Prohibition against director holding ‑ Whether payment of guarantee commission or interest on loans to directors attracts sub‑section (1) - Companies Law - Letter : No. 8/26/(309)/76‑CL‑V,

Letter : No. 8/26/(309)/76 ‑ CL ‑ V, dated 9 ‑ 1 ‑ 1978. Subject:- Whether payment of guarantee commission or interest on loans to directors attracts sub ‑ section (1) Query : Whether, under the circumstances, the guaranteeing of the company s credit account by directors can be said to be an office or a place of profit held by a director within the meaning of section 314(1) ? It may also be clarified whether payment of interest on temporary advances if it exceeds Rs. 500 or more [Rs. 10,000] per month would attract the provisions of section 314 in addition to the provisions of section 309 ? Answer : The provisions of section 314 in regard to any payment to directors will come into play only when the following three ingredients (all inclusive) are satisfied in a particular case : 1. When a director is holding a place of profit under the company within the meaning of section 314(3). 2. When such a director is in receipt of a monthly remuneration of Rs. 500 or more [in the case of section 314(1)]1 and for purposes of sub‑section (1B) of section 314, there exists an office or place of profit in the company and the said director is holding the same at a monthly remuneration of not less than three thousand rupees. 3. That such a remuneration as paid to directors is in respect of services other than those ordinarily performed by the directors of a company. In the above premises, section 314 will not be applicable to the payment of either any guarantee commission or interest on loans to the directors of any company.