Whether appointment of sole selling agents could be regarded as an office of profit within the meaning of sub‑section (1) - Companies Law - No. 12(5)‑CL‑VI/ 62,

Circular : No. 12(5) ‑ CL ‑ VI/ 62, dated 13 ‑ 2 ‑ 1962. Subject:- Whether appointment of sole selling agents could be regarded as an office of profit within the meaning of sub ‑section (1) In the course of scrutiny of prospectuses issued by public limited companies and while scrutinising applications received from companies for approval to the appointment of managing or whole‑time directors by such companies it has been noticed that some of these companies have appointed as sole selling agents firms or private limited companies in which directors including the managing or whole‑time directors of the public companies have considerable financial interest. In the case of companies managed by managing or whole‑time directors, the practice of conferring indirect benefit to the directors including managing or whole‑time directors by way of a share in the selling agency commission is likely to grow. In the past while approving the appointment/reappointment of managing and whole‑time directors a condition used to be imposed to the effect that they shall not supplement their income from the managed company by way of a share in the selling agency commission or otherwise. This administrative restriction has been found to be inadequate because it could be circumvented by allowing the selling agency rights to persons who are close relatives of the managing or whole‑time directors. The Department has been considering this problem for some time past and pending a suitable amendment to the Act it has been decided that where selling agency arrangements already exist, a condition would be imposed at the time of conveying sanction to the appointment/reappointment of managing or whole‑time director or manager, as the case may be, to the effect that he shall not, either directly or through his wife and son or sons, augment his income from the company by being associated with the selling agents. Where a company seeks approval of Government in such cases before the selling agency arrangements are finalised, approval would be conveyed subject to the condition that if the company appoints a selling agent at a future date, the managing director, or whole‑time director or manager, as the case may be, as also his wife, son or sons shall not be allowed to have any direct or indirect interest in the selling agency without the specific approval of the Central Government in this behalf. If subsequently it comes to the notice of the Department that relatives other than the wife and sons of managing directors or whole‑time directors or managers were getting themselves increasingly appointed as sole selling agents then it would be necessary to extend this restriction to cover other relatives as well within the meaning of the Act.