29 June 2013
according to sec 309 of companies act, remunaration paid to directors should not exceed 10% of net profit when there are more than one director. so the remunaration to directors can be paid in ratio of 8:2 between two directors or not ? thanks
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Section 198(1) relates to overall maximum managerial remuneration and managerial remuneration in case of absence or inadequacy of profits. The total managerial remuneration payable by a public company or a private company which is a subsidiary of a public company, to its directors and its manager in respect of any financial year shall not exceed 11% of the net profits of the company for that financial year. Such net profits shall be computed in a manner laid down under sections 349 and 350, except that the remuneration of the directors shall not be deducted from the gross profits.
Remuneration is payable to all the directors including managing and whole-time directors and in any capacity. Therefore, it includes the remuneration for services rendered by him in any other capacity other than that of a director.
29 June 2013
Thanks for you reply Ajaysir, but i have consulted with ROC and it is of an opinion that remuneration to one director can not exceed beyond 5 % of net profit. so i am little confused in this matter. So, can you please refer me any case law order in this respect.
01 July 2013
my reason for worry is that i have seen few companies which are paying more than 5 % without CG approval. so i just want to ask you whether there was any case law in past where ROC had restricted any company paying more than 5%.
21 July 2025
Great question! Let me break down the relevant points about remuneration to directors under the Companies Act and the limits imposed by law:
1. Legal Provisions under Companies Act, 1956 & 2013 Section 309 of the Companies Act, 1956 (now replaced by Companies Act, 2013 provisions) states:
When there is more than one director, total remuneration payable to all directors (excluding managing director and whole-time director) should not exceed 10% of the net profits of the company.
Section 198(1) of Companies Act, 2013 states:
Total managerial remuneration payable by a public company or a private company that is a subsidiary of a public company to its directors and manager should not exceed 11% of net profits for that financial year.
The remuneration includes all directors (managing, whole-time, and others) in any capacity.
For individual directors, the limit is generally:
Not more than 5% of net profits for a single director.
The aggregate of all directors except managing director/whole-time director should not exceed 10%.
2. Can remuneration be paid in any ratio (e.g., 8:2) between two directors? Yes, the remuneration between directors can be divided in any proportion provided the overall limit is respected (total not exceeding 10%).
But no single director can receive more than 5% of net profits without shareholder approval or Central Government approval (if applicable).
3. ROC’s Position ROC’s advice that remuneration to one director cannot exceed 5% of net profit is correct for public companies.
For private companies, the limits can vary, but for private companies that are subsidiaries of public companies, the 11% aggregate limit applies.
4. Case Law / Precedents There are cases where ROC has disallowed excess payment beyond prescribed limits.
In practice, if a company pays remuneration beyond these limits without shareholder approval or Central Government approval, it can face penalties.
However, ROC enforcement varies, and some companies may pay more than 5% without immediate consequences, but it's not legally compliant.
Summary Director Type Max Remuneration as % of Net Profits (Public Company) Remarks Individual Director 5% Cannot exceed without special approval All directors other than MD/WD 10% Aggregate limit Managing Director/Whole-time Director 10% Separate limit, combined total usually 11% under Sec 198
References for you Section 198 and 309, Companies Act, 1956
Section 197 and 198, Companies Act, 2013
Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014
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