Managerial remuneration

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sanjiv (Querist)
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28 November 2012 Ours is Unlisted Public Limited Company, we want increase the remuneration of Managing director, but the same is exceeding 5% of the Net profit i.e.8%, so we are going by schedule Part II of XIII where approval of Central government is not required for the Unlisted Public limited companies, because profits are not sufficient to pay the remuneration. but Effective capital of our company is positive. can i go by schedule XIII or i have to apply for Central government approval?

There is One MD and one WTD.
MD remuneration proposed is 8 of net profit.
WTD 3% of the Net profit.
Overall remuneration is coming around 11%

Ajay Mishra

Ajay Mishra (Expert)
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28 November 2012 Hi

As per our understanding on reading of proviso of section 309(3) Approval of the Central Government for payment of remuneration shall be necessary only if remuneration exceeds 5% of the net profits for one such director, and if there is more than one such director, 10% for all of them put together. This aforesaid limit is applicable in the case of a company having profits.

You are increasing limit from 5% to 8% of one MD.

Section 310 will also apply.

Ajay Mishra

Ajay Mishra (Expert)
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28 November 2012 Part II of Schedule XIII deal with the remuneration payable to managerial person as under:

1. Section I of Part II deal with remuneration payable by company having profit. (i) such company may pay remuneration by way of salary, dearness allowance, perquisite, commission and other allowance (ii) such remuneration shall not exceed:
(a) 5% of its net profit for one such managerial person
(b) if there is more than one such managerial person, 10% of its net profit for all of them together.
2. Section II of Part II deal with remuneration payable by company having no profit or inadequate profit.

sanjiv

sanjiv (Querist)
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28 November 2012 hi ajay

in sub para C part II of schedule XIII it is mentioned as

"Provided further that the conditions specified in sub-paragraph (C) shall apply in the case the effective capital of the
company is negative"

It means to pay exceeding the limit stated in sub para C part II of schedule XIII, effective capital of the company is negative?

Ajay Mishra

Ajay Mishra (Expert)
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28 November 2012 Hi

But in your case profit is not sufficient. And if profit is not sufficient and you are paying the remuneration in excess of limit specified in Part C, then you will go for CG approval.

sanjiv

sanjiv (Querist)
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28 November 2012 Hi Ajay

but as per the new circular unlisted public limited companies are exempted from the CG approval under schedule XIII.

Ajay Mishra

Ajay Mishra (Expert)
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28 November 2012 Hi

Yes, restricted to listed and their subsidiary.

Earlier the proviso of sub paragraph (C) of section II of Part II of Schedule XIII of the Companies Act, 1956 says that a company having negative effective capital shall be required to comply the conditions specified in sub-paragraph in addition to take prior approval of Central Government for payment of remuneration on the as given therein.
The MCA vide its Notification No GSR 70 (E), dates 08.02.2011 has provided that prior approval of the Central Government is required for payment of remuneration as per scale given in sub paragraph (C) of section II of Part II of Schedule XIII of the Companies Act, 1956, if the company is listed company or subsidiary of a listed company.

sanjiv

sanjiv (Querist)
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28 November 2012 Hi Ajay

Than we don't have to go for the approval of the CG, am I right?

Thanks & Regards

Ajay Mishra

Ajay Mishra (Expert)
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28 November 2012 Hi

On the basis of new Notification you can take benefit of it.

sanjiv

sanjiv (Querist)
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28 November 2012 Thank you,

Ajay Mishra

Ajay Mishra (Expert)
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28 November 2012 My pleasure.....

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