Increase in director’s remuneration requires Government sanction ‑ Director rendering services ordinarily expected to be rendered by him ‑ Whether remuneration paid for services required approval of Central Government - Companies Law - No. 6(10)‑CL‑1/59,

Circular : No. 6(10) ‑ CL ‑ 1/59, dated 12 ‑ 5 ‑ 1959. Subject:- Increase in director s remuneration requires Government sanction ‑ Director rendering services ordinarily expected to be rendered by him ‑ Whether remuneration paid for services required approval of Central Government Cases have come to the notice of the Government where directors of companies were paid substantial amount of remuneration besides their reasonable expenses, for services rendered to the companies concerned, without obtaining the approval of the Central Government in terms of section 310. In a recent case it was observed that a sum of Rs. 12,000 was paid to a director of the company by way of professional fees. On enquiry by Government, the company stated that the director concerned was a lawyer having a very lucrative practice at the bar, that the aforesaid sum was paid to him in connection with his visits on company s business to a place outside his headquarters and that the payment to him only represented the minimum fees charged by him for going out of his headquarters when the courts were working. It was also explained by the company that the payment to the director was made for rendering professional services which were not to be regarded as service ordinarily expected to be rendered by a director, though he had not been appointed to a place of profit in terms of section 314. In this connection the Central Government would like to make it clear for the information and guidance of companies that strict compliance with the provisions of section 314 would be required in appropriate cases. Where a director is entrusted with work which involves the rendering of services ordinarily expected to be rendered by a director, any payment proposed to be made to him for such work would require the approval of the Central Government under section 310. There is, however, no objection to the company reimbursing its directors any reasonable expenditure actually incurred by them in connection with any business of the company. Companies should invariably obtain the approval of the Central Government in terms of the relevant sections of the Companies Act before any remuneration is actually paid to directors or before any proposed appointment of managing/whole‑time directors, etc., actually takes effect. In the past, cases have come to the notice of the Government where companies have sought the approval of Government for payments of remuneration or to appointments with retrospective effect. In future Government will, as a rule, have to regret their inability to validate such payments or appointments unless the companies concerned have established to the satisfaction of Government that the delay in seeking the necessary approval was inescapable.