Page 64 - DCOM204_AUDITING_THEORY

Auditing Theory

Notes the management of such companies. As a matter of general principle, a Chartered Accountant,
who was a near relation of a director of a company or a partner of a firm in which such director
is a partner, should refrain from accepting the appointment of auditor of the company. As
regards other categories or relatives of directors, a healthy convention should be established by
such persons should not audit or sign the balance sheets of companies managed by their relatives
or associates, even though the firms of which they were partners happened to be the auditors of
these companies.

4.2.5 Circumstances under which a Special Resolution is required to be
Passed

As per section 314(1) certain persons as given below cannot hold office or place of profit carrying
the remuneration of ` 10,000 p.m. or more in the company, unless a special resolution to that
effect has been passed in the general meeting of the company:—
1. Any partner of the firm in which director of the company is also a partner;

2. Any relative of a director of the company;
3. Any firm in which a director or his relatives or both are partner;
4. Any private company in which director of the company is holding office of director or
member;
5. Any director/manager of a private company in which director of the company is holding
office of director or member.
For computing the limit of ` 10,000 per month, bonus, leave encashment, reimbursement of
medical expenses, etc., which are not events of monthly regularity or occurrence cannot be taken
into account.
Where relative of any director or any of the person mentioned above is or appointed to an office
or place of profit without the knowledge of director of the company, such appointment shall
require the approval of the members in the general meeting by way of special resolution within
3 months of the date of appointment.

4.2.6 Consent of members may be taken subsequently

The appointment of such person under section 314 may be made by the Board at its meeting and
may take consent of the company by passing special resolution in a general meeting held for the
first time after the said appointment.

However, if the remuneration is more than ` 50,000 p.m. (Limit raised from ` 20,000 by the
Director’s Relatives (Office or Place of Profit) Rules, 2003 notified on 5-2-2003) prior approval of
members by way of special resolution and the Central Government is required.

4.2.7 Increase in the Remuneration of a Person Appointed in the Office
or Place of Profit

If the remuneration of a person appointed in the office or place of profit needs to be increased
than the approval of the members of the company by passing special resolution in the general
meeting is to be taken, for each time the remuneration is so increased. However, if the
appointment is made under time scale in the first instance, there will be no need for further
approval of members.

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