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Unit 4: Section 226, 314 and Code of Ethics

2. Partner in a firm in which a director is a partner Notes

3. Relative of such director
The Madras High Court in A R Sundarasanam v Madras PHJS Nidhi Limited, (1985) Comp Cas
776 (Mad) held that the office or place of profit held by a relative of a director is attracted
by this section only if the director himself holds an office or place of profit. The words
“such director’ in sub-section (1)(b) referred to the director already holding the office of
profit and not to any other director. This lacuna in law is proposed to be plugged by the
Companies (Amendment) Bill, 2003 as the article ‘a’ has substituted the words ‘such’
before the word director.
4. A firm in which such director or relative is a partner
5. Any private company of which a director is a director or member

6. Any director or manager of such a private company
The object of this section is to prohibit a director and any person connected with him from
holding any office or Place of Profit of such sum as may be prescribed unless the company
approves it by means of a special resolution. The consent of the Board of Directors and the
subsequent approval by the general meeting is no substitute for a special resolution. [Gobind
Pritamdas Malkani v Amarendranath Sircar, (1980) 50 Com Cases 219, 233 (Cal)]
The provisions of this section will be attracted if any of the entities referred to in (b) to (f) receive
monthly remuneration of ` 10,000 or more but less than ` 50,000 per month. The Delhi High
Court in Ravinder Kumar Sangal v Auto Lamps Ltd. (1984) 55 Comp Cas 742 (Del). Held that the
word “monthly” necessarily connotes anything taking place once a month, relating to a month,
payable every month, based on a month, having a duration of one month, occurring, appearing
or being done or acted upon every month or once a month. No other implication has been
stressed.
Considered in this context, the payment of bonus, reimbursement in lieu of privilege leave not
availed, employer’s contribution to provident fund, reimbursement of medical expenses, etc.,
cannot be treated as events of monthly regularity of occurrence. They are dependent upon
certain events happening during the course of the entire year, and as and when they take place.
Any office or place of profit held by the following persons shall be excluded from the rigors of
this section:
1. Managing Director,
2. Manager,

3. Banker, or
4. Trustee for the debenture holder. This office may be held by them under the company or
under any subsidiary of the company. This sub-section has been retained in the Companies
(Amendment) Bill, 2003 also.
The section does not envisage prior approval of shareholders in general meeting. The person(s)
referred to in sub-section (1) of Section 314 of the Act may hold office and that the special
resolution may be passed by shareholders at the general meeting held for the first time after the
holding of an office or place of profit. However, consent of the company shall be obtained in the
general meeting or within a period of three months of the appointment whichever is later if
either the relative of a director or a firm in which such relative is a partner is appointed to an
office or place of profit without the knowledge of the director. Approval of shareholders in
general meeting will not be required if the relative of a director or a firm in which the relative
is a partner holds any office or place of profit under the company before the appointment of such

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