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Section 314

ACS MUKUNDA (Company Secretary) (65 Points)

20 July 2013

if a person who is a Director of the Company and also Relative of Managing Director,appointed as Consultant U/S 314 with a remmuneration of Rs 3,00,000/- is it require to take approval of the central Govt ?

If no Please let me know any decided case / any department Clarification

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6 Replies

Ajay Mishra (Company Secretary) (74337 Points)
Replied 20 July 2013

Hi,

Yes, it is require, a person who is director any taking any amount in addition to his director remuneration will come under the perview of section 314.

In your case your director will covered under section 314(1B) and will take CG approval in addition to pasing of special resolution.

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Ajay Mishra (Company Secretary) (74337 Points)
Replied 20 July 2013

Circumstances under which section 314(1B) is applicable and consent of Central Government is required

As per section 314(1B) certain persons as given below cannot hold office or place of profit carrying the remuneration of Rs. 2,50,000 p.m. or more in the company, unless special resolution to that effect has been passed in the general meeting of the company and prior approval of the Central Government has been obtained:—

1. any partner of the firm in which director of the company is also a partner;

2. any relative of a director of the company;

3. any firm in which a director or his relative or both are partner;

4. any private company in which director of the company is holding office of director or member;

5. any director/manager of a private company in which director of the company is holding office of director or member.

Provision of section 314(1B) shall not apply to any appointment of firm of solicitors/advocates, if they are appointed to give advise and are consulted by the company in its work on case to case basis. Therefore, any remuneration or fee received by a professional director as advocates/solicitors for appearing in a Court of Law or Company Law Board/Tribunal in pleading on behalf of the company will not come under the provisions of the section as mentioned above.

Ajay Mishra (Company Secretary) (74337 Points)
Replied 20 July 2013

Procedure to be followed for appointment of a person on office or place of profit, requiring approval of the Central Government

If a company appoint a director or concerned persons on office or place of profit on a total monthly remuneration of Rs. 2,50,000 or more, it has to obtain consent of the members of the company by way of special resolution in the general meeting and with the prior approval of the Central Government for the first time after the holding of such office. The following procedure has to be complied with:—

1. Hold a Board meeting, considering appointment under section 314 and approve notice for convening general meeting for passing special resolution by the members. Explanatory statement furnishing full particulars thereof has to be sent to the members with the notice of the meeting;

2. Obtain approval of selection committee for appointment of relative to office or place of profit before getting approval of members in general meeting;

3. Hold a general meeting and pass a special resolution for getting approval to the appointment under section 314(1) or (1B);

4. Particulars of such appointment shall be filed electronically with the Registrar of Companies in the e-Form 23 alongwith the copy of such resolution and prescribed fees within thirty days of the passing of special resolution;

5. Prepare and file an application electronically to the Central Government for its approval in the e-Form 24B alongwith prescribed fee; 6. The Central Government may vary the terms and conditions of appointment while according its approval. On obtaining approval from the Central Government, the Company should enter into a contract with the concerned person.

ACS MUKUNDA (Company Secretary) (65 Points)
Replied 20 July 2013

appointment of X will require compliance of section 314(1) only and not 314(1B), even though he is relative of another Director also. We must refer to the definition of Office or Place profit as explained in section 314(3) to clarify the issue. This states that:

314(3) any office or place shall be deemed to be an office or place of profit under the company

Within the meaning of this section (section 314).

(a) in case the office or place is held by a director, if the director holding it obtains from the company anything by way of remuneration over and above the remuneration to which he is entitled as such director, whether as salary, fees, commission, perquisites, the right to occupy free of rent any premises as a place of residence, or otherwise;

(b) in case the office or place is held by an individual other than a director or by any firm, private company or other body corporate, if the individual, firm, private company or body corporate holding it obtains from the company anything by way of remuneration whether as salary, fees, commission, perquisites, the right to occupy free of rent any premises as a place of residence, or otherwise.

The above bold words clarify intention of statute. Words of the section 314(1) and 314(1B) are clear that compliance of these provisions is necessary when any person categorized in that sections holds office or place of profit and not otherwise.

In our case, X who is a Director holds office of Profit. He is a relative of another Director also. Definition of office or place of profit made it clear that when it is held by a Director, what is meant by office or place of profit. In other cases the office or place of profit must be held by any individual other than Director. Hence, for applicability of provision of section 314(1B) and 314(1)(b), the office or place of profit must be held by any person other than Director.

It is important to note that definition of office or place of profit as explained in section 314(3) clarifies intention of the legislature to regulate separately a office held a Director though he may be a relative of another Director and by any person other than Director.

Therefore, in my view the Company must comply with provisions of section 314(1) and not section 314(1B).

Hence No Requriement of C.G Approvaval

Sir Please let me know will it be held valid