Inadequate profits as per companies act 2013

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Querist : Anonymous

Querist : Anonymous (Querist)

06 November 2014 What is the definition of Inadequate Profits as per Companies Act, 2013? How can we quantify Inadequate profits?

Amol S Joglekar

Amol S Joglekar (Expert)
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06 November 2014 It is of course a matter of judgement. A similar discussion can be had from the transfer pricing cases under income tax.

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Vaiyapuri kannan

Vaiyapuri kannan (Expert)
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25 April 2015
One more interpretation that we arrived at about the inadequacy of profit after considering the actual reality prevailed in the corporates ,particularly in in terms of method of payment of managerial remuneration

The fact of Inadequacy of profit should be realized by the company concerned only after having arrived at the profit as per section 198 of companies Act 2013 that would not sufficient to pay managerial remuneration as per the agreed terms and conditions that were contracted with those managerial personnel . In other words, it may not practically possible to ascertain either adequacy or inadequacy of profit in the early stage of appointment of managerial personnel , and hence, if the company concerned ,at later stage , comes to know about inadequacy of profit by comparing what actually paid or payable as per agreed terms with what would be actually payable as per provisions stated in the part II of schedule V and section 197 of the companies Act 2013.

Simply we could understand the position that remuneration paid or payable as per agreement , either monthly or annually, exceeds the maximum payable as per section 197 or schedule V after having arrived at the profit of the concerned year under section 198 , otherwise we could say that the company concerned would know this position only after closing books of accounts at the end of the year . And hence one could infer that if the actual remuneration paid or payable to the managerial personnel as per the agreed terms of condition stated in the contract of appointment exceeds the maximum over all limit of 11% referred to in section 197 , the company concerned has to strictly comply with the provisions of maximum remuneration payable as stated in section II of part II of schedule V , otherwise it has to approach central government for getting prior approval. But there would be difficulty in getting central govt approval after paying remuneration in excess of limit referred to in section 197 or section II of part II of companies Act 2013 , and hence , what is suggested in this situation is that the excess remuneration paid beyond the limit specified in section 197 or section II of part II of company act 2013 without getting prior approval of central Govt should be refunded to the company and until such sum is refunded , hold it in trust for the company as per provisions stated in section 197(9) of the Act

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