Office or place of profit

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

27 September 2013 If private limited company regularly paid office rent to partnership firm and partners are also directors in the Pvt Ltd Company then will this transaction came under Section 314(office or place of profit) of Company Act 1956 ?

Ajay Mishra

Ajay Mishra (Expert)
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27 September 2013 Hi

The section 314 regulates all such kinds of office or place of profit where any of the persons mentioned therein is required to perform functions on behalf of a company under the control, direction and supervision of the company. In general, there should be employer-employee relationship or that of principal-agent. The person appointed to the office should be required to render duties, services and functions under the instructions of the company concerned. Accordingly, just because some remuneration like fees or other sums are received from the company, will not make such transactions fall under the prohibition under the section.
The words 'office or place of profit' occurring in section 314(1) include selling and buying agents receiving commission and/or salary. [CIT v Principal Officer C/o Arkay Wires (P.) Ltd. (2005) 58 SCL 97 (All.)].

I think it is not a part of salary, so section 314 will not attract.

Ajay Mishra

Ajay Mishra (Expert)
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27 September 2013
As per section 314(1) certain persons as given below cannot hold office or place of profit carrying the remuneration of Rs. 10,000 p.m. or more in the company, unless a special resolution to that effect has been passed in the general meeting of the company:—
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 relatives 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.

For computing the limit of Rs. 10,000 per month, bonus, leave encashment, reimbursement of medical expenses, etc., which are not events of monthly regularity or occurrence cannot be taken into account.

Where relative of any director or any of the person mentioned above is or appointed to an office or place of profit without the knowledge of director of the company, such appointment shall require the approval of the members in the general meeting by way of special resolution within 3 months of the date of appointment.

Querist : Anonymous

Querist : Anonymous (Querist)

27 September 2013 Thanks for your reply sir, but whether definition of remuneration also include rent amount? and if Pvt Ltd Company paid only commission to director(not a remuneration) then will that came under office or place of profit term?

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