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AI Drafter ✕ Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter.
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Issues: (i) Whether the objection to territorial jurisdiction could defeat the writ petition. (ii) Whether refusal of approval under Section 314(1B) of the Companies Act, 1956 read with Rule 5(a) of the Director's Relatives (Office or Place of Profit) Rules, 2011 was justified merely because the appointee was a non-executive, non-remunerative director in other companies.
Issue (i): Whether the objection to territorial jurisdiction could defeat the writ petition.
Analysis: The statutory objection based on Section 10 of the Companies Act, 1956 was inapplicable because the petition was not filed under that Act but under Article 226 of the Constitution of India. The impugned order was made at Delhi and the hearing also took place there, giving this Court territorial jurisdiction to entertain the writ petition.
Conclusion: The objection to territorial jurisdiction failed.
Issue (ii): Whether refusal of approval under Section 314(1B) of the Companies Act, 1956 read with Rule 5(a) of the Director's Relatives (Office or Place of Profit) Rules, 2011 was justified merely because the appointee was a non-executive, non-remunerative director in other companies.
Analysis: Section 314(1B) prohibited a relative of a director from holding an office or place of profit beyond the prescribed limits without Central Government approval, and Section 314(3) explained when an office or place would amount to a place of profit. Rule 5(a) required an undertaking that the appointee would be in the exclusive employment of the company and would not hold a place of profit in any other company. The Court held that mere directorship in other companies, without remuneration or other emoluments and without a finding that the appointee was in fact in employment there, did not amount to holding a place of profit or failing the requirement of exclusive employment. The refusal was therefore based on an unsupported administrative principle and could not stand.
Conclusion: The denial of approval was held to be erroneous and unsustainable.
Final Conclusion: The writ petition succeeded and the approval for the relevant period was treated as granted.
Ratio Decidendi: A non-executive and non-remunerative directorship in other companies, by itself, does not amount to exclusive employment in those companies or to holding a place of profit therein for the purpose of Rule 5(a) of the Director's Relatives (Office or Place of Profit) Rules, 2011.
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