1015 exhaustively  the power in regard thereto, is no reason  for saying  that it has the same effect in regard to payment  of commission  for subscribing for shares.  the  considerations applicable  to the two cases are entirely different and  the effect  therefore,  of  the  section  on  them  has  to   be different. For  these reasons, in my opinion, s. 76 of the Act of  1956 does not affect a company’s right to pay out of its  profits any commission it likes for subscribing for shares in it.  I therefore   think  that  the  agreements  for   payment   of commission  for  subscribing for shares  in  the  respondent company  out  of  its  profits with  which  this  appeal  is concerned were not affected by s. 76 (1) of the Act of 1956. They remained perfectly valid after the coming into force of the Act of 1956: I would, therefore, allow the appeal. BY  COURT: In accordance with the opinion of  the  majority, the appeal fails and is dismissed with costs.