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The Companies Act 2013 provides for the managerial remuneration. According to section 197 of the companies act, 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 the net profits of that company for the financial year computed in the manner as laid down in section 198 except that the remuneration of directors shall not be deducted from gross profits. It is further provided that the company in general meeting, may authorize the payment of remuneration exceeding eleven percent of the net profits of the company subject to approval of the central government.

However this should be done subject to the provisions of schedule V. It is further provided that , except with the approval of the company in general meeting, the remuneration payable to any one 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, remuneration shall not exceed 10 % of the net profits of all such directors and manager taken together. The remuneration payable to directors who are neither managing directors nor whole time directors shall not exceed a. One per cent of the net profits of the company, if there is a managing or whole time director or manager b. Three per cent, of the net profits in any other case. The percentages aforesaid shall be exclusive of any fees payable to directors under sub section (5). Notwithstanding anything contained in sub sections (1) and (2) but subject to the provisions of schedule V, if in any financial year, a company has no profits or inadequate profits , the company shall not pay to its directors, including any managing or whole time director or manager, by way of remuneration any sum exclusive of any fees payable to directors under sub section (5) here under except in accordance with the provisions of schedule V and if it is not able to comply with such provisions, with the approval of the central government. 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 company, or by a resolution or if the articles so require, by a special resolution, passed by the company in general meeting and 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. Provided that any remuneration for services rendered by any such director in other capacity shall not be so included if – (i) The services rendered are of a professional nature and (ii) 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. A director may receive remuneration by way of fee for attending meetings of the Board or committee thereof or for any other purpose whatsoever as may be decided by the Board. Provided that the amount of such fees shall not exceed the amount as may be prescribed.

Provided further that different fees for different clauses of companies and fees in respect of independent director may be such as may be prescribed. The section states that a director or manager may be paid remuneration either by way of monthly payment or at a specified percentage of the net profits of the company or partly by one way and partly by the other. 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 and may receive remuneration by way of fees provided under sub section (5) reimbursement of expenses for participation in the Board and other meetings and profit related commission as may be approved by the members.

The net profits for the purpose of this section shall be computed in the manner referred to in section 198. 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. The company shall not waive the recovery of any sum refundable to it under sub section (9) unless permitted by the central government. In cases where schedule V is applicable on grounds of no profits or inadequate profits , any provision relating to the remuneration of any director which purports to increase or has the effect of increasing the amount thereof, whether the provision be contained in the company's memorandum or articles or in an agreement entered into by it or in any resolution passed by the company in general meeting or its Board, shall not have any effect unless such increase is approved by the Central Government. Every listed company shall disclose in the Board's report, the ratio of the remuneration of each director to the median employee’s remuneration and such other details as may be prescribed.

Where any insurance is taken by a company on behalf of its managing director, whole time director, manager, Chief executive officer, Chief Financial Officer or 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. Subject to the provisions of this section, any director who is in receipt of any commission from the company and 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 or subsidiary company of such company subject to its disclosure by the company in the Board's report. 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. These are the exhaustive provisions of section 197 of The Companies Act, 2013.


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Category LAW, Other Articles by - Pankaj Pendse 



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