Directors: Not to Hold Office or Place of Profit

Restrictions imposed on Directors:

No director of a company shall hold any office or place of profit carrying a total monthly remuneration of Rs 500 or more except:

1) With the consent of the company accorded by a special resolution.
2) Where the office is that of a managing director or manager, banker or trustees for the holders of debentures
3) Under the company or
4) Under any subsidiary of the company unless the remuneration received from such subsidiary in respect of such office or place of profit is paid over the company or its holding company.

However, it shall be sufficient if the special resolution according the consent of the company is passed at the general meeting of the company held for the first time after the holding of such office or place of profit.

The above provisions shall also apply to:

1) Partner or relative of such director
2) Firms in which such director or relatives of such a director is partner.
3) Private company of which such a director is a director or members and
4) Director or manager of such a private company.

It shall be sufficient if the special resolution according to the consent of the company is passed at the general meeting of the company held for the first time after the holding of such office or place of profit.

Where a relative of a director or a firm in which such a relative is a partner and is appointed to an office or place of profit under the company or a subsidiary thereof without the knowledge of the director, the consent of the company or a subsidiary thereof without the knowledge of the director, the consent of the company may be obtained either in the general meeting or within three months from the date of appointment whichever is later.

A special resolution according to consent shall be necessary for every appointment in the first instance to an office or place of profit and to every subsequent appointment to such office or place of profit on a higher remuneration except where an appointment on a time scale has already been approved by the special resolution.

Sub section (IB) to section 314 of the Act inserted by the Companies Amendment Act 1974 further provides that:

1) no partner or relative of a director or manager;
2) no firm in which such director or manager or relative of either is at partner.
3) No private company of which such a director or manager or relative of either as director or member.

Shall hold any office or place of profit in the company which carries a total monthly remuneration of not less than Rs 3000/- except with the prior consent of the company by a special resolution and their approval of the Central Government.

Every individual firm, private company or the body corporate proposed to be appointed to any office of place of profit; before or at the time of such appointment shall declare in writing whether he or it is or is not connected with a director of the company in any of the above ways.

In the following cases any office or place shall be deemed to be an office or place of profit under the company:

If the director obtains from the company anything by way of remuneration over and above the remuneration to which he is entitled as such a director whether it is salary fees, commission prerequisites the right to occupy free of rent any premises as a place of residence or otherwise.

If an individual other than a director or any firm private company or other body corporate holding office or place of profit obtains from the company anything by way of remuneration whether as salary fees, commission perquisites the rights to occupy free of rent any premises as place of residence or otherwise.
Source: Business Law