Salary doesn’t make director a staff: HC

Govt Told To Reconsider His Company’s Tender

In an important order, Gujarat high court has held that a company director’s experience with a previous company should be considered in the subsequent proprietorship concern, and that drawing salary by the director does not make him an employee or servant.

The HC said so while deciding a petition filed by a construction contractor, who was held ineligible for a contract for construction of a polytechnic building at Halol in Panchmahal district. A director of Sankalp Infracon, Suresh Vora, was declared ineligible at the prequalification stage for tender for construction earlier this year. The HC ordered the government to consider Vora’s past experience as a company director and reconsider his company’s tender for the contract.

When Vora inquired about the reason for being declared ineligible despite his experience as director of the company for nearly two decades, he was told that he was an employee in the earlier company because he was drawing a salary.

The company challenged the authorities’ decision before the HC and submitted that Vora was a 50% partner and director in Shree Infracom Pvt Ltc for nearly two decades before he founded his own company named Sankalp Infracom in 2016. Vora has got a good experience of work of 640 residential flats in Ahmedabad besides executing various government contracts while he was a director and partner in the earlier company. The government insisted that since Vora was drawing a salary from the previous company, he should be considered an employee and his experience as the director cannot be taken into consideration for awarding a contract to his company.

After hearing both the sides, a bench of Acting Chief Justice A S Dave and Justice A C Rao observed that company directors “are professional men, hired by the company to direct its affairs. But, they are not the servants of the company. They are rather the officers of the company”.

The court further said, “In the competitive corporate global scenario to retain the talent of an employee, an adequate and reasonable remuneration is required. Remuneration drives the efficiency of managers in order to get the maximum output of the company… Normally it could be presumed that if the director is drawing salary he takes an active part in the management of the company. It does not mean that he is an employee of the company.”