Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014

Rule 1- Short title and Commencement:

a. These rules may be called the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.

b. They shall come into force on the 1st day of April, 2014

Rule 2- Definitions:

Words and expressions used in these rules but not defined and defined in the Act or in Companies (Specification of definitions details) Rules, 2014 shall have the meanings respectively assigned to them in the Act and said rules

Rule 3- Filing of return of appointment:

A company shall file a return of appointment of a MD, Whole Time Director or Manager, CEO, Company Secretary and CFO within 60 days of the appointment, with the Registrar in Form No. MR.1 along with such fee as may be specified for this purpose

Rule 4-Sitting fees:

A company may pay a sitting fee to a director for attending meetings of the Board or committees thereof, such sum as may be decided by the Board of directors thereof which shall not exceed one Rs.1,00,000/-per meeting of the Board or committee thereof:

For Independent Directors and Women Directors, the sitting fee shall not be less than the sitting fee payable to other directors.

Rule 5 -Disclosure in Board’s report:

Every listed company shall disclose in the Board’s report-

• the ratio of the remuneration of each director to the median remuneration of the employees of the company for the financial year;

• the percentage increase in remuneration of each director, CFO, CEO, Company Secretary or Manager, if any, in the financial year;

• the percentage increase in the median remuneration of employees in the financial year;

• the number of permanent employees on the rolls of company;

• the explanation on the relationship between average increase in remuneration and company performance;

• comparison of the remuneration of the KMP against the performance of the company;

• variations in the market capitalisation of the company, price earnings ratio as at the closing date of the current financial year and previous financial year and percentage increase over decrease in the market quotations of the shares of the company in comparison to the rate at which the company came out with the last public offer in case of listed companies, and in case of unlisted companies, the variations in the net worth of the company as at the close of the current financial year and previous financial year;

• average percentile increase already made in the salaries of employees other than the managerial personnel in the last financial year and its comparison with the percentile increase in the managerial remuneration and justification thereof and point out if there are any exceptional circumstances for increase in the managerial remuneration

• comparison of the each remuneration of the Key Managerial Personnel against the performance of the company;

• the key parameters for any variable component of remuneration availed by the directors;

• 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; and

• affirmation that the remuneration is as per the remuneration policy of the company.

“Median” means the numerical value separating the higher half of a population from the lower half and the median of a finite list of numbers may be found by arranging all the observations from lowest value to highest value and picking the middle one;

If there is an even number of observations, the median shall be the average of the two middle values

Statement of Employee’s Remuneration:

The board’s report shall include a statement showing the name of every employee of the company, who if employed-

Particulars of Employee:

• designation of the employee;

• remuneration received;

• nature of employment, whether contractual or otherwise;

• qualifications and experience of the employee;

• date of commencement of employment;

• the age of such employee;

• the last employment held by such employee before joining the company;

• the percentage of equity shares held by the employee in the company and

• whether any such employee is a relative of any director or manager of the company and if so, name of such director or manager:

The particulars of employees posted and working in a country outside India, not being directors or their relatives, drawing more than Rs.60 lacs per financial year or Rs.5 lacs per month, as the case may be, as may be decided by the Board, shall not be circulated to the members in the Board’s report, but such particulars shall be filed with the Registrar of Companies while filing the financial statement and Board Reports

The particulars shall be made available to any shareholder on a specific request made by him in writing before the date of such Annual General Meeting wherein financial statements for the relevant financial year are proposed to be adopted by shareholders and such particulars shall be made available by the company within three days from the date of receipt of such request from shareholders.

In case of request received even after the date of completion of Annual General Meeting, such particulars shall be made available to the shareholders within seven days from the date of receipt of such request

Rule 6-Applications to the Central Government:

The Central Government or the company shall have regard to the following matters, namely:-

• the Financial and operating performance of the company during the three preceding financial years.

• the relationship between remuneration and performance.

• the principle of proportionality of remuneration within the company, ideally by a rating methodology which compares the remuneration of directors to that of other directors on the board who receives remuneration and employees or executives of the company.

• whether remuneration policy for directors differs from remuneration policy for other employees and if so, an explanation for the difference.

• the securities held by the director, including options and details of the shares pledged as at the end of the preceding financial year.

Rule 7- Fees:

(1) Every application made to the Central Government under the provisions of Chapter XIII shall be made in Form No. MR.2 and shall be accompanied by fee as may be specified for the purpose.

(2) The companies other than listed companies and subsidiary of a listed company may without Central Government approval pay remuneration to its managerial personnel, in the event of no profit or inadequate profit beyond ceiling specified in Section II, Part II of Schedule V, subject to complying with the certain conditions.

Conditions:

• 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 while doing so record in writing the clear reason and justification for payment of remuneration beyond the said limit;

• the company has not made any default in repayment of any of its debts (including public deposits) or debentures or interest payable thereon preference shares and dividend on preference shares for a continuous period of thirty days in the preceding financial year before the date of payment to such managerial personnel;

• the 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;

a statement along-with a notice calling the general meeting, 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;

the company has filed Balance Sheet and Annual Return which are due to be filed with the Registrar of Companies.

(3) Every such application seeking approval shall be made to the Central Government within a period of 90 days from the date of such appointment.

Rule 8- Appointment of Key Managerial Personnel:

Every listed company and every other public company having a paid-up share capital of Rs.10 Crores or more shall have whole-time KMP.

Rule 8A –Appointment of Company Secretaries in companies not covered under Rule 8:

The MCA has amended the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 and inserted a new Rule 8A on 9th June 2014.

A company other than a company covered under Rule 8 which has a paid up share capital of Rs.5 Crores or more shall have a whole–time Company Secretary.

Rule 9- Secretarial Audit Report:

(1) For the purposes of sub-section (1) of section 204, the other class of companies shall be as under-

(a) every public company having a paid-up share capital of Rs.50 Crores or more; or

(b) every public company having a turnover of  Rs.250 Crores  rupees or more.

(2) The format of the Secretarial Audit Report shall be in Form No.MR.3.

Rule 10- Duties of Company Secretary:

The duties of Company Secretary shall also discharge, the following duties, namely:-

• To provide to the directors of the company, collectively and individually, such guidance as they may require, with regard to their duties, responsibilities and powers;

• To facilitate the convening of meetings and attend Board, committee and general meetings and maintain the minutes of these meetings;

• To obtain approvals from the Board, general meeting, the government and such other authorities as required under the provisions of the Act;

• To represent before various regulators, and other authorities under the Act in connection with discharge of various duties under the Act;

• To assist the Board in the conduct of the affairs of the company;

• To assist and advise the Board in ensuring good corporate governance and in complying with the corporate governance requirements and best practices; and

• To discharge such other duties as have been specified under the Act or rules; and

• such other duties as may be assigned by the Board from time to time.