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TMI Blog2015 (12) TMI 992X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner no.1 Company. Similarly, without the petitioner no.2 receiving any other emoluments from other companies in which he was/is a Director, it could not be said that he was/is holding any office of profit therein. though the impugned order reasons that the provisions of Section 314 cannot be got around by serving a non-executive/non-remunerative position in other companies but does not state that any other inquiry was done by the respondent or it was found that the petitioner no.2 though stated to be serving in non-executive and non-remunerative position in other companies but was devoting his time and energy thereto. Thus, though the reasoning may be correct if supported by the facts but de hors a factual finding is contrary to the statutory mandate. The statutory mandate is that being a Director in a non-remunerative and non-executive position in other companies does not amount to being in employment of those companies or holding a place of profit in those companies. - W.P.(C) No.10553/2015 - - - Dated:- 17-11-2015 - MR. RAJIV SAHAI ENDLAW, J. For The Petitioners : Mr. P.V. Kapur, Sr. Adv. with Mr. Jaideep Bhambani and Mr. Sidhant Kapur, Advs. For The Respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t even for payment of enhanced remuneration to the petitioner no.2, permission was obtained and granted in the year 2008. The renewal permission granted in the year 2009 was valid till 2013. 8. The petitioner no.1 Company being desirous of re-appointing the petitioner no.2, the application for the period of five years w.e.f. 1st October, 2013 was filed. 9. The respondent, by the impugned order has held:- A. that in view of the coming into force of Section 188(1)(f) of the Companies Act, 2013 (the 2013 Act) w.e.f. 1st April, 2014, no approval for the period w.e.f. 1st April, 2014 onwards is required, subject to the appointment complying with certain prescribed conditions and which aspect has not been gone into in the impugned order; thus the subject application was concerned only for the period of 1st October, 2013 to 31st March, 2014; B. that Director‟s Relatives (Office or Place of Profit) Rules, 2003 earlier in force were replaced by Director‟s Relatives (Office or Place of Profit) Rules, 2011 and the approval for the period from 1st October, 2013 to 31st March, 2014 was considered under the 2011 Rules; C. the Ministry, in such cases, had been following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... milarly placed employees are getting the comparable salary. (f) List and particulars of the employees who are in receipt of remuneration of ₹ 2,50,000/- or more per month. (g) The total number of relatives of all the Directors either appointed as Manager/Whole time Director, Manager or in any other position in the company, the total remuneration paid to all of them altogether as a percentage of profit as calculated for the purpose of Section 198 of the Companies Act, 1956. 11. I may in this regard further notice that the respondent, on 28th January, 2014, had sought from the petitioners the particulars with respect to the requirements specified in Clauses (b) to (g) of Rule 5 supra as well as the following other particulars:- i. Shareholding pattern particularly the shareholding of the directors along with his/her/their relatives, the public holding, institutional holding (each institution separately). ii. An undertaking from the Director/Company Secretary of the company that the similarly placed employees are getting the comparable salary. iii. List/Particulars of the employees who are in receipt of remuneration of ₹ 2,50,000/- per mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... premises as a place of residence, or otherwise. It is argued that the appointment of the petitioner no.2 as a Director in three other companies belonging to the same group as the petitioner no.1 Company, in a non-executive and non-remunerative position thus cannot be said to be not meeting the requirements of Rule 5(a) supra. 14. The counsel for the respondent, besides supporting the reasoning given in the impugned order, has also objected to the territorial jurisdiction of this Court. It is contended that under Section 10 of the 1956 Act the High Court has to be the High Court within whose jurisdiction the Company has a registered office and the petitioner no.1 Company has its registered office at Kanpur and thus this Court would not be the Court of competent jurisdiction to entertain the present petition. Else, on enquiry, on what basis it has been observed in the impugned order that the respondent has been following the principle that the individual appointee has to be under exclusive appointment of the company and cannot get around the provision by serving in a non-executive non-remunerative position in other companies‟, he states that there is nothing further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve with the approval of the Central Government. Section 314(3) defines a office or place of profit for the purposes of the said Section as an office or place earning remuneration whether by way of salary, fees, commission, perquisites, the right to occupy free of rent any premises as a residence or otherwise. Thus the position of the Executive President (Commercial) in the petitioner no.1 Company carrying remuneration beyond the prescribed limits would be an office or place of profit in the petitioner no.1 Company and the petitioner no.2 being a relative of a Director of the petitioner no.1 Company cannot hold the said position without approval of Central Government. 21. The 2011 Rules, (i) in Rule 3 provide that no appointment for an office or place of profit in a company shall take effect unless approved by the Central Government; (ii) in Rule 4 provide the method of selection of relatives of Directors to hold a place or office of profit in the company; and, (iii) in Rule 5 provide the procedure for examination of the application. Rule 5(a) inter alia requires the Central Government to, before granting such approval, obtain an undertaking from the appointee that he/she will be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not prevent a Director from entering into a contractual relationship with the company, so that, quiet apart from his office of Director, he becomes entitled to remuneration as an employee of the company. 27. Justice C.K. Thakker, in the Supreme Court, while dealing with an application under Section 11 of the Arbitration and Conciliation Act, 1996, in M/s Comed Chemicals Ltd. Vs. C.N. Ramchand (2009) 1 SCC 91 quoted with approval Gower and Davies' Principles of Modern Company Law, (17th Edn. pp. 370-76) dealing with duties of Director viz-a-viz as an employee of the Company and making it clear that a Director per se cannot be said to be an employee or servant of the Company. 28. Similarly in Employees State Insurance Company Vs. Apex Engineering Private Limited (1998) 1 SCC 86 it was reiterated that a Director of a company is not a servant but an agent inasmuch as the company cannot act in its person but has only to act through Directors who qua the company have the relationship of an agent to its principal, though a Managing Director could have a dual capacity, both as a Director and as an employee, depending upon the nature of work and the terms of his employment. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o.1 Company and could not have been on this ground refused appointment in the petitioner no.1 Company. Similarly, without the petitioner no.2 receiving any other emoluments from other companies in which he was/is a Director, it could not be said that he was/is holding any office of profit therein. 33. I may notice that though the impugned order reasons that the provisions of Section 314 cannot be got around by serving a non-executive/non-remunerative position in other companies but does not state that any other inquiry was done by the respondent or it was found that the petitioner no.2 though stated to be serving in non-executive and non-remunerative position in other companies but was devoting his time and energy thereto. Thus, though the reasoning may be correct if supported by the facts but de hors a factual finding is contrary to the statutory mandate. The statutory mandate is that being a Director in a non-remunerative and non-executive position in other companies does not amount to being in employment of those companies or holding a place of profit in those companies. 34. I am therefore of the opinion that the denial of approval by the respondent to the petitioners is e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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