2.3       Query

Interpretation of Section 314 of the Companies Act, 1956

1.The Articles of Association of a private limited company contains the following Article regarding Directors’ remuneration:

“The remuneration of each Director for his service shall be such sum not exceeding Rs. 250/- for each meeting of the Board or Committee to the Board attended by him, (exclusive of Travelling and incidental expenses as may be decided by the Board) or may from time to time be fixed by the Board and may be paid to any one or more of its members for services rendered by him or them in signing the Share Certificates in respect of the Company’s capital or any debentures issued by the Company. The Directors shall be paid such further remuneration (if any) as the Company in General Meeting shall from time to time determine, and such additional remuneration and further remuneration shall be divided among the Directors in such proportion and manner as the Board may from time to time determine, and default of such determination, shall be divided among the Directors equally.”

2. The company desires to appoint one of its directors as working director on monthly remuneration and perquisites. On this, the querist is of the view that the consent of the company accorded by a special resolutions is necessary as per the provisions of Section 314 (1) (a) of the Companies Act, 1956. The Company, however, contends that such a consent is not necessary in view of circular No. 4/76/[8/12/314(IB)/75-CLV] dated 11.2.1976.

                                             Opinion                                                              September 27, 1983

1.On the basis of the facts of the query, the Committee presumes that its opinion is sought on whether the appointment of the director as a working director would constitute his holding an office or place of profit under the company and consequently whether the consent of the company should be accorded by a special resolution.

2.The Committee notes the following relevant extracts of Section 314(3) of the Companies Act, and that of the Circular referred to by the querist in para 2 above:

(i)         Section 314(3): “Any office or place shall be deemed to be an office or place of profit under the company within the meaning of this section.

(a) In case the office or place is held by a director, if the director holding it obtains from the company anything by way of remuneration over and above the remuneration to which he is entitled as such director, whether as salary, fees, commission, perquisites, the right to occupy free of rent any premises as a place of residence or otherwise.”

(ii)            Circular of the Department of Company Affairs:

“Sub-Section (3) of section 314 refers to what is treated for the purposes of section 314 ‘an office or place of profit’.

The said sub-section (3) provides that if the office or place is held by a director it will be treated as holding an office or place of profit if the director obtains from the company anything by way of remuneration over and above the remuneration to which he is entitled as such director. Section 309 of the Companies Act refers to remuneration of directors. Section 309 in terms provides that the remuneration payable to a director of a company, including any managing or whole-time director, shall be determined in accordance with  and subject to the provisions of section 198 and that section, namely section 309. It, therefore, follows that the remuneration paid to the managing, or whole time director is remuneration to which he become entitled as a director and therefore unless the remuneration paid to a director is over and above the remuneration to which he would be entitled to as a managing or whole-time director, his holding of office would not be deemed to be an office or place of profit under the company. In such a case of the question of application of the provision of section 314(IB) does not arise.”

3. On the basis of the above, the Committee is of the opinion that the appointment of the director as working director does not amount to his holding an office or place of profit since the monthly remuneration and perquisites are payable to him as director and not in any other capacity. Thus, a special resolution under Section 314 (3) would not be required.