24 February 2010
Our Company pays rent to one of the director's wife amounted for rs. 1 lac. Whether section 314 of companies act applicable and if we required to take the permission of central government than what is the procedure. what forms and documents we have to fill
14 July 2024
It seems you are referring to Section 314 of the Companies Act, which deals with certain related party transactions that require approval from the board of directors and potentially the shareholders. Here’s an overview of how it applies to your situation:
### Section 314 of the Companies Act, 2013
1. **Applicability**: Section 314 primarily deals with transactions where a director of a company or a relative of a director is interested. It mandates that certain related party transactions require approval from the board of directors.
2. **Related Party Transactions**: This typically includes transactions with: - Directors of the company or their relatives. - Firms in which a director or their relative is a partner. - Private companies in which a director is a director or member.
3. **Approval Requirement**: If your company is paying rent to the wife of a director, it constitutes a related party transaction under Section 314. As per the Companies Act, such transactions require approval from the board of directors.
### Procedure for Approval
To comply with Section 314 and obtain necessary approvals:
1. **Board Approval**: - The board of directors of your company should convene a board meeting to discuss and approve the transaction. - The director concerned (in this case, the one whose wife is receiving the rent) should declare their interest in the transaction and abstain from voting on the resolution.
2. **Shareholder Approval** (if applicable): - Depending on the amount of rent paid and the rules of your company (as per Articles of Association), shareholder approval may also be required. - If the transaction exceeds certain thresholds or if it is in the ordinary course of business exceeding certain limits, approval of shareholders may be necessary.
3. **Forms and Documentation**: - While there are no specific forms under Section 314, the approval and declaration should be recorded in the minutes of the board meeting. - The resolution approving the transaction should be filed with the Registrar of Companies (RoC) as per normal filing procedures.
### Compliance and Considerations
- **Fair Market Value**: Ensure that the rent being paid is at a fair market value to avoid any issues regarding excess payment. - **Transparency**: Maintain transparency in the decision-making process and document all relevant discussions and approvals.
### Conclusion
To sum up, under Section 314 of the Companies Act: - Obtain approval from the board of directors for the rent paid to the director's wife. - Ensure compliance with any additional requirements specified in your company's Articles of Association. - Document the transaction and approvals properly in the board meeting minutes and file necessary resolutions with the RoC.
Consulting with a company secretary or a legal advisor familiar with company law would be beneficial to ensure complete compliance with all legal requirements and to handle any specific nuances related to your company's situation.
CAclubindia
