Increasing Managerial Remuneration over and above ceiling limits in Listed Companies

Yashi Maheshwari , Last updated: 21 January 2018
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CG Approval for Increasing Managerial Remuneration Over And Above Ceiling Limit

In the article below we will discuss about the provisions in respect of compliances in respect of increasing the managerial remuneration to the overall limit as per the provisions of Companies Act, 2013 and also that as amended by the Companies (Amendment) Act, 2017

Prior to the Companies Amendment Act 2017, the company was required to take the approval of central government in case where it wanted to exceed the overall ceiling of remuneration of 11% of the net profits of the company, which is now with the amendment act waived off.

Interpretation: The company is not at all required to take approval of central government if it wants to pay remuneration in excess of 11% of net profit of the company.

Prior to the Companies Amendment Act 2017, it was further required to take approval from shareholders through Ordinary resolution in case where the remuneration limits for the following was to be raised above given limits

S. No	Designation	Limit
1.	Any One MD/WTD/Manager	5%
2.	More than one MD/WTD/Manager	10% taken together
3.	Other than MD/WTD when there is managing or whole-time director or manager	1%
4.	Other cases	3%

Post the assent by President on Companies Amendment Act 2017, you are required to take approval from shareholders through special resolution

It is further added that if the company is in default for payment of dues to any bank or public financial institution or non-convertible debenture holders or any other secured creditor, then the company is required to take prior approval of those stakeholders before taking approval in general meeting

Interpretation: if you have a default of non-payment of dues with banks and other institutions then first take their approval and then you may take approval of the shareholders in the general meeting through special resolution.

Earlier the company was allowed to pay remuneration to its director in case of loss or inadequate profits in accordance with Schedule V or Central government as the case may be. But now the approval from Central Government is omitted.

Interpretation: Now if a company incurs Losses or has Inadequate Profits then it can pay remuneration to its directors ONLY in accordance with the provisions of Schedule V.

If a director draws excess salary then he was required to refund such sum to company or until refunded, hold such sum in Trust for the company.

But the amendment act has given the director a relief of refunding such amount within TWO YEARS or such lesser period as may be allowed by the company, and until such sum is refunded, hold it in trust for the company.

The company was not allowed to waive off the refundable amount without the prior approval of Central Government, but now the company need not take CG approval, with the amendment act the Company is allowed to waive such refundable amount by passing a Special Resolution within TWO YEARS from the date the sum becomes refundable.

Interpretation: If you have a default of non-payment of dues with banks and other institutions then first take their approval and then you may take approval for waiver.

The auditor of the company shall, in his report under section 143, make a statement as to whether the remuneration paid by the company to its directors is in accordance with the provisions of this section, whether remuneration paid to any director is in excess of the limit laid down under this section and give such other details as may be prescribed

It is also proposed to provide relief to the company whose application is pending for approval before the Central Government under section 197 by making a provision under which on and from the commencement of the Companies (Amendment) Act, 2017, any application made to the Central Government under the provisions of this section as it stood before such commencement, which is pending with that Government shall abate, and the company shall, within one year of such commencement, obtain the approval in accordance with the provisions of this section, as so amended.

CRUX

S.No	Compliance with reference to sections	Prior to amendment	Post amendment
1.	Proviso to sub section 1 of section 197_ Approval of CG to remunerate directors over and above ceiling of 11%	Required to take CG approval before remunerating directors over and above 11%	Not required to take approval from CG
2.	Second proviso_ Approval from shareholders for remunerating over and above ceiling	Through Ordinary resolution	Through Special Resolution
3.	New proviso for NOC from Financial Institution (in case of default of dues)	-	Mandatory to take before passing SR
4.	Sub section 3 of section 197 Remuneration to directors in case of loss or inadequate profit	As per Schedule V and/or Central government approval	Only Schedule V
5.	Sub section 9 of section 197 Refund of excess salary withdrawn	Refund such sum to company or until refunded, hold such sum in Trust for the company	Refund within 2 yrs or such lesser period as prescribed by company, or hold such amount in trust for the company.
6.	Sub section 10 of section 197 Waive off the refundable amount	With approval of Central Government	Only by passing a Special Resolution within TWO YEARS from the date the sum becomes refundable
7.	New proviso for NOC from Financial Institution (in case of default of dues)	-	Mandatory to take before passing SR
8.	New sub section 16_ Audit report for compliance	-	Mandatory
9.	Newly added_ relief to the company whose application is pending for approval before the Central Government under section 197	-	Such application shall abate, and the company shall, within one year of such commencement, obtain the approval in accordance with the provisions of this section, as so amended