Managerial Remuneration-Section 197 of Companies Act

MANAGERIAL REMUNERATION

According to the provisions of Section 197 of Companies Act, 2013 the total managerial remuneration payable by a public company, to its directors, including managing director and whole-time director, and its manager in respect of any financial year shall not exceed 11% of its  net profits of that company for that financial year computed in the manner laid down in section 198 except that the remuneration of the directors shall not be deducted from the gross profits.

However, the Company in general meeting may authorize the payment of remuneration exceeding 11%. of the net profits of the company, subject to the provisions of Schedule V

Except with the approval of the company by passing special resolution in general meeting:

• The remuneration payable to any 1 managing director or whole-time director or manager shall not exceed 5% of the net profits of the company and if there is more than one such director, then the remuneration shall not exceed 10% of the net profits to all such directors and manager taken together.
• The remuneration payable to the directors who are neither managing directors nor whole-time directors shall not exceed:

• 1% of the net profits of the company, if there is a managing or whole-time director or manager;
• 3% of net profits in any other case.

REMUNERATION TO DIRECTORS IN OTHER CAPACITY [SECTION 197(4)]

The remuneration payable to the directors including managing or whole-time director or manager shall be inclusive of the remuneration payable for the services rendered by him in any other capacity except the following:

(a) the services rendered are of a professional nature; and

(b) in the opinion of the Nomination and Remuneration Committee (if applicable) or the Board of Directors in other cases, the director possesses the requisite qualification for the practice of the profession.

SITTING FEES TO DIRECTORS FOR ATTENDING THE MEETINGS [SECTION 197(5)]

Sitting fees payable to a director for attending meetings of the Board or committees may be decided by the Board of directors or the Remuneration Committee and which shall not exceed the sum of rupees 1 lakh per meeting of the Board or committee as the case may be.

Further sitting fees payable to Independent Director and Women Directors shall not be less than the fees payable to other directors.

REMUNERATION DRAWN IN EXCESS OF PRESCRIBED LIMIT:

In case of any director who draws or accepts, by way of any remuneration any such sums in additional of the limit prescribed or without prior consent where it is required, then he shall refund such sums to the Company within 2 years or such lesser period as decided by Company and till then such amount to be held in trust.

INSURANCE PREMIUM AS PART OF REMUNERATION:

Where any kind of insurance is taken by the company on behalf of its managing director, whole-time director, manager, Chief Executive Officer (CEO), Chief Financial Officer (CFO) or Company Secretary (CS) 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 company, the premium paid on such an insurance shall not be treated as part of the remuneration payable to any such personnel. However, if such a person is proved to be guilty, the premium that is paid on such insurance shall be treated as part of the remuneration.

MANAGERIAL REMUNERATION UNDER SCHEDULE V:

1. Remuneration to be paid by the Companies having Profits: A company having profits in a financial year may pay remuneration to its managerial persons in accordance with Section 197.
2. Remuneration by Companies having no profits or inadequate profits without Central Government approval:

Where in any financial year during the period of the managerial person, a company doesn't have any profits or if its profits are not adequate, it may pay the remuneration to a managerial person not exceeding the higher of the following limits under (I) and (II) below:

1. If a special resolution is passed by the shareholders, remuneration in excess of the limit may be paid.

2. In the case of managerial person who was not a shareholder, employee or a Director of the company at any time during the two years prior to his appointment as managerial person- Remuneration as per point no. I shall be paid.

Disclaimer: Please note that the above article is based on interpretation of related laws, which may differ from person to person and is not a legal advice.