Tuesday, July 22, 2008

Companies Act_Practical Problems_24

Bush and Tony Private Limited approached you seeking your opinion on the following appointments relating to Directors and their relatives.
(i) Appointment of Mr. Somen (relative of one of the Directors) as the Managing Director of the company on a monthly remuneration of Rs 35,000 and other perquisites as are currently being allowed to other executives of the company.

(ii) Appointment of Mr. Raman (relative of one of the Directors) as the General Manager-Sales of the company on a consolidated monthly remuneration of Rs. 30,000.

(iii) Appointment of Mr. Kabi (relative of one of the Directors) as an Accounts Manager of the company on a consolidated monthly remuneration of Rs 17,000.

Express your opinion explaining the relevant provisions of the Companies Act, 1956.


(i) Special resolution is required for the appointment of a relative of a director at an office or place of profit carrying a monthly remuneration of Rs. 10,000 or more.

However the office of a managing or whole time director has been held not to be an office or place of profit. A managing or whole time director draws remuneration to which he is entitled as a director. If he does not draw anything more than this, his holding office cannot be said to be an office or place of profit [Department Circular No. 4/76(8/12/314(1B)/75-CL-V), dated 11.2.1976]. Also, section 314(1) does not apply where the appointment is made at the office of a managing director.

Therefore, the appointment of Mr. Somen as managing director does not attract the provisions of section 314. However, his appointment as a managing director requires the approval of the Central Government or compliance with Schedule XIII (Section 269).


(ii) Special resolution is required for the appointment of a relative of a director at an office or place of profit carrying a monthly remuneration of Rs. 10,000 or more. Since the remuneration payable to Mr. Raman exceeds the monthly remuneration of Rs. 10,000, such appointment can be made only with the consent of shareholders by passing a special resolution. However, it shall be sufficient if the special resolution is passed at a general meeting of the company held for the first time after the holding of such office or place of profit.


(iii) Special resolution is required for the appointment of a relative of a director at an office or place of profit carrying a monthly remuneration of Rs. 10,000 or more. Since the remuneration payable to Mr. Kabi exceeds the monthly remuneration of Rs. 10,000, such appointment can be made only with the consent of shareholders by passing a special resolution. However, it shall be sufficient if the special resolution is passed at a general meeting of the company held for the first time after the holding of such office or place of profit.