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Unit 4: Section 226, 314 and Code of Ethics

6. The total number of relatives of all the directors either appointed as Managing/Whole- Notes
time director, Manager or in any other position in the company; the total remuneration
paid to each relative and the total remuneration paid to them altogether as a percentage of
profits as calculated for the purpose of section 198 of the Companies Act, 1956.
7. The selection and appointment of a relative of a director for holding office or place of
profit in the company shall be approved by adopting the same procedure applicable to
non-relatives. However, in the case of public companies, the selection of a relative of
director for holding place of office or profit in the company shall have to be also approved
by a Selection Committee.

4.2.12 Declaration by a Person who is Appointed to an Office or Place of
Profit

When a person is proposed to be appointed to an office or place of profit, he is required to file a
declaration in writing of his connection, if any, with the director of the company as prescribed
in section 314(1)/(1B). No declaration needs to be filed if the person so appointed is connected to
the manager in the company.
4.2.13 Consequences on Non-complying with the Provisions of Section
314

If any office or place of profit is held by certain persons which is not as per the provisions of the
section mentioned above then any appointment made under contravention of the section will
be held invalid from the date next following the date of holding the general meeting in which
the special resolution is passed or from the date of expiry of three months referred to in the
second provision under. Any remuneration received by such persons who were holding the
office or place of profit as such shall pay back the remuneration received by them from the
company.

The company is not under an obligation to waive the refund of any amount unless the Central
Government, on application, waives such refund.

Director’s Relatives (Office or Place of Profit) Rules, 2003

1. Short title and commencement:

(a) These rules may be called Director’s Relatives (Office or Place of Profit) Rules, 2003.
(b) They shall come into force on the date of their publication in the Official Gazette.
2. Applicability: These rules shall apply to all companies registered under the Companies
Act, 1956 except as provided in these rules.
3. Approval of the Central Government in case of appointment of relatives etc. of directors:
No appointment for an office or place of profit in a company shall take effect unless
approved by the Central Government on an application, in respect of—
(a) Partner or relative of a director or manager; or
(b) Firm in which such director or manager, or relative of either is a partner; or

(c) Private company of which such director or manager or relative of either is a director
or member, which carries a monthly remuneration exceeding ` 50,000 p.m.

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