New norms on hiring relatives in companies

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The government has released new norms for appointment of relatives in companies, a decision that will allow directors or managers to engage services of close ones without seeking permission of the Centre. A company, however, will be required to seek the permission of the central Government if monthly payment made to relatives is more than Rs 2,50,000, the Corporate Affairs Ministry said in a notification.

Earlier, approval of the Corporate Affairs Ministry was required for appointment of relatives of directors or managers, in case the monthly remuneration to be paid to the person exceeded Rs 50,000.

Further, with regard to selection of such relatives of directors or managers of a listed company, the Ministry has maintained that it would be done by the Selection Committee.

Sub-rule (7) of rule 4 of Director’s Relatives (Office or Place of Profit) Rules, 2003, explains ‘Selection Committee’ as a committee, the majority of which consists of independent directors and an expert in the respective field from outside the company.

However, it relaxed the same Rule for unlisted and private companies, it said.

“In case of unlisted companies, independent directors are not necessary but outside experts should be there in the Selection Committee…Further in the case of private companies, independent directors and outside experts are not necessary,” the notification said.