Meaning of inadequate profit- section 198 of the company ac

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Pravin Mishra (Querist)

26 September 2012 Sir,

Mine is listed company and I am calculating MD remuneration and in this regards I wants to know the meaning of "Inadequate profit" as given in section 198 of the companies act, 1956.

Sir, In my case profit is only rs.5000/- can I treat it as inadequate and accordingly calculate MD remmunerarion according to schedule XIII and what is base to quantify inadequate profit?

CS Pawan Kumar Baid

CS Pawan Kumar Baid (Expert)

26 September 2012 Profit means profit as calculated u/s 249, 250. You can give maximum 11% of net profit as remuneration to all manager/md/wtd etc. It seems 5000/- profit is inadequate as no MD (all of them together) will like to have Rs 550/- as their remuneration for whole hear.

Sch XIII provides, you can give upto 4 lakh Rs p.m. as remuneration to each managerial personnel in case of inadequate profit.

Message likes : 2 times

CS Ankur Srivastava

CS Ankur Srivastava (Expert)

27 September 2012 Inadequate profit means the profit is inadequate to respect the agreement with the whole time director only.

For other purpose the profit shall not be termed as inadequate.

Pravin Mishra

Pravin Mishra (Querist)

28 September 2012 But sir,

How can we quantify that profit is inadequate or not?

Say, for e.g profit of the Company is rs.5000 and it has one Managing Director and one Whole time Director, so this profit of rs. 5000 is inadequate or not.

CS Ankur Srivastava

CS Ankur Srivastava (Expert)

01 October 2012 In such case if you have contracted the MD and WTD to pay Rs. 10000 p.m., it is more than the specified limits of section 198, 309 and schecule XIII, in such cases part II comes into force and profit shall be treated as inadequate only for this purpose and remuneration shall be decided as per the given tables.

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