Shreya Shah (Company Secretary) 11 November 2009

Selection committee u/s 314(1B)

Dear All,

Section 314(1B) of the Companies Act, 1956 requires approval of the Selection Committee for appointing a relative of a person at a remuneration exceeding Rs. 50,000 p.m. In our case, we have a duly constituted Remuneration Committee. We had appointed the son of a Director on a monthly remuneration of Rs. 20,000. Now the management is planning to increase his remuneration to Rs. 1 lac p.m. which is commensurate with others employed in the same category. My query is whether the Remuneration Committee so appointed can act as the Selection Committee as required under the section 314(1B).

Thanks & Regards,
Shreya Shah

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6 Replies

Rajiv Krish (Employed) 11 November 2009

Hi Shreya,

r u sure, it is Selection Committe u/S 314(1B) ? Pl re-check...

rajiv

Raj Kumar Makkad (Adv P & H High Court Chandigarh) 11 November 2009

it is sure that section 314 (IB) provides this permission but if company wants to enhence it, it cannot do without the consent of shareholders in its General Meeting.

Shreya Shah (Company Secretary) 12 November 2009

That means to increase the relative's remuneration beyond Rs. 50,000, we can do so after obtaining consent of shareholders in general meeting and approval of Central Government. And in this case, the approval of Selection Committee as specified in the Director's Relatives (Office or Place of Profit) Rules, 2003 is not required. Pls correct me if I am wrong.

Regards,

Shreya Shah

Rajiv Krish (Employed) 12 November 2009

Shreya,

Rule 7 of the Director's Relatives (Office or Place of Profit) Rules, 2003 applies at the time of appointment of a relative of director for holding place of office or profit in the company. The stipulation of approval by Selection Committe under the said Rule, irrespective of the remmuneration paid applies to all public companies.

The said Company, if it is a public company would have already obtained the approval of Selection Committee for appointment of the Director and approval of Selection Committee for increase in remmuneration is not required now.

Other requirements of S. 314 (1B)/ the said Rules apply.

Thanks

Rajiv

Shreya Shah (Company Secretary) 13 November 2009

Dear Rajiv,

Thanks for the reply. But I have one more query. In this case, can we authorise the Remuneration Committee to act as the Selection Committee for the said purpose. I believe we can do that as the constitution of both these committees is the same i.e. consisting of majority independent directors. Pls comment.

Thanks & Regards,

Shreya Shah

Rajiv Krish (Employed) 14 November 2009

It is not possible to authorize Remm. Commitee to act as a Sel. Comittee.

The following are some of the requisites of a Selection Committee:

1. The Sel. Committee is constituted under the Board

2. Fulfils the other criterion applicable for a Board’s Committee (qualification, resolution, minutes etc. reqd.)

3. The majority of he Committee shall consist of independent directors;

4. One of the Member is an expert in the respective field from outside the company,

Provide the afore-stated are fulfilled, there should be no harm in the members of the Remuneration Committee acting additionally as the Selection Committee members too.

(Afore-stated are only my opinion. No way constitute or construe to be advise on the matter)