Commission to non-executive directors from 1% to 2% read mo

This query is : Resolved

Rakesh (Querist)
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05 October 2012 Kindly let us known what is way out for commission payable to non-executive directors from 1% to 2%.

kindly also send us Resolution of the same.

Ajay Mishra

Ajay Mishra (Expert)
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06 October 2012 Hi

Section 309(4) provides that a director or directors who is/are not managing or whole-time directors may be paid remuneration periodically with the approval of the Central Government or may be paid commission, provided the said remuneration shall not exceed 1% of the net profits if the company has a managing or whole-time director and 3% in other cases. The net profits shall be computed in terms of sections 198, 349 and 350 of the Act.

At the time of initiating the payment of commission to non-executive directors, subject to necessary approvals, the Board may decide that the same shall be shared equally by and amongst all such directors or in any other way as may be approved by the Board or as prescribed in the Articles.

If there is no provision in the articles for payment of remuneration to non-executive directors, action shall first be taken to amend the provisions of articles to include a suitable provision by way of a special resolution at a general meeting.

Ajay Mishra

Ajay Mishra (Expert)
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06 October 2012 Hi

Central Government's approval

Although the section prescribes that the approval of the Central Government is necessary only for payment of fixed remuneration to non-executive directors, it is found that the Department is of the view that a company cannot pay commission to non-executive directors based on 1% or 3% of net profits, as the case may be, without the prior approval of that government on the ground that any such payment would mean increase in the remuneration to a director which would attract the provisions of section 310 and thus need the approval of the Central Government.
The Government's view is that where directors receive fees for Board meetings attended by them, proposal for payment of commission or other remuneration to them would mean increase in remuneration under section 310. However, where the directors do not receive Board meeting fees or other remuneration, Central Government's approval is required as any remuneration proposed to be paid will be deemed to be an increase in remuneration and will require approval of the Government under section 310 and also approval of members by special resolution.

The MCA has issued a circular No. 4/2011 dated 04.03.2011 stating that a company shall not require approval of central government for making payment of remuneration by way of commission to its non-whole time directors in addition to sitting fee, if the total commission to be paid to all those non-whole time directors does not exceed 1% of the net profit of the company if it has a whole time director or 3& of the net profit of the company if it does not have the MD/WTD.

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