Page 68 - DCOM204_AUDITING_THEORY

Auditing Theory

Notes 4. Procedure of examination of applications: The application under rule 3 shall be examined
with respect to the following, in addition to all other requirements under the Companies
Act, 1956:
(a) An undertaking from the appointee that he/she will be in the exclusive employment
of the company and will not hold a place of profit in any other company.
(b) The monetary value of all allowances and perquisites and of total remuneration
package (monthly/ annually) proposed to be paid to the appointee and details of
the services that will be rendered by him to the company.
(c) Shareholding pattern particularly the shareholding of the directors along with his/
her/their relatives, the public holding, institutional holding (each institution
separately).

(d) The educational qualification/experience, pay scale, allowances and other benefits
of similarly placed executives. In case of the appointment of a relative, then, an
undertaking from the director/Company Secretary of the company that the similarly
placed employees are getting the comparable salary shall also be enclosed along
with the application.
(e) List/Particulars of the employees who are in receipt of remuneration of ` 50,000 or
more per month.
(f) The total number of relatives of all the directors either appointed as Managing/
Whole 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.
(g) 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 also to be
approved by a Selection Committee.

Notes For the purposes of sub-rule (7) of rule 4, the expression “Selection Committee”
means a committee, the majority of which shall consist of independent directors and an
expert in the respective field from outside the company.

4.2.14 Conclusion

The Amendment Bill has simplified this otherwise complicated provision and proposes to do
away with central Government approval except in case where a relative of a director has been
appointed and he holds more than two percent stake. In the company and draws remuneration
more than such sums as may be prescribed.

Self Assessment

Fill in the blanks:
5. Only individual, possessing the requisite................ can be appointed as auditor of the
company.

62 LOVELY PROFESSIONAL UNIVERSITY