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section 314 -urgent help required please

srivastava ( c.s) (38 Points)

27 February 2010

Urgent help required. thanks in advance.

A person is appointed as MD in a public ltd. company (closely held)say 'A Ltd.' at a remuneration of Rs. 5 lacs p.m. which is within the net profit range of 5%. now, this MD is the son of Chairman in that company. but chairman is not paid any remuneration. however wife of chairman is also md in this company with a remuneration of approx. 50000 p.m.. well within the overall limit of 10% net profit. this MD (With remuneration of Rs. 5 lacs. p.m.) is also a director in the subsidiary company of A Ltd. Can section 314(1B) get attracted here? Is the provision exempted for an MD? Does this company have to seek Central Govt. approval u/s 314(1B). Please help.

S. Srivastava

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18 Replies

Mitali Agarwal (Company Secretary) (638 Points)
Replied 27 February 2010

Section 314(1B ) is not applicable of a relative of a director is appointed as MD or WTD.

That's why I think that this Section will not be applicable here.

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Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 27 February 2010

Hi,

In your case section 314(1B) is applicable and exemption to MD is not available because this exemption is available only in section 314(1).

You have to first collect prior approval of shareholder through special resolution and later on apply for CG approval. Infact approval of shareholder is subjct to the approval of CG.

Views of other members solicited.

Regards

Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 27 February 2010

Well according to me section 314(1B) is applicable because:

1. Proposed remuneration is more than the limit mentioned in section 314(1B).

2. Proposed MD is the relative of a director (As his mother (wife of chairman) is already a MD in the company).

3. Mother as MD drawing remuneration from the company.

4. The conditions mentioned u/s 314(3) are fulfilled as Proposed MD is on office or place of profit.

There are some other points in my mind. We may discuss them later.

Kindly advise if am wrong. Kindly correct me.

srivastava ( c.s) (38 Points)
Replied 27 February 2010

K/A Ankurji,

section 314(1B) says "Nothwithstanding anything contained in sub-section (1)...............

hence i believe that it does not apply to MD.

Please correct me if i am wrong here.

Else can we talk on phone for while please. request your cell no.

Thanks

CA kuldeep kothari (own practice) (375 Points)
Replied 27 February 2010

in this wat ankur sir said tht the exemption is not available in sec. 314(1b) is correct as there is nothing mentioned there. but 314(3) which explains office or place of profit says the post of md or wtd will not be considered as place of profit untill it exceeds the limit dept. circular-4/76(8/12/314(1b)/75-cl-v,dated 11.2.1976 clears this. so i m not sure but i think 314(1b) won't apply here. please correct me sir if i n wrong

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CA kuldeep kothari (own practice) (375 Points)
Replied 27 February 2010

mr. srivastva n ms. mitali please comment as wat i hav posted is correct or not

Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 27 February 2010

@ Mr. Srivastava

Yes you are misinterpreting the phrase "Nothwithstanding anything ..."

Main section is section 314(3) which defines what is office or place of profit.

According to me in your case proposed MD is on office or place of profit due to his relationship status with existing MD (Mother-son relationship).

Other views solicited.

CA kuldeep kothari (own practice) (375 Points)
Replied 27 February 2010

ankur sir md provisions are governed by sec.269.which says appointment can be made either by approval of c.g or in accordance with schedule XIII .so i think the approval is required under 269 .but sec 314(1b) is not attracted as the circular clears tht post of md or wtd will not be considered as place of profit for the purpose of 314. plsvreply sir i m getting confused too

Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 27 February 2010

@ Kuldeep

In your first reply you have mentioned that "untill it exceeds the limit"

Mr. Srivastava is planning to give remuneration of Rs. 5 lacs. p.m. [10 times the limit mentioned in section 314(1B)]to the proposed MD. Now kindly suggest the interpretation of "untill it exceeds the limit".

Yes you are right we have to analyse the clarification. But now i don't have the extract of clarification as right now am travelling.

Regards

CA kuldeep kothari (own practice) (375 Points)
Replied 27 February 2010

ankur sir ''untill it exceeds the limit'' means the if remuneration is paid in excess of the remuneration which would have been normally paid had the m.d been not a relative of any director. regards

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CA kuldeep kothari (own practice) (375 Points)
Replied 27 February 2010

so what i meant by limit was not the limit mentioned in sec. 314(1b) which is 50000

Rahul (None) (50 Points)
Replied 27 February 2010

Sec 314 (1B) will not be applicable as the appointment of MD is governed by Schedule XIII.

srivastava ( c.s) (38 Points)
Replied 27 February 2010

Ankur Sir,

I have checked with a couple of practicing CS who are consensus with my views. i.e. notwithstanding anything contained in sub-section (1),....................................i.e. if we read section 314(1) then it excludes managing director.

Please let me know if it talks about subsection (1), i feel that full provision of that subsection is included.

Mr,. Kuldeep: as far as appointment of md is concerned, yes, we have taken into account the provisions of section 269, Schedule XIII, 198, 309 349 and 350. but the question over here is applicability of section 314(1B) and approval of Central Govt. as the relationship of md is there with the existing chairman as well as the other existing md. hence appointment of md in a company where already a director is there who is relative of this md. so, whether the remuneration paid to the proposed appointment of new md attracts provisions of section 314(1B) thereby approval of Central Govt.

Please interpret the law in light of above facts. and correct me if i am wrong.

Thanks & Regards

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