Independent Directors Remuneration - Section 309(4)

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Vijayamahantesh V. Khannur

Company Secretary

91 Points Posted on 01 February 2011

We want to make payment of remuneration to our independent directors by way of commission not exceeding 1% of net profits. Relating to this I have few queries, if you can please share your ideas.

1. Our financial year is Jan - Dec. We want to make payment of remuneration each quarter after calculating 1%, from the net profit of each quarter. - Is this permissible. Overall limit will be 1% of NP, but we propose to pay every quarter based on quarterly profits, without attracting sec.309(4)(a).

2. We will take approval of shareholders in May. Can we make payment to directors in April which will be approved by members in AGM in May.

3. In case the company goes into huge losses in the last quarter and the remuneration already paid is more than 1% of annual profits, what would be the implication?

If anybody has resolution covering these points, it would be very helpful.

Regards

Vijayamahantesh

Replies (3)

udit sharma

Company Secretary

2303 Points Posted on 01 February 2011

To the best of my knowledge, an Independent Director may be paid remuneration only in any of the two ways mentioned in section 309(4).

In case you wish to pay monthly commission to ID, you will have to obtain the approval of the Central Government.

Experts ur views......pls.

God Bless

CS Udit Sharma

cs ashwini kumar

Company Secretary in Practice

173 Points Posted on 01 February 2011

Dear Vijayamahantesh,

Mr. Udit has rightly said that you will have to follow the provisions of section 309(4) of the Act and accordingly:

(4) A director who is neither in the whole-time employment of the company nor a managing director may be paid remuneration either

(a)

by way of a monthly, quarterly or annual payment with the approval of the Central Government; or

(b)

by way of commission if the company by special resolution authorises such payment:

Further the remuneration whether monthly, quarterly or annual or by way of commission can only be calculated according to provisions of Section 198 read with Section 349 & 350 and Schedule XIV of the Companies Act.

Further the quantum of above said remuneration should not exceed the rate prescribed under the proviso of the said section without approval of the C. Govt.

Hence, you will have to obtain approval of the Central Govt. for payment of commission on quarterly basis.

Opinion of expert is requested

Best Regards

CS Ashwini Kumar

A Rengarajan

Company Secretary

36 Points Posted on 04 February 2011

First you can make him advance amount not quarterly or monthly. Some amount to be paid., Take shareholder permision for 5 years. If there is a shortfall he has to pay back the amount.

Year end please convert the same to remuneration to directors and the same will be within the limit prescribed under section 309