3.22 Query
Payment to Directors for Professional Services-2 A Chartered Accountant, who is a director of a Company is engaged by the company on a remuneration of Rs.500/- per month to render following services:
To act as consultant to the Company to advise on Accounts, Taxation, costing and allied matters, to supervise the company’s accounts and to submit to the Board quarterly statement of Accounts.”
The following questions arise in this connection:-
1. Is it correct to say that the services rendered are of a professional nature in terms of Section 309(1) proviso (a)?
2. If so, is the remuneration paid, remuneration that cannot be included in remuneration payable to directors “ for services rendered in any other capacity”. In other words, is the remuneration something that need not be treated as “Remuneration of Director” for purposes of the Act, or is it “Remuneration of directors” for purposes of the Act, but only remuneration that need not be taken into account for purposes of the ceiling under Section 198 of the Act?
3. If it is not “Remuneration of Directors” for purposes of the Act, is it not automatically excluded for purposes of Section 198 and what is the need for Section 198(2)?
4. Would the engagement in question amount to the director holding an office or place of profit under Section 314 of the Act?
5. If so is the office or place of profit that a technical adviser, for the holding of which a special resolution is not necessary (314(1) exception)?
Or
Is the engagement in question on an office or a place of profit by reason of the remuneration being exempted remuneration under Section 309(1) (a) and by virtue of Section 314(3) (a) ?
6. Does the proviso to Section 309(1) contemplate only fees payable of an occasional nature and not monthly remuneration ?
7. Is a Special Resolution under Section 314 required ?
Opinion Sept.15, 1973
1. Yes, provided Central Government’s opinion to that effect has been obtained by the Company under proviso (b) to Section 309(1) of the companies Act.
2. If the condition in reply (1) is fulfilled, the remuneration will not be considered as remuneration to director and also will be ignored for the purpose of the ceiling under Section 198 of the Companies Act.
3. Section 198(2) deals only with Director’s Fees, and the question therefore does not appear to be relevant.
4. Yes, Special Resolution would be necessary in view of the fact that the nature of job enumerated in the query is not entirely advisory. Supervision of the Company’s accounts and submission to the board of quarterly statements of accounts cannot constitute advisory function.
5. Section 314(3) (a) only describes what can constitute place of profit for a director and the question of exclusion is contained in sub-section (1) of the Section. The case under references is not one which can enjoy the exemption. Section 314 is independent of Section 309 and consequently the remuneration though exempted under Section 309 and may not be so treated under Section 314.
6. Not necessarily.
7. Yes.
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