appointment & remuneration of managerial personnel
TRANSCRIPT
APPOINTMENT AND REMUNERATION OF
MANAGERIAL PERSONNEL
Comparison
196. Appointment of Managing Director, Whole Time Director or Manager ;
197A. Company not to appoint or employ certain different categories of managerial personnel at the same time.
267. Certain persons not to be appointed managing directors.
317. Managing director not to be appointed for more than five years at a time.
384. Firm or body corporate not to be appointed manager
385. Certain persons not to be appointed managers
388. Application of sections 269, 310, 311, 312 and 317 to managers
Companies Act, 2013 Companies Act, 1956
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SECTION 196 - APPOINTMENT OF MANAGING DIRECTOR, WHOLE-TIME DIRECTOR OR MANAGER.
No company shall appoint or employ at the same time a Managing Director and a Manager.
No company shall appoint or re-appoint any person as its managing director, whole-time director or manager for a term exceeding five years at a time: (in Companies Act,1956 it was mentioned in the Section 317 & 388 )
Provided that no re-appointment shall be made earlier than one year (earlier it was two years) before the expiry of his term.
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No company shall appoint or continue the employment of any person as Managing Director, Whole-Time Director or Manager who —
(a) is below the age of twenty-one years or has attained the age of seventy years:
(b) is an undischarged insolvent or has at any time been adjudged as an insolvent;
(c) has at any time suspended payment to his creditors or makes, or has at any time made, a composition with them; or
(d) has at any time been convicted by a court of an offence and sentenced for a period of more than six months.(Sec 267 & 385 of Companies Act, 1956, disqualified convicts for offence of moral turpitude)
Provided that appointment of a person who has attained the age of seventy years may be made by passing a special resolution in which case the explanatory statement annexed to the notice for such motion shall indicate the justification for appointing such person;
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Subject to the provisions of section 197 and Schedule-V, a M.D, WTD or Manager, Shall be appointed and T & C and remuneration payable be APPROVED BY:-
Board of Director in the Board Meeting
Shareholders in NEXT General Meeting
Central Government
(C.G. approval required, if the appointment is not as per Schedule-V) Form MR-2
Notice convening Board or General Meeting for considering such appointment shall include the terms and conditions of such appointment, remuneration payable and such other matters including interest, of a director or directors in such appointments, if any:
File the Form MR-1 within 60 days (earlier it was 90 days) of such appointment with the Registrar.
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Provisions of Sub Section 4 & 5 are not applicable on Pvt. Co. & Govt. Co.
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He had not been sentenced to imprisonment for ANY PERIOD, or to a fine exceeding Rs. 1,000/-, for the conviction of an offence under any of the 16 Acts;
He had not been detained for any period under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (52 of 1974)
He has completed the age of twenty-one years and has not attained the ageof seventy years
Where he is a managerial person in more than one company, he draws remunerationfrom one or more companies subject to the ceiling provided in section V of Part II;
Provided that where the Central Government has given its approval to the appointment of a person convicted or detained under sub-paragraph (a) or sub-paragraph (b), as the case may be, no further approval of the Central Government shall be necessary for the subsequent appointment of that person if he had not been so convicted or detained subsequent to such approval
CONDITIONS TO BE FULFILLED FOR THE APPOINTMENT OF A MANAGING OR WHOLE TIME DIRECTOR OR A MANAGER WITHOUT THE APPROVAL OF THE CENTRAL GOVERNMENT:
He is resident of India
A Person is eligible for appointment as a Managing Director or Whole Time Director or Manager of Company if he satisfies the following conditions:
Provided that where he has attained the age of seventy years; and where his appointment is approved by a special resolution passed by the company in general meeting, no further approval of the Central Government is required for app.
resident in India includes a person who has been staying in India for a continuous period of not less than 12 months
MANAGERIAL REMUNERATION
Definition of Remuneration
Explanation given in the Section 198 "remuneration" shall include, -
(a) any expenditure incurred by the company in providing any rent-free accommodation, or any other benefit or amenity in respect of accommodation free of charge, to any of the persons specified in sub-section (1) ;
(b) any expenditure incurred by the company in providing any other benefit or amenity free of charge or at a concessional rate to any of the persons aforesaid ;
(c) any expenditure incurred by the company in respect of any obligation or service, which, but for such expenditure by the company, would have been incurred by any of the persons aforesaid ; and
(d) any expenditure incurred by the company to effect any insurance on the life of, or to provide any pension, annuity or gratuity for, any of the persons aforesaid or his spouse or child.
“remuneration” means any money or its equivalent given or passed to any person for services rendered by him and includes perquisites as defined under the Income-tax Act, 1961;
Companies Act, 1956 Companies Act, 2013
As per Section 2 (78)
SECTION- 197 OVERALL MAXIMUM MANAGERIAL REMUNERATION AND MANAGERIAL REMUNERATION IN CASE OF ABSENCE OR
INADEQUACY OF PROFITS
The total managerial remuneration payable by a Public Company to its:-
Directors Managing Director
Whole Time
DirectorManager
Eleven per cent. (11 % ) of the net profits of that company for that financial year (the company in G.M. may, with the approval of the C.G., authorize the payment of remuneration exceeding 11% of the net profits of the company, subject to the provisions of Schedule V)
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Remuneration payable to Executive Director s & Non- Executive Directors without Shareholder’s Approval
M.D. or W.T.D. or MGR
If there is One
shall not exceed 5% of Net Profit of Company to
Such a Director
If there is more than one such 5director
shall not exceed 10% of Net
Profit of Company to all Such Directors
Executive Directors
who are neither M.D. or W.T.D.
if there is a M.D. or W.T.D. or MGR
if there is NO M.D. or W.T.D. or MGR
Non- Executive Directors (-NID)
1 % of the net profits of the
company
3% of the net profits of the
company
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• Whether a Company can pay more than 5% or 10% of Net Profit subject to the overall limit of 11% to its WTD/MD/MGR as the case may be, by passing a shareholder’s resolution in General Meeting & without the CG Approval?
1.
• Whether a Company can pay more than 1% or 3% of Net Profit to its Non-Executive Director as the case may be, by passing a shareholder’s resolution in General Meeting & without the CG Approval?
2.
• Whether a Company can pay all the 11% of Net Profit to one Director/MD/WTD/MGR by passing a shareholder’s resolution in General Meeting & without the CG Approval?
3.
IF THE COMPANY HAVE ADEQUATE PROFIT THEN:
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IF A COMPANY HAS NO PROFITS OR ITS PROFITS ARE INADEQUATE THEN
A Company can pay the Remuneration to Director/MD/WTD/MGR by fulfilling ANY
of the following condition:
By fulfilling the Condition of Schedule-V
By prior approval of Central Government
The percentages under Section shall be exclusive of sitting fee payable by company under Sub -Section-5
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The remuneration payable to the directors of a company, including any Managing or Whole-Time Director or Manager, shall be determined, in accordance with and subject to the provisions of this section, either:
By the articles of the companyBy a resolution or, if the articles so require, by a special resolution, passed by the company in general meeting
the remuneration payable to a director determined aforesaid shall be inclusive of the remuneration payable to him for the services rendered by him in any other capacity:
any remuneration for services rendered by any such director in other capacity shall not be so included if—a) the services rendered are of a professional nature; ANDb) in the opinion of the Nomination and Remuneration Committee, if the company is
covered under sub-section (1) of section 178, or the Board of Directors in other cases, the director possesses the requisite qualification for the practice of the profession.
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A Director may receive
Remuneration by way of fee
Attending meetings of the Board
Committee thereof
For any other purpose whatsoever as may be decided by the Board:
Amount of such fees shall not exceed the sum of Rs. One Lakh per meeting of the Board or Committee thereof; the Board may decide different sitting fee payable to independent and non-independent directors other than Whole-Time Director
Provided further that different fees for different classes of companies and fees in respect of independent director may be such as may be prescribed.
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Remuneration may be paid to
A Director or Manager
By way of a monthly payment
orAt a
specified percentage of the net
profits
Partly by one way
and partly by the other
or
NOW, manner of Remuneration paid to Executive & Non-Executive Directors (except Non-Executive Independent Directors) are same for the both, earlier Act Non- Executive Directors may be paid remuneration by way of commission only by special resolution without CG approval.
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Companies Act, 1956
EXECUTIVE Director
Non- Executive Director
Monthly payment
Specified percentage of the net profits
Partly by one way & partly by the other
By way of a monthly, quarterly payment with C.G. Approval
By way of commission
by S.R.
Companies Act, 2013
Executive & Non – Executive
At specified percentage
A monthly payment
Partly by one way & partly by the other
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Notwithstanding anything contained in any other provision of this Act but subject to the provisions of this section an INDEPENDENT DIRECTOR
Shall not be entitled to any stock option
May receive remuneration
Sitting fees under sub sec(5) &
Profit related commission
Approved by Members
reimbursement for attending
meeting
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If any director draws or receives, directly or indirectly, by way of remuneration any such sums in excess of the limit prescribed by this section or without the prior sanction of the Central Government, where it is required, he shall refund such sums to the company and until such sum is refunded, hold it in trust for the company. (same as mentioned u/s 309(5A)) of Companies Act, 1956)
The company shall not waive the recovery of any sum refundable to it under sub-section (9) unless permitted by the Central Government. (same as mentioned u/s 309(5B)) of Companies Act, 1956)
The net profit for the purpose of this section shall be computed in the manner referred to in Section 198
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In cases where Schedule V is applicable (where no profit or inadequate profits)
any provision relating to the remuneration of any director which purports to increase
whether the provision be contained
in the company’s
MOA or AOA
in an agreement entered into by it
in any resolution passed by the company in G.M.
or Board
shall not have any effect Unless
Such increase is in accordance with the conditions specified in Schedule V, if not Central Government approval Required
Every listed company shall disclose in the Board’s report:
i. The ratio of the remuneration of each director to the MEDIAN REMUNERATION of the employees of the company for the financial year ;
ii. Percentage increase in remuneration of each director and CEO in the financial year;
iii. Percentage increase in the median remuneration of employees in the financial year;
iv. Number of permanent employees on the rolls of company; v. Explanation on the relationship between average increase in
remuneration and company performance; vi. Comparison of the remuneration of the Key Managerial Personnel
against the performance of the company; vii. The key parameters for any variable component of remuneration
availed by the directors; viii. The ratio of the remuneration of the highest paid director to that of
the employees who are not directors but receive remuneration in excess of the highest paid director during the year.
ix. Affirmation that the remuneration is as per the remuneration policy of the company
i. if employed throughout the financial year, was in receipt of remuneration for that year which, in the aggregate, was not less than sixty lakh rupees;
ii. if employed for a part of the financial year, was in receipt of remuneration for any part of that year, at a rate which, in the aggregate, was not less than five lakh rupees per month;
iii. if employed throughout the financial year or part thereof, was in receipt of remuneration in that year which, in the aggregate, or as the case may be, at a rate which, in the aggregate, is in excess of that drawn by the managing director or whole-time director or manager and holds by himself or along with his spouse and dependent children, not less than two percent of the equity shares of the company.
i. Designation of the employee; ii. Remuneration received; iii. Nature of employment, whether contractual or otherwise; iv. Qualifications and experience of the employee; v. Date of commencement of employment; vi. The age of such employee; vii. The last employment held by such employee before joining the
company; viii. The percentage of equity shares held by the employee in the company
within the meaning of sub-clause (iii) of sub-rule (2) above; and ix. Whether any such employee is a relative of any director or manager of
the company and if so, name of such director
The board’s report shall include a statement showing the name of every employee of the company who
Statement referred to in sub-rule (2) above shall also indicate
CALCULATION OF MEDIAN OF SALARIES
Arrange the salary data for all the employees (falling under one category) in ascending order. (Salary shall be inclusive of all perquisites and allowances calculated on the basis of cost to the company.)
Count total number of employees
If the number of employees is odd then:Median = Salary of nth employee where n = (total number of employees+1) / 2
Table : 1 Salary (INR) Employee 1 10,000 Employee 2 15,000 Employee 3 16,000 Employee 4 25,000 Employee 5 30,000
In the example shown under Table 1, number of employees is five, Median will be salary of 3rd employee [n= (5+1)/2=3]. Hence the median will be INR 16,000
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CALCULATION OF MEDIAN OF SALARIES
Arrange the salary data for all the employees (falling under one category) in ascending order. (Salary shall be inclusive of all perquisites and allowances calculated on the basis of cost to the company.)
Count total number of employees
If the number of employees is even then:Median = Average of the salaries of nth and (n+1)th employee where n = total number of employees / 2
Table : 1 Salary (INR) Employee 1 10,000 Employee 2 15,000 Employee 3 16,000 Employee 4 25,000 Employee 5 30,000 Employee 6 35,000
In example, shown under Table 2, number of employees is six, Median will be average of salaries of 3rd and 4th employee:[n=(6/2)=3 and (n+1)=(3+1)=4].
Hence the median will be INR 20,500 (average of INR 16,000 and INR 25,000).
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Where any insurance is taken by a company on behalf of its:
Managing Director
Chief Financial Officer
Whole Time
DirectorManager
Chief Executive
Officer
Company Secretary
For indemnifying any of them against any liability in respect of any negligence, default, misfeasance, breach of duty or breach of trust for which they may be guilty in relation to the company
the PREMIUM paid on such insurance shall not be treated as part of the remuneration payable to any such personnel
Provided that if such person is proved to be guilty, the premium paid on such insurance shall be treated as part of the remuneration.
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Subject to the provisions of this section, any director who is in receipt of any commission from the company
&
who is a Managing OR Whole-Time Director of the Company
shall not be disqualified from receiving
any remuneration or commission FROM
Any Holding Company
Subsidiary Company of SUCH Company
subject to its disclosure by the company in the Board’s report.
OR
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If any person contravenes the provisions of this section, he shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.
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WHERE A COMPANY IS REQUIRED TO RE-STATE ITS FINANCIAL STATEMENTS DUE TO FRAUD OR NON-COMPLIANCE WITH ANY REQUIREMENT UNDER THIS ACT
the company shall recover from
past or present
Managing Director
Whole-Time Director Manager
Chief Executive
Officer
Received the remuneration (including stock option) in excess of what would have been payable to him as per restatement of financial statements.
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Section 200- Central Government or company to fix limit with regard to remuneration
Notwithstanding anything contained in this Chapter
Central Government or a company may(while according its approval under section
196)
to any appointment or to any remuneration under section 197 in respect of cases where the company has inadequate or no profits
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WHILE FIXING THE REMUNERATION, THE CENTRAL GOVERNMENT OR THE COMPANY SHALL HAVE REGARD TO—
(a) the financial position of the company
(b) the remuneration or commission drawn by the individual concerned in any other capacity;
(c) the remuneration or commission drawn by him from any other company;
(d) professional qualifications and experience of the individual concerned;
(e) such other matters as may be prescribed.( As per Rule 7(2) of chapter XIII)
SCHEDULE-V
SCHEDULE-V
PART- IAppointments
PART IIRemuneration
PART-IIIProvisions applicable to Parts I and II of this Schedule
Sec I Sec II Sec III Sec VSec IV
Remuneration payable by Companies having Profit
Remuneration payable by Companies having no profits or inadequate profits without CG Approval
Remuneration payable by Companies having no profits or inadequate profits without CG Approval in certain special circumstances
Perquisites not included in Managerial Remuneration
Remuneration payable to a Managerial Person in two Companies
PART-IVPower to CG to
exempt any class or classes
Shall not exceed
Pres. Limits
REMUNERATION PAYABLE BY COMPANIES HAVING NO PROFIT OR INADEQUATE PROFIT WITHOUT CENTRAL GOVERNMENT
APPROVAL
A BA Managerial Person who was not a:
Security holder holding securitiesof the company of nominal value of rupees five lakh or more
Employee of the Company
Director of the Company
Related to Director or Promoters of the Company
At any time during the TWO YEARS prior to his appointment as a managerial person
A company having no profits or inadequate profits, may, without Central Government approval, pay remuneration to the managerial person not exceeding the HIGHER of the limits under (A) and (B) in any financial year;
i. Neg. or < 5 Cr.
ii. >= 5 Cr. < 100 Cr.
iii. >= 100 Cr. < 250 Cr.
iv. 250 Cr. Or Above
30 Lakh
42 Lakh
60 Lakh 60Lakh + 0.01%
of EC in exs. of 250 Cr.
Effective Capital
Yearly Limit Not Exceed
2.5 % OF THE CURRENT RELEVANT PROFIT
Above limits shall be DOUBLED if the resolution passed by the shareholders is a SPECIAL RESOLUTION.
PROVIDED FURTHER THAT THE LIMITS SPECIFIED UNDER THIS SECTION SHALL APPLY IF:
Board Resolution
+Nomination and Remuneration
Committee Resolution u/s
178 (1)
Not made any default in
repayment of any of its debts (+ PB) or debentures or interest payable
thereon for a cont. period of 30 days in prec. FY.
A special resolution has
been passed forpayment of
remuneration for a period not exceeding three
years;
A statement along with a notice calling the general
meeting referred
containing the required
information
Every listed company and such other class or classes of companies, as may be prescribed shall constitute the Nomination and Remuneration Committee consisting of three or more non-executive directors out of which not less than one-half shall be independent directors; (chairperson of the company may be appointed as a member of the Nomination and Remuneration Committee but shall not chair such Committee)
REMUNERATION PAYABLE BY COMPANIES HAVING NO PROFITS OR INADEQUATE PROFITS WITHOUT CG APPROVAL IN CERTAIN SPECIAL CIRCUMSTANCES
In the following circumstances a company may, without the Central Government approval, pay remuneration to a managerial person in excess of the amounts provided in Section II above:
a b dc where the remuneration in excess of the limits specified in Section I or II is paid by any other company: Where Co. Is a
newly incorporated company, for a period of seven years from the date of its incorporation
Where Co. is a sick company, for whom a scheme of revival or rehabilitation has been ordered by BIFR or NCLT, for a period of 5 years from the date of sanction of scheme of revival
it may pay remuneration up to two times the amount permissible under Section II
OR
Foreign Company
Or has got the approval of its shareholders in general meeting
To make such payment, AND treats this amount as managerial remuneration u/s 197 and total remuneration is within permissible limits under section 197.
WHERE REMUNERATION OF A MANAGERIAL PERSON EXCEEDS THE LIMITS IN SECTION II BUT THE REMUNERATION HAS BEEN FIXED BY THE BIFR OR THE NCLT
Can pay after meeting all the conditions specified under SECTION II and the following ADDITIONAL CONDITIONS:—
Except as provided in Para (a) of this Section, the managerial person is not receiving remuneration from any other company;
The auditor or Company Secretary of the company or where the company has not appointed a Secretary, a Secretary in whole-time practice, certifies that all secured creditors and term lenders have stated in writing that they have no objection for the appointment of the managerial person as well as the quantum of remuneration and such certificate is filed along with the form 13.1;
The auditor or Company Secretary or where the company has not appointed a secretary, a secretary in whole-time practice certifies that there is no default on payments to any creditors, and all dues to deposit holders are being settled on time.
A COMPANY IN A SPECIAL ECONOMIC ZONE AS NOTIFIED BY DEPARTMENT OF COMMERCE FROM TIME TO TIME
Which has not raised any money in India by:
Shares Debentures
Not made any default in INDIA in repayment of any of its debts (+ PB) or debentures or interest payable thereon for a cont. period of 30 days in ANY F.Y.
MAY pay remuneration up to Rs. 2,40,00,000
per AnnumHJA
PERQUISITES NOT INCLUDED IN MANAGERIAL REMUNERATION:
A managerial person shall be eligible for the following perquisites which shall not be included in the computation of the ceiling on remuneration specified in Section II and Section III:
Contribution to provident fund, superannuation fund or annuity fund to the extent these either singly or put together are not taxable under the Income-tax Act, 1961 (43 of 1961);
Gratuity payable at a rate not exceeding half a month’s salary for each completed year of service;
encashment of leave at the end of the tenure
In addition to the above perquisites an expatriate managerial person shall be eligible to the foll. Perqs:
Children’s education allowance up to max 2 children: a maximum of Rs. 12,000 PM (PC) or actual expenses, whichever is less
Leave travel concession: Return passage for self and family in accordance with the rules specified by the company
Holiday passage for children studying outside India or family staying abroad: Return holiday passage once in a year by economy class or once in two years by first class
REMUNERATION PAYABLE TO A MANAGERIAL PERSON IN TWO COMPANIES:
Provided that the total remuneration drawn from the companies DOES NOT EXCEED THE HIGHER MAXIMUM LIMIT admissible FROM ANY ONE of the companies of which he is a managerial person
Subject to the provisions of Sections I to IV, a managerial person shall draw remuneration from:
ONE BOTHOR
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PROVISIONS APPLICABLE TO PARTS I AND II OF THIS SCHEDULE
The appointment and remuneration referred to in Part I and Part II of this Schedule shall be subject to approval by a resolution of the shareholders in general meeting
The auditor or the Secretary of the company or where the company is not required to appointed a Secretary, a Secretary in whole-time practice shall certify that the requirement of this Schedule have been complied with and such certificate shall be incorporated in the return filed with the Registrar under sub-section (4) of section 196.
THE CENTRAL GOVERNMENT MAY, BY NOTIFICATION, EXEMPT ANY CLASS OR CLASSES OF COMPANIES FROM ANY OF THE REQUIREMENTS CONTAINED IN THIS SCHEDULE.
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Striking feature
As per Rule 7(2)Companies other than listed companies and
subsidiary of a listed company
may without Central Government approval
pay remuneration to its managerial person
in the event of
no profit or inadequate profit beyond ceiling prescribed in section II, part II of Schedule V subject to complying with the conditions as mentioned
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conditions: (i) Payment of remuneration is approved by a resolution passed by the Board and, in the case of a company covered under sub-section (1) of section 178 also by the Nomination and Remuneration Committee, if any and wild doing so 7 record in writing clear reason and justification for payment of remuneration beyond the said limit;
(ii) the company has not made any default in repayment of any of its debts (including public deposits) or debentures or interest payable thereon for a continuous period of thirty days in the preceding financial year before the date of appointment of such managerial person;
(iii) Prior approval of shareholders by way of a special resolution at a general meeting of the company for payment of remuneration for a period not exceeding three years;
(iv) A statement along-with a notice calling the general meeting referred to clause (iii) of sub-rule (2) above, shall contain the information as per sub clause (iv) of second proviso to clause (B) of section II of part-II of Schedule V of the Act including reasons and justification for payment of remuneration beyond the said limit.
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CS Jitender AhlawatEmail: [email protected]
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