Appointment at place of profit

Query


1. The querist has sought the opinion of the Exert Advisory Committee regarding the legal formalities to be gone through under section 314 of the Companies Act, 1956, in the appointment of an individual- ‘Mr. H’- who is relative of one of the directors –‘Mr. T’-of a company (ABC Co. Ltd), as the General Manager of that company at a monthly remuneration of (i) Rs. 2,500; and (ii) Rs. 3,000.

2. The querist of the view that in case Mr. ‘H’ is appointed at a monthly remuneration of Rs. 2,500/-, a special resolution must be passed for his valid appointment. But if the appointment is at a monthly remuneration of 3000/-, then after a passing the special resolution, the approval of the Central Government must be obtained.

Opinion

1. The Committee notes that the relevant provisions of Sections 314 are as below:

“314(1) Except with the consent of the company accorded by a special resolution,

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(b) no partner, or relative of such director ………… shall hold any office or place of profit carrying a total monthly remuneration five hundred rupees or more

Except that of managing director or manager,…………”

2. It may be noted that a special resolution is not required if a relative of a director is appointed as a 'manager’ in the company even at a monthly remuneration exceeding rupees five hundred.

3. According to Section 2(24) of the Companies Act, 1956, “Manager means an individual who, subject to the superintendence, control and direction of the Board of Directors, has the management of the whole, or substantially the whole, of the affairs of a company and includes a director or any other person occupying the position of a manager, by whatever name called, and whether under a contract of service or not.”

4. The Committee notes, that the querist has not furnished the relevant details as to whether the position of ‘General Manager’ in question would qualify the position of ‘manager’ as defined in Section 2(24) of the Act:

5. Section 314(1-B) further provides

“Notwithstanding anything contained in sub-section (1)-

(a) no partner or relative of a director or manager

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Shall hold any office or place of profit in the company which carries a total monthly remuneration of not less than three thousand rupees, except with the prior consent of the company by a special resolution and the approval of the Central Government.”

6. It may be noted that this sub-section does not accord any exception to certain offices or places of profit like that of managing director, manager etc. a granted under sub-section 1.

7. On the basis of the above considerations, the opinion of the committee, on the legal formalities to be gone through as per the provisions of section 314 of the Companies Act, 1956 in the appointment of a relative of a director of a company, is as below:

(i) Mr. ‘H’-the relative of director Mr. ‘T’ – can be appointed as the General Manager of ABC Co. Ltd., at a monthly remuneration of Rs.2,500/- without a special resolution by the company, provided, he can be considered a ‘manager’ as defined under Section 2(24) of the Companies Act, 1956. However, if ‘H’ can not be considered a ‘manager’ under that section then special resolution is required.

(ii) The prior consent of the company by a special resolution and the approval of the Central Government shall be obtained if Mr. ‘H’ is sought to be appointed as the General Manager of the company at a monthly salary Rs.3,000/-.

It must be noted, however, that the other relevant provisions of the Act e.g., Sections 386, 387 must also be complied with alongwith the requirements of Sections 314.