urgent- Remuneration of Managing Director

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

28 June 2010 A public ltd. unlisted company has reappointed MD and has increased his remuneration which is not in accordance of shedule xiii, no special resolution was passed and no central government approval is obtained.The company has not started commercial operations yet. What consequencies company may have to face now and what remedies are available.

Ankur Garg

Ankur Garg (Expert)
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28 June 2010 Hi,

In your case section 209(5A) and (5B) are applicable i.e. director have to refund the entire remuneration to the company and the amount is in the possession of the dir in trust for the company.

Please tell to suggest the remedy---is your company is lose making company keeping in view the managerial remuneration.

Thanks

Querist : Anonymous

Querist : Anonymous (Querist)

28 June 2010 Thanks a lot ankur sir i would like to inform as i earlier missed a point that company has not started commercial operations yet....??

Querist : Anonymous

Querist : Anonymous (Querist)

28 June 2010 hi,

sir is it section 309(5A), (5B)

Querist : Anonymous

Querist : Anonymous (Querist)

28 June 2010 sir kidly guide me on this matter...

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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02 August 2025 Hey! Here’s the breakdown on your urgent query about the Managing Director’s remuneration in an unlisted public company that hasn’t started commercial operations yet:

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### Situation Recap:

* MD reappointed with increased remuneration.
* Remuneration NOT in accordance with Schedule XIII.
* No special resolution passed.
* No Central Government approval obtained.
* Company not started commercial operations.

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### Consequences under Companies Act (prior to Companies Act 2013):

1. **Section 309(5A) and 309(5B)** (as per old Act provisions) are applicable:

* If remuneration exceeds the limits prescribed in Schedule XIII, **the excess remuneration paid is recoverable from the MD**.
* The director has to **refund the excess amount to the company**.
* The excess amount is held by the MD **in trust for the company**.

2. **No penalty or prosecution** is specifically mentioned for the company or the director for non-compliance (except for recovery of excess remuneration).

3. Since the company has not started commercial operations, the limits under Schedule XIII would be stricter or based on fixed rules for “no profit” or “loss-making” companies.

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### Remedies Available:

* The company should immediately **pass a board resolution** to rectify the irregularity.
* The MD should **refund the excess remuneration** paid beyond permissible limits.
* The company can approach the **Central Government for approval retrospectively**, but this is complex and not guaranteed.
* If the company wishes to continue paying higher remuneration, **special resolution** must be passed at the general meeting and approval from Central Government obtained.

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### Additional Notes:

* Since the company is unlisted, Schedule XIII provisions apply but with some flexibility compared to listed companies.
* Post Companies Act 2013, the limits and provisions have changed (Section 197, Schedule V), so if your query is for FY after 2013, different rules apply.

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If you want, I can help draft the required board resolution or a letter to the MD for refund. Need help with that?

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