Prohibition against director holding ‑ Certain persons not to hold place of profit which carries monthly salary of Rs. 3,000 and more - Companies Law - Circular : No. 4/76

Circular : No. 4/76[8/12/314(1B)/75 ‑ CL ‑ V], dated 11 ‑ 2 ‑ 1976. Subject:- Prohibition against director holding ‑ Certain persons not to hold place of profit which carries monthly salary of Rs. 3,000 and more Reference may be made to Circular No. 14/75, dated 5‑6‑1975 [printed as Clarification 1]. Some doubts had been raised regarding the application of sub‑section (1B) of section 314 to an individual who is a partner or relative of a manager or director of a private company appointed as managing or whole‑time director of such company at a monthly remuneration of not less than Rs. 3,000 [Rs. 10,000]. A number of representations have been received on the subject. The position has since been re‑examined and it has now been decided to clarify the ambit of section 314(1B) as follows : 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 becomes 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 the question of application of the provisions of section 314(1B) does not arise.