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Unit 4: Section 226, 314 and Code of Ethics

Relative of director or firm in which such relative is a partner, appointed to office or place of Notes
profit before a person hold the office of director in a company.
As per section 314(1A) if a relative of a director or firm in which such relative is partner is
appointed to office or place of profit in a company before the appointment of such person as a
director in the company, it will not affect the continuance of the holding of an office or place of
profit by a relative of such director or by a firm in which such a relative is a partner.

4.2.8 Circumstances u/s. 314(1) under which Special Resolution is not
Applicable

Under the following circumstances, the special resolution shall not be required for appointment
of a person on the office or place of profit:
1. If the monthly remuneration is less than ` 10,000 p.m.;

2. If the office or place of profit held by such person(s) in the capacity of managing director/
whole-time director/manager/banker/debenture holder trustee;
3. If relative of director has been appointed before becoming director in the company;
4. If director of subsidiary company hold office or place of profit in holding company;

5. If such person is rendering professional advice to the company including director who is
consulted or who gives his professional advice to the company occasionally and receive
remuneration for such service;
6. If a company purchases or sell materials from or to a director of the company or any of the
persons mentioned above to which section 297 will apply. Any person appointed to an
office of agent for the sale of the output of the company will be deemed to be holding an
office or place of profit under section 314(1).

4.2.9 Circumstances where Section 314(1B) is Applicable

As per section 314(1B) certain persons as given below cannot hold office or place of profit
carrying the remuneration of ` 50,000 p.m. or more in the company, unless special resolution to
that effect has been passed in the general meeting of the company and prior approval of the
Central Government has been obtained:
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 relative 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.

!
Caution Provision of section 314(1B) shall not apply to any appointment of firm of
solicitors/advocates, if they are appointed to give advice and are consulted by the company
in its work on case to case basis. Therefore, any remuneration or fee received by a
professional director as advocates/solicitors for appearing in a Court of Law or Company
Law Board/Tribunal in pleading on behalf of the company will not come under the
provisions of the section as mentioned above.

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