Limit of Directors' remuneration & commission

Section 198 provides that the total managerial remuneration payable to the directors an managing agent or secretaries and treasurers or manager must not exceed eleven percent of the net profits of the company in the financial year. In years of inadequate profits, however, a sum not exceeding Rs. 50,000 may be paid t all the managerial personnel with the approval of the Central Government. The percentage mentioned in the section is exclusive of the fees paid to the directors. Section 309 of the Act provides that a director may receive remuneration by way of a fee fro each meting of the Board or its Committee attended by him. According to a clarification included in the Companies (Amendment) Act of 1965, the remuneration of eh director will be inclusive of the amount payable for services rendered in any other capacity except when they are of a professional nature. 

A whole-time director or managing director cannot receive remuneration (either on a monthly basis or as a percentage of profits) exceeding 5% of the net profits for one such director and 10% for all of them together. The part-time directors who do no receive any monthly sum as remuneration may be paid 1% of the net profits of the company if the company has a managing agent, 'secretaries and treasurers' or manager. If a company has none of these, such a director or directors can get in all 3% of the net profits of the company. These rats may be exceeded by a resolution of the general meeting of the company with the approval of the Central Government. A recent amendment in the companies Act permits companies to make monthly payment to director with Central Government approval and also to pay remuneration over one percent, an three per cent, as the case may be, with the section of the general meeting an the approval of the Government. 

In pursuance of its socio-economic objectives of State policy, the Central Government revised in January 1970 its policy relating to the imposition of ceiling on remuneration of managing whole-time or part-time paid director/manager in public limited companies. The following are the new ceilings on remunerations to directors/managers as laid down by the Government:

(i) A ceiling of Rs. 90,000 per year (Rs. 7,5000 per month) on salary including dearness allowance and other fixed allowances. 

(ii) An absolute ceiling of Rs. 45,00on commission of 10 per cent of net profit; further the commission should not exceed 5 per cent of the salary. 

(iii) A limit of Rs. 1,35,000 per annum where the entire remuneration is paid by way of commission on the net profits.

(iv) The maximum value of perquisites to be one-third of the salary or Rs. 30,00 (Rs. 2,500 per month) whichever is less).

These provisions apply to new appointments and where existing appointments come up for renewal. The Company Law Board has been empowered for making exception in deserving cases such as where higher remunerations have already been drawn or in case of foreigners in subsidiaries of foreign companies or in Indian companies working with foreign collaboration.