Appointment of Related Party To Any Office or Place of Profit As Per Companies Act, 2013
The term “office or place of profit” is originated from British rule where “no person who has an office or place of profit under the king or receives the pension from the crown shall be capable of serving in the House of lords”
This term usually means a position that brings financial or other advantages to the person holding the position.
In a number of countries, it is forbidden for the Members of legislature to accept the executive position.
As per Article 102 & 191 of Constitution of India it is also prohibited for member of the legislature to hold a place of profit in executive, however some exceptions are given.
Now in our current scenario the office or place of profit in context with Companies act, does not prohibit it but regulates it.
As per Section 188, except with the consent of the Board of Directors given by a resolution at a meeting of the Board and subject to such conditions as may be prescribed in rule 15 of the Companies (Meeting of Board and its Powers) rules, 2014 ,no company shall enter into any contract or arrangement with a related party with respect to—
- Such related party‘s appointment to any office or place of profit in the company, its subsidiary companyor associate company.
Further, as per Section 188 read with Rule 15 of the Companies (Meeting of Board and its Powers) rules, 2014, except with the Ordinary resolution passed by the shareholders, no company shall enter into any contract or arrangement with a related party with respect to—
- Such related party‘s appointment to any office or place of profit in the company, its subsidiary company or associate company at a monthly remuneration exceeding two and a half lakh rupees.
As per Section 188 “office or place of profit” means any office or place—
- where such office or place is held by a director, if the director holding it receives from the company anything by way of remuneration over and above the remuneration to which he is entitled as director, by way of salary, fee, commission, perquisites, any rent-free accommodation, or otherwise;
- where such office or place is held by an individual other than a director or by any firm, private company or other body corporate, if the individual, firm, private company or body corporate holding it receives from the company anything by way of remuneration, salary, fee, commission, perquisites, any rent-free accommodation, or otherwise;
If the office or place of profit is held by the director and obtains from the company anything by way of remuneration to which he is entitled as a director, whether as salary, fees, commission, perquisites, the right to occupy free of rent any premises as a place of residence or otherwise. Thus, a director shall be held to be holding an office or place of profit where the director receives from the company anything by way of remuneration over and above the remuneration to which he is entitled to as a director. Therefore, if any payment is made in salary and perquisites by way of fees for rendering technical services or rendering professional services, the office by virtue of which the director becomes entitled to additional remuneration is called as office or place of profit and accordingly will required the approval of the board and if it carries a remuneration exceeding the limits prescribed under rule 15 of the companies (meetings of board and its powers) rules, 2014 then approval of the shareholders will be required.
If the office or place of profit held by the individual, firm, private company or body corporate holding it obtains from the company anything by way of remuneration, salary, fee, commission, perquisites, any rent-free accommodation as a place of residence or otherwise then such office is office or place of profit. This means every appointment to any office held by individual, firm, private company or body corporate who is a related party but is not a director will require approval of the board and if it carries a remuneration exceeding the limits prescribed under rule 15(3) of the companies (meetings of board and its powers) rules, 2014 then approval of the shareholders will be required.
Section 188 prohibits the appointment of Directors or their relatives or firms or companies in which Directors are interested to hold the ‘office or place of profit’ without approval Board in all cases and of members, if monthly remuneration exceeding two and a half lakh rupees.
Therefore, if a company wants to appoint any “related party” defined under Section 2(76) to any “office or place of profit” then company has to follow the provisions of Section 188 and Companies (Meeting of Board and its Power) Rules, 2014 and accordingly it has to pass required resolutions under Section 188.
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This article is written by Team Anupama Tripathi & Associates for the purpose of education & comment for more you can connect us at# 8800839633 or Csanupamatripathi121@gmail.com
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Nicely elaborated, just clear a simple doubt If a director is being paid Salary of Rs. 3,00,000 per month in a private Company, whether Sec 188 is applicable or not