Applicability of s. 314

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Querist : Anonymous

Querist : Anonymous (Querist)

23 September 2013 Would guarantee commission paid to the wife of managing director for providing personal guarantee against loans advanced by banks require passing of special resolution and require CG approval?

Ajay Mishra

Ajay Mishra (Expert)
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24 September 2013 Hi

The Department had issued earlier Circular No. 14/50-CL.V, dated 16-12-1969 according to which guarantee commission payable to the directors for personal guarantee on loans to the company was to be treated as remuneration under section 309(1) of the Companies Act, 1956. In Sussen Textile Bearings Ltd. v Union of India reported in (1984) 55 Comp Cas 492, it was held by Delhi High Court that guarantee Commission paid by a company to its director for standing surety for loans and credit facilities taken by the company was not a remuneration within the meaning of section 309 of the Companies Act, 1956 and approval of the Central Government was not necessary. [Circular No. 3/94 (F. No. 14/3/87-CL.V), dated 16-2-1994]

So it is not part of remuneration of directiors or their wife so it will not covered under section 314.

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