After introduction of Secretarial Compliance Certificate by the Companies (Amendment) Act, 2000, a Company Secretary in practice is required to give his observations on the applicability and compliance of provisions of Section 314 of the Act in their Compliance certificate.
Meaning of ‘Office or Place of Profit’
Office or Place of Profit means - any place or position or office in a Company in which a Director obtains anything by way of remuneration other than the remuneration to which he is entitled to receive as director.
Remuneration may either be in the form of salary, fees, commission, perquisites, the
right to occupy free of rent any premises as a place of residence or otherwise.
Regulations
Section 314 of the Companies Act, 1956 regulates the provisions relating to appointment
of a director or any relative of Director, a firm, body corporate in which such Director is
interested, to an office or place of profit.
This Section prohibits appointment of Directors or their relatives or firms or companies in which Directors are interested to hold the ‘office or place of profit’ without approval of members in all cases and approval of Central Government in certain cases.
The provisions of this section are applicable to both public and private companies.
Exceptions
Services not covered under the Section 314
1. Professional Services rendered by a practicing Advocate.
2. The prohibition under Subsection (1) and (1-B) is not applicable to the
remuneration / compensation given to the concerned persons for rendering
services of professional nature to the Company in their professional capacity i.e.
Advocate, Chartered Accountant, Solicitor, Architect, Doctor, Engineer and
others, provided such services rendered are not in retainer basis and on job work
basis.
Sub Section (1) of Section 314
Sub-section (1) of Section 314 applies to both Directors and their Relatives, their
partners in other firms or their co-directors in other Companies in which the Director is
member or Director.
Requirement
Special resolution of Shareholders for the appointment
It provides that, the appointment of any relative other than Director of the Company to the office or place of profit - requires approval of share holders by way of special resolution in case the remuneration exceeds Rs.50,000. Before 7 July 2011 the limit was Rs.10,000/- the limit was enhanced vide a Notification [F. NO. 17/174/2011-CL.V], DATED 7-7-2011
However, the appointment of a Director to the office or Place of Profit requires special
resolution of shareholders irrespective of how small the remuneration may be.
Subsequent approval by way of special resolution is permitted in certain cases.
Sub Section (1-B) of Section 314
Sub Section (1-B) of Section 314 applies only to the Director’s or Manager’s Relatives or
partners or firms in which Director/ manager is a partner or a private company in which
Director is a Director or Member.
Requirement
Prior approval of shareholders by way of special resolution and approval of Central Government
Subsection 1B of Section 314 requires the appointment of persons (referred as above)
to the ‘office or place of profit’ with prior approval of shareholders in general meeting
and approval of Central Government where the remuneration exceeds Rs.2,50,000 per month. The limit was enhanced to Rs.2,50,000/- vide the Notification No. G.S.R. 357(E), Dated 2-5-2011.
Consequences of irregular holding of Place of Profit
The office or Place of Profit held in contravention of the provisions of this section will
become vacant and the director, partner, relative, firm, private company or the manager
concerned, shall be deemed to have vacated his office as such on and from the date
next following the general meeting and shall be liable to refund to the company any
remuneration received or the monetary equivalent or advantage taken in respect of the
office or place of profit.
Procedure towards complying the legal requirements.
Meaning of ‘Office or Place of Profit’
Office or Place of Profit means - any place or position or office in a Company in which a Director obtains anything by way of remuneration other than the remuneration to which he is entitled to receive as director.
Remuneration may either be in the form of salary, fees, commission, perquisites, the
right to occupy free of rent any premises as a place of residence or otherwise.
Regulations
Section 314 of the Companies Act, 1956 regulates the provisions relating to appointment
of a director or any relative of Director, a firm, body corporate in which such Director is
interested, to an office or place of profit.
This Section prohibits appointment of Directors or their relatives or firms or companies in which Directors are interested to hold the ‘office or place of profit’ without approval of members in all cases and approval of Central Government in certain cases.
The provisions of this section are applicable to both public and private companies.
Exceptions
Services not covered under the Section 314
1. Professional Services rendered by a practicing Advocate.
2. The prohibition under Subsection (1) and (1-B) is not applicable to the
remuneration / compensation given to the concerned persons for rendering
services of professional nature to the Company in their professional capacity i.e.
Advocate, Chartered Accountant, Solicitor, Architect, Doctor, Engineer and
others, provided such services rendered are not in retainer basis and on job work
basis.
Sub Section (1) of Section 314
Sub-section (1) of Section 314 applies to both Directors and their Relatives, their
partners in other firms or their co-directors in other Companies in which the Director is
member or Director.
Requirement
Special resolution of Shareholders for the appointment
It provides that, the appointment of any relative other than Director of the Company to the office or place of profit - requires approval of share holders by way of special resolution in case the remuneration exceeds Rs.50,000. Before 7 July 2011 the limit was Rs.10,000/- the limit was enhanced vide a Notification [F. NO. 17/174/2011-CL.V], DATED 7-7-2011
However, the appointment of a Director to the office or Place of Profit requires special
resolution of shareholders irrespective of how small the remuneration may be.
Subsequent approval by way of special resolution is permitted in certain cases.
Sub Section (1-B) of Section 314
Sub Section (1-B) of Section 314 applies only to the Director’s or Manager’s Relatives or
partners or firms in which Director/ manager is a partner or a private company in which
Director is a Director or Member.
Requirement
Prior approval of shareholders by way of special resolution and approval of Central Government
Subsection 1B of Section 314 requires the appointment of persons (referred as above)
to the ‘office or place of profit’ with prior approval of shareholders in general meeting
and approval of Central Government where the remuneration exceeds Rs.2,50,000 per month. The limit was enhanced to Rs.2,50,000/- vide the Notification No. G.S.R. 357(E), Dated 2-5-2011.
Consequences of irregular holding of Place of Profit
The office or Place of Profit held in contravention of the provisions of this section will
become vacant and the director, partner, relative, firm, private company or the manager
concerned, shall be deemed to have vacated his office as such on and from the date
next following the general meeting and shall be liable to refund to the company any
remuneration received or the monetary equivalent or advantage taken in respect of the
office or place of profit.
Procedure towards complying the legal requirements.
- Call and Convene a Board meeting for considering the appointment to the office of place of profit and for fixing the date, time and venue of Extra –ordinary General Meeting or Annual General Meeting, as the case may be.
- Convene the Extra-ordinary General Meeting and pass the special resolution for the appointment with in 3 months from the date of appointment after issuing the requisite notice of meeting.
- Make necessary Intimation to the Stock Exchanges, if any.
- File e-Form-23 along with necessary enclosures through MCA portal.
- Obtain necessary declarations and undertakings from the Appointee.
- Prepare and submit necessary Form 24-B along with necessary enclosures.
Documents and forms to be attached to Form 24B on MCA portal:
- Form 23 towards passing special resolution for obtaining approval of members along with copy of Challan with Service request number evidencing payment of fees.
- Notice along with explanatory statement, if any, minutes and Extracts of resolutions of an extra-ordinary General Meeting/ Annual General Meeting in which approval of members for the appointment to the office of place of profit is made.
- Copy of Memorandum and Article of Association.
- Latest Audited Annual Report.
- Shareholding pattern particularly the shareholding of the directors along with his/her/their relatives, the public holding, institutional holding (each institution separately).
- List/ Particulars of the employees who are in receipt of remuneration of Rs.2,50,000/- or more per month.
- Personal Details of Appointee (whether Company, Individual or Partnership firm)
- Details of Directorship held by the appointee in other companies.
- An undertaking from the appointee that he/she will be in the exclusive employment of the company and will not hold a place of profit in any other company.
- Details of Salary package proposed to be paid to the appointee and details of the services that will be rendered by him to the company.
- The educational qualification/ experience, pay scale, allowances and other benefits of similarly placed executives in the company.
- In case of appointment of relative, an undertaking from the director/Company Secretary of the company that the similarly placed employees are getting the comparable salary.
- Name(s) of the directors or managing directors or whole-time directors to whom the proposed appointee is related and the nature of relationship.
- The total number of relatives of all the directors either appointed as Managing/ Whole time director, Manager or in any other position in the company; the total remuneration paid to each relative and the total remuneration paid to them altogether as a percentage of profits as calculated for the purpose of section 198 of the Companies Act, 1956.
- Appointment of a relative of a director for holding office or place of profit in the company shall be approved by adopting the same procedure applicable to non-relatives. However, in the case of public companies, the selection of a relative of director for holding place of office or profit in the company shall have to be also approved by a Selection Committee.
- Resolution of Board of Director relating to appointment.
- Minutes of Selection committee.
- Copy of rules of the company relating to the terms and conditions in regard to perquisites as applicable to its employees. If there are no rules, a certificate from secretary or director of the company to the effect that similar perks at the same rate(s) are being paid to the other employees of the company in the equivalent grade
