New User   Login      
Tax Management India .com TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2015 (12) TMI 992 - DELHI HIGH COURT

2015 (12) TMI 992 - DELHI HIGH COURT - TMI - Exclusive employment of the company - prohibition contained in Section 314(1)(b) of the 1956 - relative of a Director of a company - whether on account of the petitioner no.2 being a Director in other companies can be said to be not in the exclusive employment of the petitioner no.1 Company or holding a place of profit in the other companies - Held that:- A Director cannot be said to hold any office or place of profit if he should receive the remunera .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

hat he could not be in the exclusive employment of the petitioner no.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.

though the impugned order reasons that the provisions of Section 314 cannot be got around by serving a non-executive/non-re .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n-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 : Mr. Manish Mohan, CGSC with Ms. Sidhi Arora, Mr. Shivam Chanana and Ms. Pooja Mishra, Advs. MR. SAHAI ENDLAW 1. The petition impugns the order dated 29th Se .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

from 1st October, 2013 with annual increment of ₹ 50,000/- per month. 2. The petitioners had earlier filed W.P.(C) No.7873/2014 impugning the earlier rejection dated 5th August, 2014 of the said application and which writ petition, finding that the order dated 5th August, 2014 had been passed without hearing the petitioners, was allowed vide order dated 12th March, 2015 with a direction to the respondent to decide the application afresh after taking into account submissions made by the pet .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

clear from the impugned order itself. 5. The counsel for the respondent has fairly agreed that the respondent has nothing further to show besides what is stated in the impugned order. 6. The senior counsel for the petitioners and the counsel for the respondent have thus been finally heard on the petition. 7. It is not in dispute that the petitioner no.2 was first appointed to an executive position or an office or place of profit in the petitioner no.1 Company w.e.f. 1st December, 2004 and being .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tion 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 o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Company from which the remuneration is proposed to be drawn, has to be under exclusive appointment of the same company and he cannot get round this provision of the Rules by claiming to serve in a non-executive capacity and/or without any remuneration in other companies; it was thus reasoned that the very fact that a relative of a Director of a Company is serving at Board level in any other Company and is not in exclusive employment of the applicant company is sufficient to withhold the Central .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

avour. 10. The 2011 Rules, referred to in the impugned order, in Rule 5 thereof, in this regard provide as under:- 5. Procedure for Examination of Application: The application under Rule 3 shall be examined with respect to the following, in addition to all other requirements under the Companies Act, 1956:- (a) In the case of individual appointee, an undertaking from him that he/she will be in the exclusive employment of the company and will not hold a place of profit in any other company. (b) Th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

(d) Details of the educational qualification/experience, pay scale, allowances and other benefits of similarly placed executives. (e) In case of the appointment of a relative, an undertaking from the Director/Company Secretary of the company that the similarly 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 appoin .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

hareholding 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 month or more along with their designation, level/grade in the organization, educat .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tion package (monthly/annually) proposed to be paid to the appointee and details of the services that will be rendered by him to the company. viii. Whether appointee is working as a director in any other company. If so, details thereof. If not, a certificate to that effect from a Chartered Accountant/Company Secretary in whole time practice. and which were furnished by the petitioners and with respect whereto nothing has been observed in the impugned order. Presumably the respondent was fully sa .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

profit under the company within the meaning of this section- (a) in case the office or place is held by a director, if the director holding it obtains from the company anything by way of remuneration over and above the remuneration to which he is entitled as such director whether as salary, fees, commission, perquisites, the right to occupy free of rent any premises as a place of residence, or otherwise; (b) in case the office or place is held by an individual other than a director or by any fi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ve 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tion to the territorial jurisdiction of this Court is concerned, the senior counsel for the petitioner has contended that the hearing preceding the impugned order took place in Delhi and the impugned order has been passed at Delhi and this Court would have territorial jurisdiction. On enquiry it is also informed that no such objection as to territorial jurisdiction was taken at the time the earlier writ petition filed by the petitioner was entertained in this Court. 16. The counsel for the respo .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e 1956 Act is concerned, the same prescribes the High Court having jurisdiction under that Act i.e. under the Companies Act i.e. for availing the remedies provided thereunder. Admittedly, against the impugned order there is no remedy under the 1956 Act and the petitioner has approached this Court in exercise of jurisdiction under Article 226 of the Constitution of India and on the parameters whereof this Court would certainly have the territorial jurisdiction to entertain the petition. 19. I am .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rinciple is based on any other provision of the 1956 Act or any other law / rule / regulation. 20. The prohibition contained in Section 314(1)(b) of the 1956 Act is against the relative of a Director of a company holding a office or place of profit, carrying monthly remuneration beyond the prescribed limits, in the company, save 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 remune .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nt. 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 appo .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

f the respondent that the petitioner no.2 now is holding a place of profit in any other company besides the petitioner no.1 Company. All that the respondent in the impugned order states is that the petitioner no.2 is holding the position of a Director in three other companies and is thus not in the exclusive appointment of the petitioner no.1 Company. 23. Rule 5(a) undoubtedly uses the expression exclusive employment of the company but further proceeds to state that the appointee will not hold a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

atever name called, the latter defines Director as meaning a Director appointed to the Board of a Company. Else, the word employee‟ and employment‟ have definite connotation. Black‟s Law Dictionary 8th Edition (i) defines employee‟ as a person who works in the service of another person under an express or implied contract of hire under which the employer has the right to control the details of work performance; and, (ii) defines employment‟ as relationship between m .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

iet 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

or and as an employee, depending upon the nature of work and the terms of his employment. 29. What thus emerges is that depending upon the facts of the case, a Director may also be an employee of the company. 30. As far as the second limb of Rule 5(a) supra i.e place of profit in any other company‟ is concerned, as per Section 314(3) of the 1956 Act, a Director would be said to be holding a place of profit in the company only if he obtains from the company anything by way of remuneration o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

es 377 (Bom), A.R. Sudarsanam Vs. Madras Purasawalkam Hindu Janopakara Saswatha Nidhi Ltd. MANU/TN/0002/1982 and Ram Pershad Vs. CIT, Delhi (1972) 2 SCC 696 is that remuneration payable as a Director of a company is not office of profit. Justice D.P. Madon speaking for the Bombay High Court in the Firestone Tyre and Rubber Co. supra held that the object underlying Section 314 is to prevent a Director or his relative from holding any office or place of profit carrying a total monthly remuneration .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d to hold an office or place of profit only when, besides the remuneration to which he is entitled as such Director, he obtains from the company a remuneration such as salary, fees, commission, perquisites. 32. It thus follows that the petitioner no.2, from the factum simplicitor of serving at Board level in other companies could not have been held to be in the employment of those companies, for it to be said that he could not be in the exclusive employment of the petitioner no.1 Company and cou .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version