Section 314(1B)

This query is : Open

Querist : Anonymous

Querist : Anonymous (Querist)

05 January 2011 In a Company Two brothers are part time director and does not get any remuneration from the company .Company wants to appoint one director as advisor for a particular project and want to give 75000 P.M. advising fees .Whether this Case will be covered in section 314(1B).

Manmohan ACA, CS

Manmohan ACA, CS (Expert)
Follow

05 January 2011 then section 314(IB) is not applicable , just SR need to be passed u/s 314(1)

Jayashree S Iyer

Jayashree S Iyer (Expert)
Follow

06 January 2011 Your case falls under Section 314(1). However 314(1B) is not applicable.

Cental Government approval is not required as section 314(1B) which requires CG approval is applicable only to partner or relative of a director or manager holding office of profit and not to director.

In the instant case since the office of profit is to be held by director CG approval is not required. Special Resolution of the members is sufficient.

Upgrade to CAclubindia Pro. Subscribe Now!

udit sharma

udit sharma (Expert)
Follow

06 January 2011 I would like to slighly differ here....

A Director is said to be holding an office or place of profit in the Company if he receives anything from the company over and above the remuneration as Director of the Company, whether by way of fees, salary,commission, right to occupy free of rent any premises for residence or anyother purpose.

In my opinion, since the Director is not receiving any remuneration as Director of the Company, fees of Rs. 75,000 received as an advisor will not be treated as holding an office or place of profit.

But as mentioned in the given case, a Director of the Company who is a brother of another Director in the Company and renders his services as an advisor, will be treated as a relative of a Director holding an office or place of profit in the Company. Since, the fees payable is in excess of Rs.50,000 p.m., provisions of section 314(1B) will definitley be applicable and prior approval of the Shareholders by way of a Special Resolution and approval of Central Government in Form 24B has to be obtained

Views of eminent experts are solicited....

Regards

CS Udit Sharma

udit sharma

udit sharma (Expert)
Follow

06 January 2011 The case will be of a relative of a Director holding an office or place of profit in the Company and not that of the Director holding an office or place of profit in the Company.....

Regards

Querist : Anonymous

Querist : Anonymous (Querist)

07 January 2011 I feel Mr.udit sharma is right as

The DCA has given clarification vide Circular No. 14 of 1975, dated 5-6-1975 to clarify various doubts on the scope of the provisions of section 314(1B) of Companies Act, 1956, as under:—

• A question has been raised whether a special resolution under section 314(1B) is necessary for the appointment of managerial persons who may be relatives of directors and whose appointments are already regulated by section 269, etc. of the Act. This query arises with reference to public companies to which the said section 269 applies and, strictly, will have to be answered in the affirmative. But in the interests of administrative convenience, it has been decided that the approval of the Central Government once again, under section 314(1B) will not be necessary in the cases where the Central Government's approval has already been taken under sections 198, 269, 309, 310 and 311, as the case may be. Irrespective of the question of Central Government's approval, the special resolution required under section 314(1B) will have to be passed whether by a public company or a private company.

• In the case of a private company (not governed by section 269, etc. of the Companies Act, 1956) a question has arisen whether the appointment of a person as a managing director who is related to a director of the company will attract the provisions of section 314(1B) where the remuneration payable to such managing director is in excess of the limit envisaged in sub-section (1B). This question is answered in the affirmative. The circumstances that for the purpose of sub-section (1), which deals with appointments to an office of profit carrying less than a total monthly remuneration of Rs. 500 or more (i.e. up to Rs. 3,000), an exception is made in respect of an appointment of managing director or manager is not considered relevant because sub-section (1B) expressly overrides sub-section (1) and call for the exercise of a greater vigilance against the likelihood of the abuse of patronage in a case where the remuneration proposed is of the order of Rs. 3,000 per month and more.

As per these clarification(s) In my opinion relative of a Director may be any person he may be another Director, and section 314(1B) is more important other than any other section of the companies act and no one can escape from the provision of Section 314 (1B) in spite of the compliance of any other provision .