Section 314(1B) clarification

Resolutions 2809 views 5 replies

Muralidharan

Self Employed

1035 Points Joined December 2008

28th June 2011

Preamble of the Issue

Mr.X is a Director of the Company XYZ Private Limited
Mr.Y is a relative of Mr.X

Mr.Y who is a relative of Mr.X (Director of the Company) is being engaged as a consultant on a monthly payment of Rs.50000/-. The provisions of Section 314(1B) is attracted for the above said appointment of Mr.Y as consultant. In my opinion this requires the following approval:

(1) Board of Directors prior approval.
(2) PRIOR approval of the Members of the Company by way of Special Resolution [Section 314(1B)]
(Note : Central Govt. approval is not required since the payment does not cross Rs.50000/-)

My interpretation of Section 314 is as follows:

(1) Monthly Remuneration upto Rs.9,999/- Prior Board approval

(2) Monthly Remuneration from Rs.10,000/- to Rs.19,999/- Prior Board Approval and Members approval at the next General Meeting

(3) Monthly Remuneration from Rs.20,000/- to Rs.50,000/- Prior approval of the Board and Prior approval of the Members

(4) Monthly Remuneration over and above Rs.50,000 - Prior approval of Board, Prior approval of the Members and Central Government.

The above appointment falls under Point No.3 of my interpretation. Kindly advise in this regard.

with regards

Murali

Replies (5)

Charu

nil

122 Points Joined December 2010

Dear Mr. Muralidharan, As refered by you, it is not mandatory to obtain prior consent of members before apppoitnment under section 314(1).As per section, it shall be sufficient if the special resolution according the consent of the company is passed at the Gen.Meeting of the company held for the first time after the holding of such office or place of profit. Only where the consent of Central Govt. is needed u/s 314(IB), prior consent of members and central govt. is necessary. In this respect, please be guided further by Directors Relatives (office or place of profit) Rules 2003, as amended vide circular dated 6/4//2011, in addition to section 314 of the Act.

CS Ankur Srivastava

Company Secretary & Compliance Officer

17858 Points Joined November 2008

Dear Murlidharan,

Yes, in case the remuneration exceed Rs. 20,000/-, Prior Approval of Shareholders required.

HOwever, the limit of Rs. 50,000/- has also been increased to Rs. 2,50,000/-, therefore remuneration of Rs. 20000 to Rs. 250000 requires prior approval of shareholders by way of Special Resolution

CS Ankur Srivastava

Company Secretary & Compliance Officer

17858 Points Joined November 2008

Please find the directors relatives offiece or place of proft amendment rules 2011.

Charu

nil

122 Points Joined December 2010

dear Sir, May the learned reader please advise where the requirement of prior approval by shareholders is given in the section or rules,except as provided under section 314(IB)read with rule 3 of DR(OPP) rules? Thanks

CS Ankur Srivastava

Company Secretary & Compliance Officer

17858 Points Joined November 2008

Section 314(1B) Notwithstanding anything contained in sub section (1)-

(a) no partner or relative of a director or manager,

(b) no firm in which such direcgor or manager, or relative of either, is a partner,

shall hold any office or place of profit in the company which carries a total monthly remuneration of not less than [such sum as may be prescribed], except with the prior concent of the company by a special resolution and the approval of the central government.

Further, for prior consent a sum of Rs. 20000 has been prescribed under sub rule 2 of rule 10C of General Rules and Forms

Furthermore, no appointment shall take effect unless approved by the Central Government n an application in respect of appointment which carry a total montly remuneration of Rs. 250000/-