15 October 2010
Guarantee commission paid to directors is not a remuneration within the meaning of Section 309 of the Companies Act,1956 and therefore, approval of Central Government is not necessary.
Payment of guarantee commission In Suessen Textile Bearings Ltd v. Union of India[30], the court held that guarantee commission paid to directors for giving surety against loans on credit facilities taken by the company from financial institutions is not remuneration for any professional services within the meaning of S. 309 and therefore, approval of central government is not required. The directors rendering guarantee does not render manual, clerical, technical, supervisory or administrative service. He gets the commission for the risk which he bears and that has nothing to do with his directorship.
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