Managerial remuneration

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jay prakash heerwal

jay prakash heerwal (Querist)
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05 March 2013 What if Company is not complying Sec 349 of companies Act, 1956 ????

Ajay Mishra

Ajay Mishra (Expert)
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05 March 2013 Hi

Its depend on your Companies articles and type of Company. Like public company or private company.

jay prakash heerwal

jay prakash heerwal (Querist)
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07 March 2013 Hello Ajay Mishra Sir,

The Company is Listed in Stock Exchange and all the directors are getting remuneration which exceeds 11% of Net Profit computed as per company act.

What are the consequences ??

Thanks in advance...

jay prakash heerwal

jay prakash heerwal (Querist)
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07 March 2013 Company's AOA is slient on above matter.

Aashok Kumar Sharma

Aashok Kumar Sharma

(Expert)
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03 August 2024 If a listed company does not comply with Section 349 of the Companies Act, 1956, concerning managerial remuneration, several legal and regulatory consequences can arise. Here's a detailed breakdown of the implications and potential consequences:

### **Understanding Section 349:**

- **Section 349 of the Companies Act, 1956:** This section deals with the limits on managerial remuneration in relation to the net profits of the company. Specifically, it stipulates that the total managerial remuneration cannot exceed:
- **11% of Net Profit:** This limit is applicable to companies whose articles of association (AOA) are silent on this matter.

### **Consequences of Non-Compliance:**

1. **Regulatory Penalties and Actions:**

- **Regulatory Scrutiny:** The Securities and Exchange Board of India (SEBI) and stock exchanges can scrutinize companies for non-compliance with regulatory norms, including those related to managerial remuneration.
- **Fines and Penalties:** Non-compliance can lead to penalties imposed by regulatory authorities. The company may be fined for failing to adhere to the provisions of the Companies Act, 1956.

2. **Legal Consequences:**

- **Recovering Excess Remuneration:** Any remuneration paid in excess of the limits specified by Section 349 may be deemed unauthorized. The company may be required to recover such excess remuneration from the directors or managerial personnel.
- **Possible Disqualification:** Directors or key managerial personnel may face legal consequences, including disqualification or legal action for failing to ensure compliance with statutory provisions.

3. **Shareholder Action:**

- **Shareholder Complaints:** Shareholders may raise complaints or take legal action against the company and its directors for not adhering to the provisions of the Companies Act, 1956. This could result in reputational damage and possible legal challenges.

4. **Stock Exchange Actions:**

- **Listing Compliance:** Non-compliance with statutory provisions can lead to violations of listing agreements, which may result in actions taken by the stock exchange, such as penalties or even suspension of trading.

5. **Corrective Measures:**

- **Restatement of Accounts:** The company may need to restate its financial accounts to correct the remuneration payments and align them with statutory limits.
- **Amendments to AOA:** The company may need to review and amend its AOA to ensure compliance with statutory limits if the AOA is silent on the matter.

### **Steps to Mitigate Consequences:**

1. **Immediate Action:**

- **Review Remuneration Policies:** Conduct a thorough review of the company's remuneration policies and practices to ensure compliance with statutory limits.
- **Seek Legal Advice:** Consult with legal and financial advisors to understand the implications and take corrective actions.

2. **Compliance Measures:**

- **Adjust Remuneration:** Ensure that future remuneration payments are in compliance with the limits specified under Section 349 or any applicable regulations under the Companies Act, 2013, if the company has transitioned to the new Act.
- **File Required Returns:** Ensure that all necessary filings with regulatory authorities are updated and accurate.

3. **Communication:**

- **Inform Stakeholders:** Communicate with shareholders and other stakeholders about the steps being taken to address non-compliance and ensure future adherence to statutory provisions.

### **Summary:**

- **Legal and Regulatory Risks:** Non-compliance with Section 349 of the Companies Act, 1956 can lead to regulatory scrutiny, fines, recovery of excess remuneration, and potential legal action.
- **Corrective Actions:** The company should review and correct its remuneration practices, seek legal advice, and ensure compliance with statutory limits moving forward.

**Recommendation:**

- **Consult Professionals:** Given the complexity and potential consequences, it is advisable to consult with a legal advisor, company secretary, or compliance professional to navigate the regulatory requirements and implement necessary changes. This will help mitigate risks and ensure adherence to applicable laws and regulations.

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