Page 166 - DCOM106_COMPANY_LAW

Unit 10: Management of Company

Notes
Example: P is the managing director of a public company with a paid up capital of
150 lac. The company proposes to enter into a contract for the sale of its products of the value
of 5 lakhs on credit with a private company in which the wife of P and his two sons S and T are
members.
The facts of this case do not attract the restriction for entering into contract with an interested
director. P is neither a director nor a member of the private company.

Example: The articles of a company states that a director shall not vote in respect of a
contract in which he is interested. In a resolution put up for approval of the shareholders, a
shareholder (even if he is a director), may vote as he pleases even when his interests are different
from or opposed to those of the company. As a shareholder, he is not a trustee for the company
or for any one else. Hence, the director can exercise his voting rights at a general meeting in
favour of a contract in which he is interested.

Example: Company Y with a paid-up capital of 50 lakhs entered into a contract with
company Z which has paid up capital of 5 lakhs. A director of a company Y is holding equity
shares of the nominal value of 50,000 in Z company. The director does not disclose his interest
at the board meeting under s. 299. The holding of the director is less than two percent of 5 lakhs.
Therefore, the director is not liable to disclose his interest under s. 299(6).

10.9 Service Contract

Directors not to Hold Office or Place of Profit
Section 314 imposes certain restrictions on the holding of office or place of profit in a company
by the directors and their associates. Following is the summary of restrictions so provided:
1. Section 314 (1) (a): No director of a company shall hold any office or place of profit
(carrying any remuneration) under the company or its subsidiary except with the consent
of the company by a special resolution. It shall, however, be sufficient if the special
resolution is passed at the first general meeting held after such appointment.
2. Section 314 (1) (b): Except by passing a special resolution, and the approval of the central
government the following persons shall not hold any office or place of profit carrying a
total monthly remuneration of such sum as may be prescribed (presently 10,000 per
month):
A partner or relative of a director or manager;

A firm in which such director or manager, or relative of either, is a partner;
A private company of which such a director or manager, or relative of either, is a
director or member.
Again, special resolution may be passed at the first general meeting after the appointment
made. Where, however, the aforesaid appointment is made without the knowledge of the
director, the consent of the company may be obtained either in the general meeting
aforesaid or within three months from the date of the appointment, whichever is later.
However, a director or any of his associates may be appointed as managing director,
manager, banker or trustee for the debenture-holders of the company without sanction of
special resolution, if the remuneration received from such subsidiary in respect of such
office or place of profit is paid over to the company or its holding company.

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