Remuneration to directors

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Querist : Anonymous

Querist : Anonymous (Querist)

19 March 2014 One of the public company has the capital of Rs.31 crore and NP is 1.5 crore.company wants to give Rs.62 lacs as remuneration to directors. Please prescribe the procedure and related compliance.

Akash Barman

Akash Barman (Expert)
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19 March 2014 please follow sec 349 and 350 of companies act

Querist : Anonymous

Querist : Anonymous (Querist)

21 March 2014 what is the procedure to take permission from central govt?

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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21 July 2025 Got it! You’re asking about the procedure and compliance for paying remuneration of Rs. 62 lakhs to directors when the net profit (NP) is Rs. 1.5 crore, in a public company with capital Rs. 31 crore. Also, how to take Central Government approval for excess remuneration under the Companies Act.

1. Legal Limits on Director’s Remuneration
Under Section 198 of the Companies Act, 2013, total managerial remuneration payable by a public company (including all directors) cannot exceed 11% of net profits.

For your case:

Net Profit = ₹1.5 crore

11% of ₹1.5 crore = ₹16.5 lakhs

Proposed remuneration = ₹62 lakhs, which exceeds the limit.

2. Sections 349 and 350, Companies Act, 1956
These sections deal with computation of net profits.

Net profits for remuneration calculation are computed as per Section 198 read with Sections 349 and 350 (for disallowances and additions).

The company must calculate net profits in accordance with these provisions.

3. Excess Remuneration – Need for Central Government Approval
When remuneration exceeds the prescribed limits (11%), the company must obtain approval from the Central Government.

Without this approval, payment of excess remuneration is not valid.

4. Procedure for Central Government Approval
Stepwise procedure:
Board Meeting:

Convene a board meeting to approve the proposal to pay remuneration exceeding statutory limits.

Pass a board resolution to apply for Central Government approval.

Application to Central Government:

File Form MR-1 (if applicable under the Companies Act, 1956) with the Registrar of Companies (ROC) for approval.

Under Companies Act, 2013, the procedure has changed:

The company needs to make an application to the Regional Director (RD) of the Ministry of Corporate Affairs (MCA) with full justification.

Attach all necessary documents such as audited financials, board resolution, directors’ remuneration details, etc.

Documents to Attach:

Board resolution approving excess remuneration.

Explanation/justification for excess remuneration.

Audited financial statements.

Details of directors and remuneration proposed.

Fee Payment:

Pay the prescribed fee for the application (amount varies as per MCA rules).

Approval Process:

RD reviews the application.

May call for a hearing if needed.

After consideration, the RD either grants or refuses approval.

After Approval:

Pass a shareholders' resolution approving the remuneration as per the terms of the approval.

Maintain records of approval for statutory compliance.

5. Compliance and Penalties
Paying remuneration beyond limits without approval can lead to penalties on the company and directors.

Ensure timely filing of all documents and resolutions with ROC.

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