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Thursday, December 23, 2010

Waiver of requirement of submission of annual statement by banks on use of debit cards by resident Indians while on a visit outside India.

In terms of notification A.P. (DIR Series) Circular No.46 dated June 14, 2005 all the banks authorized to deal in foreign exchange are required to submit a statement as on 31st December of every year in case aggregate forex utilization by international  debit card holders exceeds $ 1,00,000 in a calendar year.

Now Reserve Bank of India has issued a new notification No. A.P. (DIR Series) Circular No.29 dated 22nd December, 2010 in which RBI has advised all the banks authorized to deal in foreign exchange to discontinue the submission of above said statements from the calendar year 2010.

All other instructions of A.P. (DIR Series) Circular No.46 dated June 14, 2005 shall continue to remain the same.

Tuesday, December 7, 2010

Managerial Remuneration as per section 198 & 309 of the Companies Act, 1956

The term remuneration covers the following types of expenditure incurred by the company for its Director or his family –

·              Rent free accommodation;
·              Any benefit or amenity in respect of accommodation free of charge;
·              Any other benefit or amenity free of charge at a concessional rate;
·              Any personal obligation; and
·              Insurance on the life of, or to provide any pension, annuity or gratuity for, any of the director or his /her spouse or child.

But the definition is inclusive one. It covers every amount that the company pays or spends for or for the benefit of a Director, in whatever form and by whatever name.

Applicability:

Section 198 and 309 deals with the provisions relating to managerial remuneration.  The term managerial remuneration mentioned in section 198 and 309covers the remuneration of all Directors and also its manager. It is applicable to all public companies and private company which is a subsidiary of public company.  Provisions of the above mentioned section are not applicable on government companies (within the meaning of section 619 of the Act).

Ceiling on Managerial Remuneration:

Section 198(1) lays down 11% of net profits of the company computed in the manner as laid down in section 349 and 350 as the overall ceiling on the total remuneration of the company.  While computing the net profits the remuneration of the Directors shall not be deducted from the gross profits. The abovementioned limit shall be exclusive of sitting fees payable to the directors in terms of section 309 (2).

As per section 309 (3), Whole-time Director or Managing Director may be paid either by way of monthly payment or at a specified percentage of profits or partly by one way and partly by the other to the extent of 5% of net profit for one such director and 10% for all of such director. Remuneration in excess of the specified limit requires the approval of the Central Government.

Director other than the director who is in the whole-time employment of the company and Managing Director may be paid remuneration either –

·        By way of monthly, quarterly or annual payment with the approval of the shareholders by way of ordinary resolution and with the approval of the Central Government; or
·        By way of commission if such payment is authorized by special resolution. Such Special resolution shall not be effective for more than five years. It may be renewed from time to time not exceeding 5 years at a time.

Provided such payment shall not exceed 1% of net profits of the company where the company has managing or whole-time director or manager. 3% of the net profit in other cases.

Remuneration for professional service:

Proviso to section 309 (1) excludes any remuneration paid to directors for professional services rendered by them to the company, provided that director possesses the requisite professional qualification. Hence the benefit of this exception is available only to those directors who possess requisite qualifications for practicing the profession in respect of which they render special services.

Unauthorized or excess remuneration:

If any director draws directly or indirectly, by way of remuneration any sums in excess of the limit or without the prior sanction of the Central Government, where it is required, he shall refund such sums to the company and until such sum is refunded, hold it in trust for the company. The company shall not waive the recovery of such sum unless permitted by the Central Government.

Remuneration from Subsidiary:

Section 309 (6) provides that no director who is in receipt of any commission from the company and who is either in the whole-time employment of the company or a managing director shall be entitled to receive any commission or other remuneration from any subsidiary of such company. The operation of the  restriction imposed by the sub-section is limited only in the case where a director is in receipt of commission from the holding company, and not in the case where he gets from the holding company remuneration in any other form.

Remuneration of a employee appointed as alternate director:

An employee appointed as alternate director deos not necessarily become a whole-time director and that the provisions of section 198, 269,309, 314 and  Schedule XIII are not applicable in such a case.


Monday, December 6, 2010

Brief note on Office or Place of Profit

Section 314 of the Companies Act, 1956 deals with the provisions of office or place of profit. It does not prohibit the holding of such office but only regulates the holding of such office. The section seeks to impose certain restrictions to ensure that Directors of the company does not misuse their position directly or indirectly for their own self without the consent of shareholders to whom they owe fiduciary duties.

As per sub-section (3) of section 314, any office or place shall be deemed to be an office or place of profit under the company –

·        In case of Director, if he obtains from the company anything by way of remuneration to which he is entitled as a Director whether as salary, fees, commission, perquisites etc.
·        In case of relative / partner / firm / Private Company, if it obtains from the company anything by way of remuneration whether as salary, fees, commission, perquisites etc.

Applicability:

Ø  Applies to both private as well as public companies.
Ø  Applies to all types of Directors including Nominee Directors


Cases in which special resolution is required:

Special resolution is required for the appointment of following persons to the office or place of profit  -

1.      Director
2.      Any partner of firm in which a director is partner
3.      Relative of director
4.      Partnership firm in which a director / relative is partner
5.      Pvt. Company in which director is director / member.
6.      Director / manager of a pvt. Company of which a director is a director or member

The provisions of sec.314 (1) is not applicable for persons mentions in 2 to 6 above, if the total monthly remuneration is less than Rs.10,000/-

If relative / firm in which relative is partner is appointed to place of profit without the knowledge of Director, then consent should be obtained in the general meeting aforesaid or within 3 months from the date of appointment, whichever is later. This relaxation is not available for re-appointment.

However If relative /firm in which relative is partner appointed to the office / place of profit before the director becomes the director in the company, then the provision of sub-section (1) of section 314 shall not be applicable..

Even if appointment to office / place of profit made in subsidiary company, special resolution has to be passed in Holding Company.

Special resolution under section 314 not required for payment of guarantee commission and interest on loan obtained from the director.


Cases outside the purview of Sec. 314(1):

1.      Managing Director
2.      Manager
3.      Banker
4.      Trustees for the debenture holders of the Company.

Following persons covering u/s. 314 (1B) read with Director’s Relatives (Office or place of Profit) Rules, 2003:

1.      Partner of Director / Manager
2.      Relative of Director / Manager
3.      Firm in which Director / Manager / their relative is a partner
4.      Pvt. Company in which Director / Manager / their relative is a Director / Member, which carries a monthly remuneration of Rs.50,000 p.m. or more

Sec.314(1B) does not cover holding of office / place of profit in subsidiary company
Sub-section (1B) does not exclude the four offices, which are outside the scope of sub-section (1) viz, Managing Director, Manager, Banker and Trustee for Debenture holders.


Prior consent of shareholders by way of special resolution is necessary before a person is appointed to hold any office or place of profit. Rule 3 of the Director’s Relatives (Office or Place of Profit) Rules, 2003  requires the approval of the Central government where monthly remuneration in respect of sub-section (1B) exceeds Rs.50,000/-. Application for that purpose should be filed in e-form 24B.

Bonus, Leave encashment, reimbursement of medical expenditure etc. are not to be included as they are not part of the monthly remuneration (Ravindra Kumar Sanghal vAuto Lamps Ltd, 1984)

Remuneration for services of professional nature:

DCA in a circular clarified that provisions of section 314(1B) not applicable where a company proposes to appoint a firm of solicitors and advocates etc. to appear before the court of law on case to case basis. However if such a solicitor, advocate etc appointed on a regular retainer basis then the provisions of section 314 will be applicable.


Vacation of office for contravention of section 314:

According to sub-section (2) of section 314, if any office or place of profit  is held in contravention of the provisions of sub-section (1), the director, partner, relative, firm, private company or the manager concerned, shall be deemed to have vacated the office as such on and from the date next following the date of the general meeting of the company and shall also be liable to refund all the remuneration received or monetary equivalent of any perquisite or advantage enjoyed by him or it till the date of vacation.