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Section - 314

Neeta (Finance) (345 Points)

03 January 2011

Hello All ,

Case 1 : A director of Private limited company is paid remuneration as consulting and technical service fee (Rs.100000 per month) on which TDS as per section 194J of IT act is deducted . Does this attract special resolution u/s 314 as the remuneration is paid in the capacity other than as Director ??? Whats the procedure required ??/

Case 2. A director of a private limited company is paid monthly salary of Rs.2 lakh per month in the capacity of Director . Does this attract any procedure u/s 314 ???

Case 3. Daughter of Director is appointed as Office Manager with a monthly salary of Rs.50,000/- pm and Son is appointed as HR Manager with salary of Rs.25000/- pm . Whats the procedure required u/s 314 ???

Please revert asap.

Regards

Neeta

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12 Replies

nidhigoel89 (Company Secretary ) (596 Points)
Replied 03 January 2011

Hello!

As per my views For case 1 and case 3 sec 314 will be applicable for which u have to call a general meeting and pass a SR. as far as case 2 is concerned in that case there is no question of sec 314....

Others views are solicited.

Regards

Nidhi

udit sharma (Company Secretary) (2303 Points)
Replied 03 January 2011

Hi....

Case 1

As per section 314 of the Companies Act, 1956 read with Director's(Office or Place of Profit) Rules, 2003, since the remuneration for the services rendered in other capacity is in excess of Rs.50,000/-(Rs.1,00,000 p.m.) prior approval of the members by way of a Special Resolution has to be obtained in the General Meeting of the Company and approval of the Central Government in prescribed Form 24B of the Companies(Central Government's) General Rules and Forms, 1956 has to be obtained.

Case2

Provisions of section 314 of the Companies Act, 1956 will not be applicable,

Case 3

In case the Daughter of Director is holding an office or place of profit in the Company carrying a monthly remuneration of Rs50,000 the provisions of section 314(1B) as stated in Case 1 will have to be complied with.

Where the son of the Director is holding an office or place of profit in the Company carrying a monthly remuneration of Rs.25,000/-, only the consent of the members(need not be prior) has to be obtained by way of a Special Resolution in the General Meeting of the Company. No need to go for the approval of the Central Government.

The approval of the members has to be obtained at the First GM of the Company held immediately after the appointment of son of Director as HR Manager.

Regards

CS Udit Sharma

CS Ankur Srivastava (Company Secretary & Compliance Officer) (17858 Points)
Replied 04 January 2011

CASE 1

Section 314(1) would be applicable and Sepecial Resolution would required.

CASE 2

Section 314 is not applicable....

CASE 3

In case of daughter, Section 314(1B) would apply, prior approval of shareholders by way of Special Resolution would require and cerntral Government approval would be required.

In case of son, section 314(1B) would apply prior aproval of shareholders by way of special resoluion would require in this case also.

Neeta (Finance) (345 Points)
Replied 04 January 2011

many thanks for the replies...Kindly guide further..

Case1 : The payment for the year is being paid but no special resolution has been passed yet . Will a resolution ratifying the payment serve the purpose ???? and Udit - CG approval as regards Directors is specifically excluded hence i think - in this CG approval is not required ??

Case 3 : No such resolution has been passed , here also will a special resolution ratifying the act of payment be sufficient ??/

Rakesh Dhanuka (Company Secretary) (478 Points)
Replied 04 January 2011

In case of son, prior approval is not needed. It can be approved at the first GM after his appointment.

Manmohan ACA, CS (Chartered Accountant ) (14243 Points)
Replied 04 January 2011

Section 314(1) would be applicable and Sepecial Resolution would required which is to be passed within 3 month of appointment .

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Case 2. A director of a private limited company is paid monthly salary of Rs.2 lakh per month in the capacity of Director . Does this attract any procedure u/s 314 ???

Section 314 is not applicable....

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In case of daughter, Section 314(1B) would apply, as remuneration is Rs. 50000 so prior approval of shareholders by way of Special Resolution would require and central Government in for 24 B approval would be required.

In case of son, section 314(1) would apply as remuneration is less then 50000 approval of shareholders by way of special resolution would require to be passed to be passed within 3 month of appointment .

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Manmohan ACA, CS (Chartered Accountant ) (14243 Points)
Replied 04 January 2011

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Rajeev kumar Nayak (ACS) (283 Points)
Replied 04 January 2011

Agreed with all and especially Mr. Udit.

One thing I want to add in the answer of Mr. Udit is that in CASE 1 there is no need to obtain the CG approval as Section 314 (1B) which requires CG approval is not applicable in case of Director Itself, these provisions are applicable in case of Related Category of Director.

Further in case 1 subsequent SR will be sufficient.

Rajeev Nayak

Jayashree S Iyer (Company Secretary) (3224 Points)
Replied 04 January 2011

Agree with Rajeev.

CS Ankur Srivastava (Company Secretary & Compliance Officer) (17858 Points)
Replied 04 January 2011

Under Seciton 314(1B):-

Prior Approval of Shareholders by way of Special Resolution:-

In case the appointment on any office or place of profit in the company which carries a total monthly remuneration of not less than 20000.

w.e.f. 15-10-1988 by the Companies (Amendment) Act, 1988. Sub rule (2) of rule 10C of General Rules & Forms.

Prior approval of shareholders + Approval of Central Government:-

In case the appointment on any office or place of profit in the company which carries a total monthly remuneration of not less than 50,000.

Rule 3 of Direcrtors' Relatives (Office or Place of Profit) Rules, 2003

Jayashree S Iyer (Company Secretary) (3224 Points)
Replied 06 January 2011

Quoted by Ankur Srivastava

Prior Approval of Shareholders by way of Special Resolution:-

In case the appointment on any office or place of profit in the company which carries a total monthly remuneration of not less than 20000.

w.e.f. 15-10-1988 by the Companies (Amendment) Act, 1988. Sub rule (2) of rule 10C of General Rules & Forms.

My views - Agree. This is as per Section 314(1)

Prior approval of shareholders + Approval of Central Government:-

In case the appointment on any office or place of profit in the company which carries a total monthly remuneration of not less than 50,000.

Rule 3 of Direcrtors' Relatives (Office or Place of Profit) Rules, 2003

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My views -

The above provision does not apply to a director holding office of profit himself. It applies only to

i) partner or relative of a director or manager

ii) firm in which such director or manager or relative of either, is a partner

iii) private company of which such a director or manager or relative of either, is a director or member