Rule 320 — Admission of directors to a fund.
The rule limits the admission of directors to the benefits of a fund. Where the employer is a company as defined in section 2(20) of the Companies Act, 2013, a director of the company may be admitted to the benefits of the fund only if he is a whole time bona fide employee of the company and does not beneficially own shares in the company carrying more than 5% of the total voting power.
Both conditions must be met, and the shareholding test is on beneficial ownership measured by voting power.
A fund exists for employees, and a director may be an employee in name only or may be, in substance, the company's owner. Either way the benefits of the fund could be directed to the person who controls the employer. The rule admits a director only where he is a whole time bona fide employee, which excludes the nominal or non-executive director, and only where his beneficial shareholding carries not more than 5% of the total voting power, which excludes the controlling owner.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Maximum beneficial shareholding of an admitted director | Not more than 5% of the total voting power | Shares in the company beneficially owned by the director; measured by voting power, not by number or value of shares | Rule 320 |
Two independent tests have to be satisfied at once, and failing either keeps the director out. "Whole time bona fide employee" is not answered by a service agreement alone, and the second test is set in terms of beneficial ownership and voting power, so shares held through a nominee count against the director while non-voting holdings do not carry the same weight. The 5% figure is a limit rather than a qualification: at or below it the first test still has to be met. The rule governs admission to the benefits of the fund; it says nothing about a director who was validly admitted and later crosses the shareholding line, and nothing about non-director employees, who are outside it altogether.
A company's managing director works full time for the company and beneficially owns shares carrying 4% of its total voting power. He may be admitted to the benefits of the fund, both conditions being met. Another director attends board meetings but holds no executive position; he fails the whole time bona fide employee test and cannot be admitted, whatever his shareholding. A third director works full time but beneficially owns, partly through a nominee, shares carrying 9% of the total voting power, and is outside the rule.
A company meets it when the trustees consider admitting a director to the fund, and in the declarations of shareholding and employment taken at that point.
a director of the company may be admitted to the benefits of the fund only if he is a whole time bona fide employee of the company and does not beneficially own shares in the company carrying more than 5% of the total voting power