Page 60 - DCOM204_AUDITING_THEORY

Auditing Theory

Notes 3. .................... means an office, which brings to the person holding it some pecuniary gain or
advantage or benefit.
4. A person is said to hold an office or Place of Profit if there is between him and the company
................ in due discharge of his duties.

4.2 Central Government Act Section 314 in the Companies Act, 1956

4.2.1 Meaning

In ordinary parlance, an office or place of profit means an office or profit or position, which
brings to the person holding it some pecuniary gain or advantage or benefit. It will be an office
or place of profit if it carries some remuneration, pecuniary advantage, benefit etc. The amount
of such profit is immaterial. Section 314 of the Companies Act, 1956 regulates the provisions
relating to appointment of a director or any relative, firm, body corporate to an office or place
of profit. The underlying object of this section is to ensure that those who occupy a fiduciary
position in the company do not misuse, directly or indirectly, except with the permission of the
shareholders or Central Government in certain cases. The provisions of this section are applicable
to both public and private companies.

An Office or Place of Profit can be deemed to be an Office or Place of Profit

1. Where the office 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;

2. If the office or place is held by an individual other than a director or by any firm, private
company or other body corporate, If the individual, firm, private company or body
corporate holding it obtains from the company anything by way of remuneration whether
as salary, fees, commission, perquisites, the right to occupy free of rent any premises as a
place of residence, or otherwise.
A mere contractual arrangement entered into between a company and the persons listed in the
section under which some monetary benefit flows to such person does not per se amount to
holding an office or place of Profit, by such other person.
A person is said to hold an office or Place of Profit if there is between him and the company a
relationship of employer and employee or such other person performs for and on behalf of the
company certain acts under the control, direction or supervision of the company and also he is
in receipt of consideration in due discharge of his duties. It is pertinent to note that this section
prohibits a director of a company from holding an office or Place of Profit under the company or
subsidiary. It, however, does not prohibit a director of a subsidiary company from holding an
office or Place of Profit under the holding company.

4.2.2 Approval of Shareholders in General Meeting

In terms of Section 314(1), approval of shareholders by passing a special resolution in general
meeting will be required for appointment of any of the following persons to an office or place
of profit:

1. Any director: This section will be attracted even if the director receives an additional one
rupee towards discharge of service in a capacity other than a director.

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