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Professional fees to managing director

uma.s (Article student) (33 Points)

23 May 2012

Can a company pay professional fees to a director?[Managing/ WTD]

For Eg: suppose the person is an engineer or architect and serving as Managing director in a construction company, is he eligible for a separate professional fees in addition to salary? Kindly provide the sections and judicial pronouncements if any. Thanks in advance.

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2 Replies

Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 23 May 2012

Hi,

If your company is a public company then section 309 is applicable to your case. If you comply the provisions of proviso to Section 309(1) and collect CG approval then you can pay professional fees to your director.

I would like to draw your kind attention towards proviso to Section 309(1) which reads as follows:

“Provided that any remuneration for services rendered by any such director in any other capacity shall not be so included if –

(a) the services rendered are of a professional nature, and

(b) in the opinion of the Central Government, the director possesses the requisite qualifications for the practice of, the profession.”

Thus on the basis of above provision and in your case such payment as professional fees shall not be treated as remuneration to director if and only if such the 2 conditions mentioned above fulfill simultaneously.

In proviso to Section 309(1) above you have to file application to CG in order to obtain CG approval.

Best Regards

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Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 23 May 2012

Further if your company is a private company then provisions of section 309 shall not apply. However in that case you will be covered by section 314. Applicability of 314 is separate from section 309. If you pay professional fee to your director then as per section 314, he will be a MD getting anything from the company anything over and above his managerial remuneration.

If he draw anything over and above the remuneration which he is drawing as director of the company then he will be in office or place or profit and then only section 314 became applicable.

Regards