DIRECTORS OR RELATIVES HOLDING OFFICE OR PLACE OF PROFIT PROCEDURE FOR OBTAINING APPROVAL OF CENTRAL GOVERNMENT By R.

.Venkata Ramana, PCS, r ra!!"#$ate!%&ma$'.#"m The Provisions of Section 314 of the Companies Act, 1956 are very interesting to ponder to understand its imp ications and comp iance as it is one of the comp e! provisions in the Companies Act, 1956" The Company Secretaries as corporate professiona s in emp oyment sha have thorough understanding of the provisions of Section 314 to guide and suggest the management a#out the app ica#i ity and importance of the provisions of Section 314 to avoid pena provisions and to ensure its Comp iance in true spirit of a$ and te!t" After introduction of Secretaria Comp iance Certificate #y the Companies %Amendment& Act, '(((, a Company Secretary in practice is re)uired to give his o#servations on the app ica#i ity and comp iance of provisions of Section 314 of the Act in their Comp iance certificate" Mean$n& "( )O(($#e "r P'a#e "( Pr"($t* *ffice or P ace of Profit means + any p ace or office in a Company in $hich a ,irector o#tains anything #y the $ay of remuneration other than the remuneration to $hich he is entit ed to receive as director" -emuneration may either #e in the form of sa ary, fees, commission, per)uisites, the right to occupy free of rent any premises as a p ace of residence or other$ise" Section 314 of the Companies Act, 1956 regu ates the provisions re ating to appointment of a director or any re ative of ,irector, a firm, #ody corporate in $hich such ,irector is interested, to an office or p ace of profit" O+,e#tThe o#.ect of the Section is to prevent a ,irector from #eing p aced in the inconsistent position of #eing #oth master and servant" This Section prohi#its appointment of ,irectors or their re atives or firms or companies in $hich ,irectors are interested to ho d the /office or p ace of profit0 $ithout approva of mem#ers in a cases and approva of Centra 1overnment in certain cases" A..'$#a+$'$ty The provisions of this section are app ica# e to #oth pu# ic and private companies"

Ser $#e! n"t #" ere/ 0n/er t1e Se#t$"n 234

1. Professiona Services rendered #y a practicing Advocate" 2. The prohi#ition under Su#section %1& and %1+2& is not app ica# e to the
remuneration 3 compensation given to the concerned persons for rendering services of professiona nature to the Company in their professiona capacity i"e" Advocate, Chartered Accountant, So icitor, Architect, ,octor, 4ngineer and others, provided such services rendered are not in retainer #asis and on .o# $or5 #asis" S#".e "( t1e Se#t$"n An office or p ace of profit can #e deemed to #e an office or p ace of profit %a& 6here the office is he d #y a director, 7f the director ho ding it o#tains from the company anything #y $ay of remuneration over and a#ove the remuneration to $hich he is entit ed as such director, $hether as sa ary, fees, commission, per)uisites, the right to occupy free of rent any premises as a p ace of residence, or other$ise8

%#& 7f the office or p ace is he d #y an individua other than a director or #y any firm, private company or other #ody corporate, 7f the individua , firm, private company or #ody corporate ho ding it o#tains from the company anything #y $ay of remuneration $hether as sa ary, fees, commission, per)uisites, the right to occupy free of rent any premises as a p ace of residence, or other$ise" 9o ding /office or p ace of profit0 either #y virtue of emp oyer and emp oyee re ation or rendering services under contro , direction and supervision of Company:

A person is said to ho d an office or P ace of Profit if there is, #et$een him and the company a re ationship of emp oyer and emp oyee or such other person performs for and on #eha f of the company certain acts under the contro , direction or supervision of the company and a so he is in receipt of consideration in due discharge of his duties" A mere contractua arrangement entered into #et$een a company and the persons isted in the section under $hich some monetary #enefit f o$s to such person does not per se amount to ho ding an office or p ace of Profit, #y such other person"

D$!t$n#t$"n +et5een Se#t$"n 234 637 an/ 234 63B7 S0+ Se#t$"n 637 "( Se#t$"n 234 Su#+section %1& of Section 314 app ies to #oth ,irectors and their -e atives, their partners in other firms or their co+directors in other Companies in $hich the ,irector is mem#er or ,irector" App ica#i ity 7ndividua s+ -e atives or Partner of ,irector ;irm + in $hich ,irector or re ative is a partner Private Company+ in $hich such ,irector is a ,irector or mem#er %cover private companies on y $here ,irector himse f is a mem#er or ,irector and a other co+directors or manager in such private company, #ut does not cover a private company $here on y a re ative of ,irector is mem#er or ,irector& Specia reso ution of Shareho ders for the appointment 7t provides that, the appointment of any individua %referred as a#ove& other than ,irector of the Company to the office or p ace of profit + re)uires approva of share ho ders #y $ay of specia reso ution in case the remuneration e!ceeds -s"1(,(((" 9o$ever, the appointment of a ,irector to the office or P ace of Profit re)uires specia reso ution of shareho ders irrespective of ho$ sma the remuneration may #e that is to say even payment of a rupee re)uires comp iance of this su# section" Su#se)uent approva #y $ay of specia reso ution is permitted in certain cases S0+ Se#t$"n 638B7 "( Se#t$"n 234 Su# Section %1+2& of Section 314 app ies on y to the ,irector0s or <anager0s -e atives or partners or firms in $hich ,irector3 manager is a partner or a private company in $hich ,irector is a ,irector or <em#er" App ica#i ity 7ndividua s+ -e atives or Partner of ,irector or <anager %even manager covered& ;irm+in $hich ,irector or <anager or re ative of either = is a partner Private Company+ in $hich ,irector or <anager or re ative of either is a ,irector or mem#er %it covers a private companies $here re ative of /,irector or manager0 is + a mem#er or ,irector&

Pr$"r a..r" a' "( !1are1"'/er! +y 5ay "( !.e#$a' re!"'0t$"n an/ a..r" a' "( Centra' G" ernment Su#section 12 of Section 314 re)uires the appointment of persons %referred as a#ove& to the /office or p ace of profit0 $ith prior approval of shareholders in general meeting and approval of Central Government $here the remuneration e!ceeds -s"'(,((( per month" C"n!e90en#e! "( 1"'/$n& "( P'a#e "( Pr"($t The office or P ace of Profit he d in contravention of the provisions of this section $i #ecome vacant and the director, partner, re ative, firm, private company or the manager concerned, sha #e deemed to have vacated his office as such on and from the date ne!t fo o$ing the genera meeting and sha #e ia# e to refund to the company any remuneration received or the monetary e)uiva ent or advantage ta5en in respect of the office or p ace of profit" Ste.! ("r a.."$ntment

1.

Ca and Convene a 2oard meeting for considering the appointment to the office of p ace of profit a ong $ith other #usiness and for fi!ing the date, time and venue of 4!tra =ordinary 1enera <eeting or Annua 1enera <eeting, as the case may #e 2. Convene the 4!tra+ordinary 1enera <eeting and pass the specia reso ution for the appointment $ith in 3 months from the date of appointment after issuing the re)uisite notice of meeting 3" <a5e necessary 7ntimation to the Stoc5 4!changes, if any" 4. ;i e e+;orm+'3 a ong $ith necessary enc osures through <CA porta 5" *#tain necessary dec arations and underta5ings from the Appointee" 6" Prepare and su#mit necessary ;orm '4+2 a ong $ith necessary enc osure" Pr"#e/0re ("r "+ta$n$n& a..r" a' "( Centra' G" ernment An app ication in e+ ;orm '4+2 sha #e su#mitted to the <inistry of Corporate Affairs, Shastri 2havan, >e$ ,e hi" 7t is suggested that for e!pediting the process e+form '4+2 as up oaded on <CA porta a ong $ith anne!ures du y signed #y the ,irector may #e physica y dispatched to the Secretary, <inistry of Corporate Affairs, Shastri 2havan, 5th ; oor, >e$ ,e hi a ong $ith ;ees Cha an containing Service -e)uest >um#er evidencing the payment of ;ee" Fee!Company having Authorised share capita + ;ee

?ess than -s"'5,((,((( <ore than -s"'5,((,((( and ess than -s"5,((,((,((( -s"5,((,((,((( and a#ove

+ + +

-s"5((3+ -s"1,(((3+ -s"',(((3+

In("rmat$"n an/ D"#0ment! re90$re/ ("r .re.ar$n& an/ ($'$n& "( F"rm :4B-

1. ;orm '3 for passing specia reso ution for o#taining approva of mem#ers
a ong $ith copy of Cha an $ith Service re)uest num#er evidencing payment of fees" 2. >otice a ong $ith e!p anatory statement, if any, minutes and 4!tracts of reso utions of an e!tra+ordinary 1enera <eeting3 Annua 1enera <eeting in $hich approva of mem#ers for the appointment to the office of p ace of profit is made" 3" <emorandum and Artic e of Association" 4. ?atest Audited Annua -eport" 5" Shareho ding pattern particu ar y the shareho ding of the directors a ong $ith his3her3their re atives, the pu# ic ho ding, institutiona ho ding %each institution separate y&" 6. ?ist3 Particu ars of the emp oyees $ho are in receipt of remuneration of -s" 5(,(((3+ or more per month" 7. Persona ,etai s of Appointee %$hether Company, 7ndividua or Partnership firm& @" ,etai s of ,irectorship he d #y the appointee in other company 9" An underta5ing from the appointee that he3she $i #e in the e!c usive emp oyment of the company and $i not ho d a p ace of profit in any other company" 1(" ,etai s of Sa ary pac5age proposed to #e paid to the appointee and detai s of the services that $i #e rendered #y him to the company" 11" The educationa )ua ification3 e!perience, pay sca e, a o$ances and other #enefits of simi ar y p aced e!ecutives" 12. 7n case of the appointment of a re ative, then, an underta5ing from the director3Company Secretary of the company that the simi ar y p aced emp oyees are getting the compara# e sa ary sha a so #e enc osed a ong $ith the app ication and detai s of that emp oyees" 13" >ame%s& of the directors or managing directors or $ho e+time directors to $hom the proposed appointee is re ated and the nature of re ationship 14" The tota num#er of re atives of a the directors either appointed as <anaging3 6ho e time director, <anager or in any other position in the company8 the tota remuneration paid to each re ative and the tota remuneration paid to them a together as a percentage of profits as ca cu ated for the purpose of section 19@ of the Companies Act, 1956" 15" Appointment of a re ative of a director for ho ding office or p ace of profit in the company sha #e approved #y adopting the same procedure app ica# e to non+re atives" 9o$ever, in the case of pu# ic companies, the se ection of a re ative of director for ho ding p ace of office or profit in the company sha have to #e a so approved #y a Se ection Committee" 16" -eso ution of 2oard of ,irector re ating to appointment" 1A" <inutes of Se ection committee"

1@" Copy of ru es of the company re ating to the terms and conditions in regard to per)uisites as app ica# e to its emp oyees" 7f there are no ru es, a certificate from secretary or director of the company to the effect that simi ar per5s at the same rate%s& are #eing paid to the other emp oyees of the company in the e)uiva ent grade BBB

Note : The a#ove Artic e is on y informative and suggestive and it does not confer any
conc usion or opinion on the provisions of the Companies Act, 1956 and procedures prescri#ed there under" The readers and vie$ers may customiCe this note as per the case re)uirements"