Section 314 of companies act 1956

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nitin ranjan shoundik (Querist)
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16 September 2013 Dear sir,

If X is a Director in ABC private limited is not getting any salary but he is charging professional monthly fees, does that attracts section 314 of the companies Act, 1956 ( i.e. requirement of SR or CG approval)and if it does what can be the solution for this kindly provide your valuable thoughts.

Please reply, its very urgent.

Thanking You.

Ajay Mishra

Ajay Mishra (Expert)
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16 September 2013 Hi

Where a director, his partner or relative rendering services of professional nature is engaged on regular retainer ship basis in the company on a remuneration fixed in advance, provision of section 314 will attract. However, if he consulted not on retainer ship basis in the company but only occasionally, the section 314 is not attract. [Circular No. 14/75 dated 5.6.1975]

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nitin ranjan shoundik

nitin ranjan shoundik (Querist)
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17 September 2013 Dear sir,

First of all thanking you for your suggestion and devoting your precious time to this question.

i got your point that section 314 attracts here.

Here Mr. X " Director" is engaged in regular retainer ship Consultancy and in advance monthly remuneration is fixed.

But my main question is that which part of section is attract in the present situation whether 314(1)(a) only or it attract 314(1B) also. i.e Is Central Government approval is also required with Special Resolution

because according to the Act directors are not required to take CG approval, it only required when relatives, partners etc come into picture.

or if according to you CG approval is required in case of director then what is slab or amount over and above which the same required

thanking you

Ajay Mishra

Ajay Mishra (Expert)
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17 September 2013 It will depend on salary which is covered under 314 of the Companies Act, 1956. What is the amount of salary.

Ajay Mishra

Ajay Mishra (Expert)
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17 September 2013
NEW RULES ON DIRECTOR’S RELATIVE (OFFICE OR PLACE OF PROFIT) RULES, 2011
The MCA has issued a Notification No. G.S.R. 357(E) dated 02.05.2011: In exercise of the power conferred by clause (b) of sub-section (1) of Section 642, read with sub-section (1B) of section 314 of the Companies Act, 1956, the Central Government hereby makes the following Rules in supersession of the earlier Notification No. 89(E) dates 05.02.2003,namely:-
1. Short Title and Commencement:
(1) These rules may be called Director’s Relative (Office or Place of Profit) Rules, 2011.
(2) They shall come into force on the sate of their publication in the official gazette.
2. Applicability:
These rules shall apply to all companies registered under the Companies Act, 1956 except as provided in these rules.
3. Approval of the Central Government in case of Appointment of Relatives, etc. of Directors: No appointment for an office, or place of profit in a company shall take effect unless approved by the Central Government on an application, in respect of :-
(a) Partner of firm or relative of a Director or Manager, or
(b) Firm in which such Director, or Manager or relative of either is a partner; or
(c) Private company of which such Director, or Member or relative of either is a Director or member, which carries a monthly remuneration exceeding, Rs. 2,50,000 p.m.
(c ) An individual who is a relative of a director, or Manager and is appointed as an Advisor or Consultant and paid remuneration including commission on periodical basis.
4. Selection of Relatives of Directors and Directors and Directors to Hold a Place of Office/Profit:-
(a) The selection and appointment of a relative of a Director for holding office or place of profit in the company with the salary exceeding Rs. 250000 p.m. shall be approved by adopting the same procedure applicable to non-relatives and approved by Selection Committee.
Explanation: For the purpose of the sub-rule, in the case of listed public companies, the expression “Selection Committee” means a committee, consisting of at least three members, the majority of which shall be independent director and an outside expert.
Provided that in case of unlisted companies, Independent director are not necessary but outside expert should be their in the Selection Committee.
Provided further that in the case of private companies, Selection Committee is not necessary.
5. Procedure for Examination of Application: The application under rule 3 shall be examined with respect to the following, in addition to all other requirements under the Companies Act, 1956, 1956:-
(a) In the case of Individual appointee, an undertaking from him that he/she will be in exclusive employment of the company and will not hold a place of profit in any other company.
(b) The monitory value of all allowances and perquisites and of total remuneration package (monthly/annually) proposed to be paid to the appointee and details of the services that will be rendered by him to the company.
(c) Details of shareholding pattern particularly the shareholding of the directors along with his/her/their relatives, the public holding, the institutional holding (each institution separately) and the quantum of dividend paid by the company during the last three preceding financial years.
(d) Details of educational qualification/experience, pay scale, allowances and other benefits of similarly placed executives.
(e) In case of the appointment of a relative, an undertaking from the Director/Secretary of the Company that the similarly placed employees are getting the comparable salary.
(f) List and particulars of the employees who are in receipt of remuneration of Rs. 250000 or more per month.
(g) The total number of relatives of all the Directors either appointed as Manager/Whole time Director, Manager or in any other position in the company, the total remuneration paid to all of them all together as a percentage of profit as calculated for the purpose of section 198 of the Companies Act, 1956.

nitin ranjan shoundik

nitin ranjan shoundik (Querist)
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17 September 2013 salary - nil
Consultancy fee - 3,00,000 P.m

Ajay Mishra

Ajay Mishra (Expert)
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17 September 2013 You will take CG permission.

nitin ranjan shoundik

nitin ranjan shoundik (Querist)
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17 September 2013 Dear sir,

according to me director is not covered under section 314(1B)

and CG approval is required under section 314(1B)

then why Mr. "X Director" required CG approval

Ajay Mishra

Ajay Mishra (Expert)
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17 September 2013
Circumstances u/s 314(1) under which special resolution is not applicable
Under the following circumstances, the special resolution shall not be required for appointment of a person on the office or place of profit:—
1. If the monthly remuneration is less than Rs. 2,50,000 p.m.;
2. If the office or place of profit held by such person(s) in the capacity of managing director/whole-time director/manager/banker/debentureholder trustee;
3. If relative of director has been appointed before becoming director in the company;
4. If director of subsidiary company hold office or place of profit in holding company;
5. If such person is rendering professional advice to the company including director who is consulted or who gives his professional advice to the company occasionally and receive remuneration for such service;
6. If a company purchases or sell materials from or to a director of the company or any of the persons mentioned above to which section 297 will apply. Any person appointed to an office of agent for the sale of the output of the company will be deemed to be holding an office or place of profit under section 314(1).

nitin ranjan shoundik

nitin ranjan shoundik (Querist)
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18 September 2013 Dear Sir,

I am sorry to say u that it is difficult for me to got your points.

My ques is that if Mr. X is a Director and he did not get any salary as a director but he is taking consultancy fees of Rs 245,000 p.m.

then what is your ans to it.

Please ans with Exact section i.e. Sub section or Clauses and with some example.

I don't interpret the act as Mr.X "director" covered under 314(1)(b) and 314(1B)?

or limits of remuneration is given under Director's relative Rule 2003 is applicable to Mr X also because according to me the name of rule only reflects it applicable to relatives of director only.

Pls elaborate 314(1)(a)

nitin ranjan shoundik

nitin ranjan shoundik (Querist)
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18 September 2013 Dear Ajay Sir,

Its very urgent, Please Answer it
first...

Thanking You

Ajay Mishra

Ajay Mishra (Expert)
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18 September 2013 If he taking fee of less than Rs. 250,000 then no need to take CG approval.

For better answer, you can take other views on it.

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