Here, the question that arises is whether
the guarantee commission is “”remuneration” under
the Act. It was held in Suessen Textile Bearings Ltd v. Union of India [(1984) 55 (Comp. Cases 492, 496, 497)]
that the guarantee commission paid to directors for giving surety
against loans or credit facilities taken by the company from financial institution is not a
remuneration for within the meaning of section 309 of the earlier Companies Act, 1956 and
therefore, approval of the Central Government
is not necessary. The director giving 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.
Hence the payment of guarantee commission is in order.
Considering the above, it may be concluded that the guarantee commission paid to the
directors for guarantee provided on loan from a financial institution is valid.