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Regarding Sec314 of Co. Act 1956

Paras Khurana (Chartered Accountant) (75 Points)

17 May 2010

Pls solve tthis query:-

Suppose Mr. X relative of a director is appointed as MD with salary of Rs.70000/- which is over & above the salary he is getting as a director. Now since Sec 314(1)not apply to appointment of MD,manager etc but As per Sec314(1B) three conditions are satisfied:-
1. Person other than director.
2. Remuneration more than Rs.50000/-
3. MD, Manager etc not exempt under this
saction.
He can hold office or place of profit after Sr and approval of CG as per Sec314(1B)
Now i m confused whether that person hold office or place of profit or not? please clarify rule U/s 314(1) and 314(1B).

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11 Replies

(Guest)

that person hold office or place of profit, but the same is with the approvals of Company and the CG, requirements of law are complied.

Randhir

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CS Ankur Srivastava (Company Secretary & Compliance Officer) (17848 Points)
Replied 17 May 2010

Section 314(1)(B) would also not apply in this case. Because before MD, he must be a Director of the company.

Here, the director is appointed as MD. So kindly refer section 314(1) which fully allow the same.

I dont think that here central government permission is required. SEction 314(1) does not apply in this case.

CS Ankur Srivastava (Company Secretary & Compliance Officer) (17848 Points)
Replied 17 May 2010

Any ways it is a very good query.

Other's and contrary views are welcome.

Paras Khurana (Chartered Accountant) (75 Points)
Replied 17 May 2010

But Ankur I m already saying in my query that he is getting salary over an above the salary is getting as a director this means he is already a director in a Co. My query is that in one side Sec 314(1) says he can't hold office of profit since he in the post of MD but Sec314(1B) is applicable in my query as i discussed above.

CS Ankur Srivastava (Company Secretary & Compliance Officer) (17848 Points)
Replied 19 May 2010

Please clarify your query...

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Deepak Maharishi (CS) (514 Points)
Replied 20 May 2010

Dear Paras,

Such appointment is covered under 314(1B) and thus would require prior consent of the Shareholders and the approval of the Central Government.

Reason - Section 314(1B) is a wider section than 314(1) and it also does not provide exemption to the four categories that are included in 314(1) i.e. Managing Director or Manager or Banker or Trustee for holders of the Debentures.

Thanks and regards

Deepak Maharishi

CS Ankur Srivastava (Company Secretary & Compliance Officer) (17848 Points)
Replied 20 May 2010

Section 314(1B) would only apply, in case that Relative of Direcor was not already in the Board. However, he is already in the BOard of Director and designation is changed to MD then Section section 314(1B) would not apply.

Deepak Maharishi (CS) (514 Points)
Replied 20 May 2010

Dear Ankur,

I have a query which I would Paras and you to clarify please. I think we are lacking some info.

A relative of a director is a director in the company - that means he must have been place on the office while complying section 314(1). No matter resolution was required or not (based on the criteria).

Now he is being a managing director with increased remuneration, which crosses the maximum limit and hence is falling under 314(1B).

Two things to consider now is -

(1) He is being appointed on remuneration falling under 314(1B) and

(2) He is being appointed as MD which is not exempt in 314(1B).

How we are saying that CG approval is not required??

Regards

Deepak Maharishi

Kumar (Article) (922 Points)
Replied 21 May 2010

Dear Paras…

With regard to ur query there could be two situation:

1. He was appointed as a Director when no relative of his was there on the board and subsequently he was appointed as a Managing Director when a relative of his was there on the board.

2. He was appointed as a Director when there was a relative of his on the board and subsequently he was appointed as a Managing Director his relative still there on the board.

Now as per the provisions of 314 the company will deal as follows:

It is presumed that his appointment as a Director was made for a monthly remuneration of Rs. 10,000/- or more.

Situation I.:

Since none of his relative of Mr. X is there on the board at the time of his appointment as a Director Section 314 will not apply and Mr. X will be appointed as a Director in the General Meeting through ordinary resolution.

When Mr. X is appointed as the Managing Director he has a relative on the board hence, Section 314 will be applicable. As mentioned his monthly remuneration is Rs. 70,000/- hence MR. X needs to obtain:

· PRIOR consent of Shareholders by SPECIAL RESOLUTION in the General Meeting.

· AND Approval of Central Government.

Situation II.:

Since at the time of appointment of Mr. X as Director of the Company, a relative of his was there on the Board and as presumed his monthly remuneration as a director is above Rs 10,000/- per month Section 314 will be applicable.

Hence Mr. X needs to obtain:

· PRIOR consent of Shareholders by SPECIAL RESOLUTION in the General Meeting.

· AND Approval of Central Government.

Again when Mr. X is appointed to the Office of Managing Director having a monthly remuneration of Rs. 70,000/- still having his relative on the board he needs to obtain:

· PRIOR consent of Shareholders by SPECIAL RESOLUTION in the General Meeting.

· AND Approval of Central Government

In situation II when Mr. X is appointed as Managing Director he needs to obtain the prior consent of Shareholder through Special Resolution and Prior Approval of Central Government both time as Mr X exceeds the monetary limit of Rs.10,000/- and Rs. 50,000/- fixed by Section 314 of The Companies Act, 1956.

Hope it solves your query….!!!!

For further clarification please refer to my Article on Section 314.

Take care.

Kumar

Paras Khurana (Chartered Accountant) (75 Points)
Replied 21 May 2010

Dear all,

I read all the suggestions given by you and reaches on the following conclusion on this .Check whether I m right or not:

Firstly Mr. X is a relative of director that means Sec 314(1) and 314(1B) both are applicable at this stage. Then he appointed as MD now Sec314(1) is not applicable and Sec314(1B) is applicable and lastly he is getting salary more than 50,000/-over an above . the salary which is getting as a director ,therefore SR and approval of CG is required.

Give your views on this also assuming Mr. Is appointed as Chief public relation officer on a salary of Rs 55,000/- (supposing as a director he is already getting 75,000) . Now in this case both Sec314(1) and Sec314(1B) are applicable but since salary is Rs.55,000 ,Sec314(1B) is applicable and so SR and CG approval both are required

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kajal (Company Secretary) (28 Points)
Replied 18 November 2010

Dear All

kindly advise:

A listed Co. has a CEO (not on the board) who is a relative of a dr. now his salary has been increased and for that reason his appointment falls u/s 314 (1b), general resolution has been passed and CG approval is yet to taken.

If we appoint him as a additional dr and then CG approval will be required?????