Jaya Gurnani (Employment) (30 Points)
22 June 2010Can anyone please tell me the interpretation of Section 314(1), 314(1A) and 314(1B) of the Companies Act, 1956 when the director receives salary and his relative is appointed and when director does not receives salary and his relative is appointed.. Please help me..
Deepak Maharishi
(CS)
(514 Points)
Replied 23 June 2010
Dear Jaya,
Following are my views over Section 314 which would be of your help:
1. This section is applicable to both public and private companies.
2. Categories which are mentioned in 314(1) are :
a) Director
b) Relative of Director
c) Firm in which Director is a partner
d) Firm in which relative of Director is a partner
e) Private Company in which Director is Director
f) Private Company in which Director is member
g) any director or manager of such private company.
3. There should be an employer - employee relationship for the person so appointed.
4. This will include selling / buying agents receiving salary or commission from the company.
5. Exception to the section 314(1) are :
a) Managing Director
b) Manager
c) Banker
d) Trustee of Debentures
6. Section 314(1) requires prior consent of the company by a special resolution, however, there is a provision to the said section which states that special resolution passed in the general meeting held for the first time after such appointment is made is also sufficient.
7. Also, consider the following examples:
a) Director holds place of profit - Special Resolution is required
b) Other categories hold place of profit but with less than Rs. 10k- - Special Resolution not required
c) Other categories hold office or place of profit with more than Rs. 10k - Special Resolution required.
8. Another provision which is quite clear by the language itself states that relative or firm in which relative is partner is appointed without the knowledge of director, then, approval may be taken maximum within 3 months.
9. Section 314(1A) - states that nothing which is described in 314(1) is applicable where relative of director or firm in which relative is partner holds place of profit in company or its subsidiary before such director becomes director of the company.
10. Section 314(1B) - states that notwithstanding anything contained in 314(1), prior approval of Central Government is required if the following parties hold office or place of profit in the company or in its subsidiary for remuneration more than Rs. 50,000 per month:
a) Relative of Director / manager
b) Firm in which director / manager or relative of director / manager is partner
c) Any other partner of a firm in which director / manager or relative is a partner
d) Private Company in which director / manager is a director
e) Private company in which director / manger is a member
f) Private company in which relative of director / manager is a director
g) Private Company in which relative of director / manager is a member
10. Please note that THERE ARE NO EXCEPTIONS TO SECTION 314(1B) LIKE THOSE MENTIONED IN 314(1) {Managing Director, Manager, Banker, Trustee).
11. Last but not the least - Whether or not Director receives salary or not, whenever relative is appointed to office or place of profit, one will have to comply with Section 314 of the Companies Act.
Deepak Maharishi
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