Friday, May 31, 2013

Director or Director's relative holding place of profit - law and procedure

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.  

  1. 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. 
  2. 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. 
  3. Make necessary Intimation to the Stock Exchanges, if any. 
  4. File e-Form-23 along with necessary enclosures through MCA portal. 
  5. Obtain necessary declarations and undertakings from the Appointee. 
  6. Prepare and submit necessary Form 24-B along with necessary enclosures.

Documents and forms to be attached to Form 24B on MCA portal:

  1. Form 23 towards passing special resolution for obtaining approval of members along with copy of Challan with Service request number evidencing payment of fees.
  2. 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. 
  3. Copy of Memorandum and Article of Association. 
  4. Latest Audited Annual Report. 
  5. Shareholding pattern particularly the shareholding of the directors along with his/her/their relatives, the public holding, institutional holding (each institution separately). 
  6. List/ Particulars of the employees who are in receipt of remuneration of Rs.2,50,000/- or more per month. 
  7. Personal Details of Appointee (whether Company, Individual or Partnership firm) 
  8. Details of Directorship held by the appointee in other companies. 
  9. 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. 
  10. 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. 
  11. The educational qualification/ experience, pay scale, allowances and other benefits of similarly placed executives in the company. 
  12. 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. 
  13. Name(s) of the directors or managing directors or whole-time directors to whom the proposed appointee is related and the nature of relationship. 
  14. 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.
  15. 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. 
  16. Resolution of Board of Director relating to appointment. 
  17. Minutes of Selection committee.
  18. 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

Wednesday, May 29, 2013

Section 314 of Companies Act 1956 - office of profit - relative of Director

The Central Government vide its powers confirmed under section 642 of the Companies Act , 1956 has raised the total monthly remuneration for the purpose of Clause (b) of sub section (1) of section 314, Rs.10,000 limit u/s 314(1)(b) of Companies Act raised to Rs.50,000 & Rs.20,000 limit u/s 314(1B)) raised to Rs.2,50,000. Section 314 of The Companies Act, 1956 states that a Director etc., is not to hold office or place of profit except with the consent of the company accorded by a special resolution and at remuneration as may be prescribed by the Central Government.

COMPANIES (CENTRAL GOVERNMENT’S) GENERAL RULES AND FORMS (AMENDMENT) RULES, 2011 – SUBSTITUTION OF RULE 10C
NOTIFICATION [F. NO. 17/174/2011-CL.V], DATED 7-7-2011
In exercise of the powers conferred by clauses (a) and (b) of sub-section (1) of section 642 of the Companies Act, 1956 (1 of 1956) and all other powers hereunto enabling the Central Government hereby makes the following rules, further to amend the Companies (Central Government’s) General Rules and Forms, 1956 namely:-
Short title and commencement
1. (1) These rules may be called the Companies (Central Government’s) General Rules and Forms (Amendment) Rules, 2011.
(2) They shall come into force with effect from the date of publication in the official Gazette.
2. The existing rule 10C shall be substituted by the following rule 10C :
“(1) Rule 10C.—The total monthly remuneration for the purpose of clause (b) of sub-section (1) of section 314, shall not be less than rupees fifty thousand.
(2) The total monthly remuneration, for the purpose of sub-section (1B) of section 314, shall not be less than rupees two lakhs and fifty thousand.”

[F No 17/174/2011-CL.V]
J.N. Tikku,
Joint Director
Note- The Principal notification was published vide number G.S.R. 432 dated 18th January 1956 and last amended vide G.S.R. 408 (E) dated the 26th May 2011.

Director - Resignation - non filing of Form 32

Filing of Form 32 with Registrar of Companies on resignation of Director
Filing form 32 is just a procedure to be completed after a Director has submitted his resignation. Failure to file form 32 to Registrar of Companies [ROC] does not vitiate the act of resigning of the Director from the post of the Directorship. His resignation will be considered from the date he has submitted his resignation to the Board of Directors.

Director's Relative (Office or Place of Profit) Rules, 2011

Director's Relative (Office or Place of Profit) Rules, 2011

NOTIFICATION NO. G.S.R. 357(E), DATED 2-5-2011

In exercise of the powers 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. GS.R. 89(E), dated 5-2-2003, namely:—

1. (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 date 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 of relative of either is a partner; or

(c) Private Company of which such Director or Manager or relative of either is a Director, or member, which carries a monthly remuneration exceeding, Rs. 2,50,000 p.m.

(d) 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 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 a salary exceeding Rs. 2,50,000 per month shall be approved by adopting the same procedure applicable to non-relatives and approved by a 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 at least three members, the majority of which shall be independent Directors and an outside Expert:

Provided that in case of unlisted companies, independent Directors are not necessary but outside experts should be there 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:—

(a) In the case of individual appointee, an undertaking from him that he/she will be in the exclusive employment of the company and will not hold a place of profit in any other company.

(b) The monetary 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, institutional holding (each institution separately) and the quantum of dividend paid by the company during the last three preceding financial years.

(d) Details of the 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/Company 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. 2,50,000 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 altogether as a percentage of profit as calculated for the purpose of section 198 of the Companies Act, 1956.

Saturday, May 04, 2013

Will

Will is a document that can be revoked, modified or substituted by the person executing it at any point of time during his lifetime.
The will can be executed even on plain paper.
Registration of a will is not compulsory.
Once a will is registered it becomes a strong legal evidence.
The will has to be in writing and has to state that the person executing it is making it out of his own free will and in a sound disposing state of mind. 
Only Muslims are allowed to make “Oral Will”.
Will must be signed by the executor and has to be attested by at least 2 witnesses.
No stamp duty is payable on a will.
While registering the will the witnesses have to sign the register, maintained in the office of the sub-registrar.
The ‘Will’ be registered with that sub-registrar who has jurisdiction over the residence of the executor.
A will can be handed over to the registrar for safe custody.
A minor can’t make a will.
For a will to be valid a legatee; who is the beneficiary, should not be a witness.
Indian Succession Act 1925, clearly states that any clause that bequest a property on the witness is void.
Only last will, executed before the death of the testator is enforceable.

© Copyright 2013, Shreerang Ketkar, All rights reserved.

Investment in Property in India by Non Resident Indian [ NRI ]


From the time of the Foreign Exchange Regulation Act (FERA) regime Non-resident Indians (NRIs) are usually very apprehensive while purchasing immovable property in India, their home country. Now that the more sober act the Foreign Exchange Management Act (FEMA), is in place there is a reason to believe that NRI's can invest in Indian property market.

Type of property
The Reserve Bank of India (RBI) has issued a notification granting general permission to NRIs for purchase of residential or commercial property in India without obtaining any clearance from the central bank. Further more there is no restriction on number of residential or commercial properties NRI's can purchase. NRI's still cannot purchase agricultural land, plantation property and even a farmhouse. 

Funds
The payment for purchase of property can be made by way of remittance through banking channels from abroad or from money lying in their NRE / NRO or FCNR accounts. The money for purchase of the permitted properties has to come only through banking channels hence the payment cannot be tendered in the form foreign currency notes. NRIs can even raise funds through home loan in Indian rupees. EMI for the home loan can be paid either by direct remittance from abroad or from the money lying in NRE/NRO/FCNR accounts or out of the rent received from such property or money transferred to borrowers account from the account of relatives of such borrower. funds lying in the FCNR or NRE account can be a underlying security for the home loan. 


Ownership
The property can be owned either in a single name or jointly with another NRI. A joint owner can not be a permanent resident in India. 
If at the time of changing the status from Resident Indian to Non Resident Indian the person owns a property or even an agricultural land or a farm house the same will continued to be owned by him without any hassles