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Remuneration to director

Neha Khunteta (Practicing Company Secretary) (51 Points)

11 July 2012

Hiiiii,

I have a query.

In one of my case, there is a public Limited Company (Paid up Capital Rs. 1 Crore) in which there are 3 directors (ordinary) and there are no MD/WTD (managerial personnel).

Profit of the company is Rs. 18.00 lacs for FY 2011-2012.

Company has paid Rs. 1.00 per month as remuneration to all the 3 directors for the year 2011-2012.

My query is

1. what is the maximum amount of remuneration payable by the company to these ordinary directors ? ;

2. what we should do now with the excess payment of remuneration ?

Pls reply asap, matter is exceptionally urgent.

Thanks

Neha Khunteta

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8 Replies

Saurabh Maheshwari (B.com,ACA) (5923 Points)
Replied 11 July 2012

Please visit the discussion /experts/remuneration-limit-for-directors-897425.asp

and if you want to pay remuneration in excess of limit prescribed you are required to obtain the approval of Central Govt.

Thanks

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(Guest)

Hi,

You can pay max 3% of net profit calculated as per section 198 to all your 3 directors in any proportion as may be agreed as per section 309 (4).

Take approval of sharholders in back date since it is prior approval before paying remuneration of 3%.

Regards

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CMA. CS. Sanjay Gupta ("PROUD TO BE AN INDIAN") (114230 Points)
Replied 11 July 2012

Ceiling on remuneration of ordinary or non-executive directors

Sections 309(4) and 309(7) deals with remuneration payable to the part time directors, that is to say the directors who are neither in the whole-time employment of the company nor a managing director, within the overall limit stipulated in section 198(1) and further in section 309(4) itself. Section 309(4) authorises payment of remuneration to part time directors in two alternative ways:—

(i) by way of monthly, quarterly or annual payment with the approval of the Central Government; and/or

(ii) by way of commission without the approval of the Central Government, subject to the approval of the members by way of special resolution.

Therefore, if the commission payable exceeds the limit, payment can be made only with the approval of the Central Government.

Section 309(4) provides that a director or directors who is/are not managing or whole-time directors may be paid remuneration periodically with the approval of the Central Government or may be paid commission, provided the said remuneration shall not exceed 1% of the net profits if the company has a managing or whole-time director and 3% in other cases. The net profits shall be computed in terms of sections 198, 349 and 350 of the Act.

Besides the approval of the Central Government, no payment to non-executive directors without the prior approval of the company in general meeting accorded by a special resolution in terms of section 309(4) can be made.

The special resolution passed under section 310(4)(b) is valid for a period of 5 years at a time, it may be renewed for a further period of five years at a time and any renewal must be done not earlier than one year from the date on which it is to come into force.[Sec 309(7)]

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CMA. CS. Sanjay Gupta

3 % of Rs. 18.00 lacs i.e. Rs. 54000/-

What is the treatment of excess payment of remuneration ?

CMA. CS. Sanjay Gupta ("PROUD TO BE AN INDIAN") (114230 Points)
Replied 11 July 2012

Neha Jee i think 3% is in the case of Commission. If remuneration paid by way of monthly, quarterly or annual payment with the approval of the Central Government limit shall be 11% as mentioned in Sec 198(1). Please correct me if i am wrong.

Further, if any director draws remuneration in excess of the limits provided in section 309 or without the approval of the Central Government, where required, he shall refund such excess to the company unless on an application made by the company, the Government waives the recovery for good and sufficient reasons. The application may be made in the form of a letter after it is approved by the Board. Such waiver of excess remuneration also requires the approval of members.

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(Guest)

Hi Sanjay Jee,

1% or 3% is applicable for all payment of remuneration inclusive of Commission and remuneration paid by way of monthly, quarterly or annual payment with the approval of the Central Government.

Check the proviso to section 309 (4) it uses the word remuneration not commission for specifying d ceiling of 3% and 1%

Regards

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