Director's remuneration and RPT

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This query is : Resolved

Ayushi L (Querist)

25 February 2025 Is payment of remuneration to a NED as per section 197 read with Schedule V of the Companies Act, 2013, in case of a company not having profits (SR obtained from shareholders in case the payment exceeds the limits payable under Schedule V- based on effective capital) will be termed as RPT u/s 188 (1) (f) read with 188 (1) 1st proviso (please suggest if monthly payment is 2.5 lakhs or exceeds this limit)?

Aashok Kumar Sharma

Aashok Kumar Sharma

(Expert)

12 August 2025 Background:
Section 197 & Schedule V of Companies Act, 2013 deal with limits on managerial remuneration, especially when the company has no profits or inadequate profits.

Section 188(1)(f) defines related party transactions (RPT), which includes transactions with directors or their relatives.

First proviso to Section 188(1) exempts certain payments made to directors from the requirement of board/shareholders approval if within prescribed limits.

Your Query:
Payment of remuneration to a Non-Executive Director (NED) exceeding limits in Schedule V, with shareholders’ special resolution.

Whether such remuneration qualifies as RPT under Section 188(1)(f).

Example: Monthly payment = ₹2.5 lakhs or exceeds.

Clarification:
Is payment to NED under Section 197 Schedule V an RPT?

Yes, payment to directors is a transaction with related parties.

Remuneration to NED is covered under related party transactions as per Section 188(1)(f).

Is such payment subject to provisions of Section 188?

Section 188(1) covers contracts or arrangements with related parties.

However, the first proviso to Section 188(1) exempts payments to directors that are made as per the limits specified in Section 197 and Schedule V, including remuneration approved by shareholders via special resolution.

So, if remuneration is paid within the limits of Schedule V or approved by SR (special resolution) in excess, it is not treated as RPT requiring separate approval under Section 188.

If monthly payment exceeds ₹2.5 lakhs?

₹2.5 lakh is the threshold for disclosure for transactions in some contexts, but for remuneration limits, Schedule V and Section 197 govern.

If payment exceeds limits in Schedule V and special resolution is obtained, then it is valid and not considered a separate RPT under Section 188.

Such remuneration should be disclosed in Board’s report and financial statements.

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