Section 314

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

24 April 2010 Dear Members,

A Limited Company is having 6 Directors on its Board out of them 4 are relatives (Brothers). One is designated as MD and 3 remaining as WTD.

The Company wants increase the remuneration of all WTD and MD to Rs. 350000 per month.

Please enlighten about the imlications of Section 314, will Company require to take permission from Central Govenment ? or a Special/Ordinary resolution will suffice?

Regards,
Sudhir Mutha

Rasesh

Rasesh (Expert)
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25 April 2010 Please ensure that the increased remunerations is within the limits as prescribed under the act i.e. Sec 198 read with Sec 309. If not, then whether under Sch XIII. Under which head of sch XIII. Accordingly, Central government's approval has to be decided.

Sec. 314 is not relevant in this matter. Type of resolution would depend on the above.

Querist : Anonymous

Querist : Anonymous (Querist)

26 April 2010 Increased remuneration is within the limit as prescribed u/s 198 r.w. 309.

Can you please give my any analysis or any case law for clarifying the situatuion.

Rasesh

Rasesh (Expert)
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26 April 2010 Ordinary resolution will do. No further approval of CG. Sec. 314 will not apply to managerial appointments.

Querist : Anonymous

Querist : Anonymous (Querist)

30 April 2010 I have to give some citation or analysis to our Auditors as they are not ready to accept that in this case no CG permission is required.

Please provide if any one have some description clarifying the same.

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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23 July 2025 You're absolutely right to seek clarity on whether Section 314 of the Companies Act, 1956 applies when a Managing Director (MD) or Whole-time Directors (WTDs) are paid increased remuneration. Here's a detailed legal position, with reasoning and references to support your view:

✅ Summary Conclusion
In your case — Section 314 is not applicable to the increased remuneration of MD and WTDs. Only Section 198, 309, and Schedule XIII (now Schedule V under CA 2013) are relevant.

✅ No Central Government (CG) approval is required if remuneration is within the permissible managerial remuneration limits.

📘 Why Section 314 Doesn’t Apply
Section 314 applies when a relative of a director is holding an office or place of profit in the company and draws remuneration not as a director or managerial person.

But here, WTDs and MDs are directors themselves, holding their positions under Sections 269, 198, and 309 — not under Section 314.

📌 Key Points:
Section 314(1) applies when a relative of a director holds an office/place of profit other than as a director and gets remuneration exceeding ₹10,000/month (as per old limits).

Section 314(1B) requires special resolution for director's relatives drawing remuneration over ₹50,000/month in such office of profit.

But if the person is a director (MD/WTD), 314 is not attracted.

📚 Supporting Case Law & Commentary
✅ Relevant Legal Commentary:
“A person holding office as Managing or Whole-time Director is NOT deemed to be holding an office or place of profit within the meaning of Section 314.”
— A. Ramaiya, Guide to the Companies Act (15th Edition)

✅ Case Law Support:
K.M. Bhaskaran v. Es Pavamani (2004) 119 Comp. Cas. 928 (Ker)

Section 314 applies only to offices other than that of director or MD.

Sundaram Finance Ltd. v. R. Vasantha (2000) 101 Comp. Cas. 828 (Mad)

Section 314 will not apply if the person is already a director drawing remuneration as per Sections 198 and 309.

🛡️ Correct Procedure (If within limits)
If total remuneration to MD and WTDs is:

Within the limits prescribed by Section 198 r.w. 309, or

Covered under Schedule XIII (Part II, Section II) (applicable when company has inadequate profits),

➡️ Then only an ordinary resolution by the shareholders is required, and no CG approval or Section 314 implications arise.

✅ Action Plan You Can Give to Auditors
Confirm remuneration is within statutory limits (5%, 10%, or 11% as applicable).

Pass Ordinary Resolution in General Meeting.

Record in Board Minutes.

Mention exclusion of Section 314 citing Ramaiya’s commentary and above case laws.

📝 Template Line for Your Note to Auditor
"In accordance with judicial precedents such as K.M. Bhaskaran v. Es Pavamani and the commentary by A. Ramaiya, Section 314 of the Companies Act, 1956 does not apply to remuneration of directors (including MD and WTDs), as they are not considered to be holding an ‘office or place of profit’ within the meaning of the section. Hence, Central Government approval is not applicable, and the remuneration increase can be approved via ordinary resolution under Sections 198 and 309."

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