Managerial remuneration Sec197 Companies Act



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Overall maximum managerial remuneration #pdf

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197.¬†Overall¬†maximum¬†managerial¬†remuneration¬†and¬†managerial¬†remuneration¬†in¬†case¬†of¬†absence or¬†inadequacy¬†of¬†profits (1)¬†The¬†total¬†managerial¬†remuneration¬†payable¬†by¬†a¬†public¬†company,¬†to¬†its¬†directors, including¬†managing¬†director¬†and¬†whole¬≠time¬†director,¬†and¬†its¬†manager¬†in¬†respect¬†of¬†any financial¬†year¬†shall¬†not¬†exceed¬†eleven¬†per¬†cent.¬†of¬†the¬†net¬†profits¬†of¬†that¬†company¬†for¬†that financial¬†year¬†computed¬†in¬†the¬†manner¬†laid¬†down¬†in¬†section¬†198¬†except¬†that¬†the¬†remuneration of¬†the¬†directors¬†shall¬†not¬†be¬†deducted¬†from¬†the¬†gross¬†profits: Provided¬†that¬†the¬†company¬†in¬†general¬†meeting¬†may,¬†with¬†the¬†approval¬†of¬†the¬†Central Government,¬†authorise¬†the¬†payment¬†of¬†remuneration¬†exceeding¬†eleven¬†per¬†cent.¬†of¬†the¬†net profits¬†of¬†the¬†company,¬†subject¬†to¬†the¬†provisions¬†of¬†Schedule¬†V: Provided¬†further¬†that,¬†except¬†with¬†the¬†approval¬†of¬†the¬†company¬†in¬†general¬†meeting,‚ÄĒ (i)¬†the¬†remuneration¬†payable¬†to¬†any¬†one¬†managing¬†directorÕ嬆or¬†whole¬≠time¬†director or¬†manager¬†shall¬†not¬†exceed¬†five¬†per¬†cent.¬†of¬†the¬†net¬†profits¬†of¬†the¬†company¬†and¬†if¬†there is¬†more¬†than¬†one¬†such¬†director¬†remuneration¬†shall¬†not¬†exceed¬†ten¬†per¬†cent.¬†of¬†the¬†net profits¬†to¬†all¬†such¬†directors¬†and¬†manager¬†taken¬†togetherÕĺ (ii)¬†the¬†remuneration¬†payable¬†to¬†directors¬†who¬†are¬†neither¬†managing¬†directors nor¬†whole¬≠time¬†directors¬†shall¬†not¬†exceed,‚ÄĒ (A)¬†one¬†per¬†cent.¬†of¬†the¬†net¬†profits¬†of¬†the¬†company,¬†if¬†there¬†is¬†a¬†managing or¬†whole¬≠time¬†director¬†or¬†managerÕĺ (B)¬†three¬†per¬†cent.¬†of¬†the¬†net¬†profits¬†in¬†any¬†other¬†case. (2)¬†The¬†percentages¬†aforesaid¬†shall¬†be¬†exclusive¬†of¬†any¬†fees¬†payable¬†to¬†directors¬†under sub¬≠section¬†(5). (3)¬†Notwithstanding¬†anything¬†contained¬†in¬†sub¬≠sections¬†(1)¬†and¬†(2),¬†but¬†subject¬†to the¬†provisions¬†of¬†Schedule¬†V,¬†if,¬†in¬†any¬†financial¬†year,¬†a¬†company¬†has¬†no¬†profits¬†or¬†its¬†profits are¬†inadequate,¬†the¬†company¬†shall¬†not¬†pay¬†to¬†its¬†directors,¬†including¬†any¬†managing¬†or¬†wholetime director¬†or¬†manager,¬†by¬†way¬†of¬†remuneration¬†any¬†sum¬†exclusive¬†of¬†any¬†fees¬†payable¬†to directors¬†under¬†sub¬≠section¬†(5)¬†hereunder¬†except¬†in¬†accordance¬†with¬†the¬†provisions¬†of Schedule¬†V¬†and¬†if¬†it¬†is¬†not¬†able¬†to¬†comply¬†with¬†such¬†provisions,¬†with¬†the¬†previous¬†approval of¬†the¬†Central¬†Government. (4)¬†The¬†remuneration¬†payable¬†to¬†the¬†directors¬†of¬†a¬†company,¬†including¬†any¬†managing or¬†whole¬≠time¬†director¬†or¬†manager,¬†shall¬†be¬†determined,¬†in¬†accordance¬†with¬†and¬†subject¬†to¬†the provisions¬†of¬†this¬†section,¬†either¬†by¬†the¬†articles¬†of¬†the¬†company,¬†or¬†by¬†a¬†resolution¬†or,¬†if¬†the articles¬†so¬†require,¬†by¬†a¬†special¬†resolution,¬†passed¬†by¬†the¬†company¬†in¬†general¬†meeting¬†and the¬†remuneration¬†payable¬†to¬†a¬†director¬†determined¬†aforesaid¬†shall¬†be¬†inclusive¬†of¬†the remuneration¬†payable¬†to¬†him¬†for¬†the¬†services¬†rendered¬†by¬†him¬†in¬†any¬†other¬†capacity: Provided¬†that¬†any¬†remuneration¬†for¬†services¬†rendered¬†by¬†any¬†such¬†director¬†in¬†other capacity¬†shall¬†not¬†be¬†so¬†included¬†if‚ÄĒ (a)¬†the¬†services¬†rendered¬†are¬†of¬†a¬†professional¬†natureÕ嬆and (b)¬†in¬†the¬†opinion¬†of¬†the¬†Nomination¬†and¬†Remuneration¬†Committee,¬†if¬†the¬†company is¬†covered¬†under¬†sub¬≠section¬†(1)¬†of¬†section¬†178,¬†or¬†the¬†Board¬†of¬†Directors¬†in¬†other cases,¬†the¬†director¬†possesses¬†the¬†requisite¬†qualification¬†for¬†the¬†practice¬†of¬†the¬†profession. (5)¬†A¬†director¬†may¬†receive¬†remuneration¬†by¬†way¬†of¬†fee¬†for¬†attending¬†meetings¬†of¬†the Board¬†or¬†Committee¬†thereof¬†or¬†for¬†any¬†other¬†purpose¬†whatsoever¬†as¬†may¬†be¬†decided¬†by¬†the Board: Provided¬†that¬†the¬†amount¬†of¬†such¬†fees¬†shall¬†not¬†exceed¬†the¬†amount¬†as¬†may¬†be¬†prescribed: Provided¬†further¬†that¬†different¬†fees¬†for¬†different¬†classes¬†of¬†companies¬†and¬†fees¬†in respect¬†of¬†independent¬†director¬†may¬†be¬†such¬†as¬†may¬†be¬†prescribed. (6)¬†A¬†director¬†or¬†manager¬†may¬†be¬†paid¬†remuneration¬†either¬†by¬†way¬†of¬†a¬†monthly¬†payment or¬†at¬†a¬†specified¬†percentage¬†of¬†the¬†net¬†profits¬†of¬†the¬†company¬†or¬†partly¬†by¬†one¬†way¬†and¬†partly by¬†the¬†other. (7)¬†Notwithstanding¬†anything¬†contained¬†in¬†any¬†other¬†provision¬†of¬†this¬†Act¬†but¬†subject to¬†the¬†provisions¬†of¬†this¬†section,¬†an¬†independent¬†director¬†shall¬†not¬†be¬†entitled¬†to¬†any¬†stock option¬†and¬†may¬†receive¬†remuneration¬†by¬†way¬†of¬†fees¬†provided¬†under¬†sub¬≠section¬†(5), reimbursement¬†of¬†expenses¬†for¬†participation¬†in¬†the¬†Board¬†and¬†other¬†meetings¬†and¬†profit related¬†commission¬†as¬†may¬†be¬†approved¬†by¬†the¬†members. (8)¬†The¬†net¬†profits¬†for¬†the¬†purposes¬†of¬†this¬†section¬†shall¬†be¬†computed¬†in¬†the¬†manner referred¬†to¬†in¬†section¬†198. (9)¬†If¬†any¬†director¬†draws¬†or¬†receives,¬†directly¬†or¬†indirectly,¬†by¬†way¬†of¬†remuneration¬†any such¬†sums¬†in¬†excess¬†of¬†the¬†limit¬†prescribed¬†by¬†this¬†section¬†or¬†without¬†the¬†prior¬†sanction¬†of¬†the Central¬†Government,¬†where¬†it¬†is¬†required,¬†he¬†shall¬†refund¬†such¬†sums¬†to¬†the¬†company¬†and¬†until such¬†sum¬†is¬†refunded,¬†hold¬†it¬†in¬†trust¬†for¬†the¬†company. (10)¬†The¬†company¬†shall¬†not¬†waive¬†the¬†recovery¬†of¬†any¬†sum¬†refundable¬†to¬†it¬†under sub¬≠section¬†(9)¬†unless¬†permitted¬†by¬†the¬†Central¬†Government. (11)¬†In¬†cases¬†where¬†Schedule¬†V¬†is¬†applicable¬†on¬†grounds¬†of¬†no¬†profits¬†or¬†inadequate profits,¬†any¬†provision¬†relating¬†to¬†the¬†remuneration¬†of¬†any¬†director¬†which¬†purports¬†to¬†increase or¬†has¬†the¬†effect¬†of¬†increasing¬†the¬†amount¬†thereof,¬†whether¬†the¬†provision¬†be¬†contained¬†in¬†the company‚Äôs¬†memorandum¬†or¬†articles,¬†or¬†in¬†an¬†agreement¬†entered¬†into¬†by¬†it,¬†or¬†in¬†any¬†resolution passed¬†by¬†the¬†company¬†in¬†general¬†meeting¬†or¬†its¬†Board,¬†shall¬†not¬†have¬†any¬†effect¬†unless¬†such increase¬†is¬†in¬†accordance¬†with¬†the¬†conditions¬†specified¬†in¬†that¬†Schedule¬†and¬†if¬†such¬†conditions are¬†not¬†being¬†complied,¬†the¬†approval¬†of¬†the¬†Central¬†Government¬†had¬†been¬†obtained. (12)¬†Every¬†listed¬†company¬†shall¬†disclose¬†in¬†the¬†Board‚Äôs¬†report,¬†the¬†ratio¬†of¬†the remuneration¬†of¬†each¬†director¬†to¬†the¬†median¬†employee‚Äôs¬†remuneration¬†and¬†such¬†other¬†details as¬†may¬†be¬†prescribed. (13)¬†Where¬†any¬†insurance¬†is¬†taken¬†by¬†a¬†company¬†on¬†behalf¬†of¬†its¬†managing¬†director, whole¬≠time¬†director,¬†manager,¬†Chief¬†Executive¬†Officer,¬†Chief¬†Financial¬†Officer¬†or¬†Company Secretary¬†for¬†indemnifying¬†any¬†of¬†them¬†against¬†any¬†liability¬†in¬†respect¬†of¬†any¬†negligence, default,¬†misfeasance,¬†breach¬†of¬†duty¬†or¬†breach¬†of¬†trust¬†for¬†which¬†they¬†may¬†be¬†guilty¬†in relation¬†to¬†the¬†company,¬†the¬†premium¬†paid¬†on¬†such¬†insurance¬†shall¬†not¬†be¬†treated¬†as¬†part¬†of the¬†remuneration¬†payable¬†to¬†any¬†such¬†personnel: Provided¬†that¬†if¬†such¬†person¬†is¬†proved¬†to¬†be¬†guilty,¬†the¬†premium¬†paid¬†on¬†such¬†insurance shall¬†be¬†treated¬†as¬†part¬†of¬†the¬†remuneration. (14)¬†Subject¬†to¬†the¬†provisions¬†of¬†this¬†section,¬†any¬†director¬†who¬†is¬†in¬†receipt¬†of¬†any commission¬†from¬†the¬†company¬†and¬†who¬†is¬†a¬†managing¬†or¬†whole¬≠time¬†director¬†of¬†the¬†company shall¬†not¬†be¬†disqualified¬†from¬†receiving¬†any¬†remuneration¬†or¬†commission¬†from¬†any¬†holding company¬†or¬†subsidiary¬†company¬†of¬†such¬†company¬†subject¬†to¬†its¬†disclosure¬†by¬†the¬†company in¬†the¬†Board‚Äôs¬†report. (15)¬†If¬†any¬†person¬†contravenes¬†the¬†provisions¬†of¬†this¬†section,¬†he¬†shall¬†be¬†punishable with¬†fine¬†which¬†shall¬†not¬†be¬†less¬†than¬†one¬†lakh¬†rupees¬†but¬†which¬†may¬†extend¬†to¬†five¬†lakh rupees. 198.¬†Calculation¬†of¬†profits (1)¬†In¬†computing¬†the¬†net¬†profits¬†of¬†a¬†company¬†in¬†any¬†financial¬†year¬†for¬†the purpose¬†of¬†section¬†197,‚ÄĒ (a)¬†credit¬†shall¬†be¬†given¬†for¬†the¬†sums¬†specified¬†in¬†sub¬≠section¬†(2),¬†and¬†credit shall¬†not¬†be¬†given¬†for¬†those¬†specified¬†in¬†sub¬≠section¬†(3)Õ嬆and (b)¬†the¬†sums¬†specified¬†in¬†sub¬≠section¬†(4)¬†shall¬†be¬†deducted,¬†and¬†those¬†specified in¬†sub¬≠section¬†(5)¬†shall¬†not¬†be¬†deducted. (2)¬†In¬†making¬†the¬†computation¬†aforesaid,¬†credit¬†shall¬†be¬†given¬†for¬†the¬†bounties¬†and subsidies¬†received¬†from¬†any¬†Government,¬†or¬†any¬†public¬†authority¬†constituted¬†or¬†authorised in¬†this¬†behalf,¬†by¬†any¬†Government,¬†unless¬†and¬†except¬†in¬†so¬†far¬†as¬†the¬†Central¬†Government otherwise¬†directs. (3)¬†In¬†making¬†the¬†computation¬†aforesaid,¬†credit¬†shall¬†not¬†be¬†given¬†for¬†the¬†following sums,¬†namely:‚ÄĒ (a)¬†profits,¬†by¬†way¬†of¬†premium¬†on¬†shares¬†or¬†debentures¬†of¬†the¬†company,¬†which are¬†issued¬†or¬†sold¬†by¬†the¬†companyÕĺ (b)¬†profits¬†on¬†sales¬†by¬†the¬†company¬†of¬†forfeited¬†sharesÕĺ (c)¬†profits¬†of¬†a¬†capital¬†nature¬†including¬†profits¬†from¬†the¬†sale¬†of¬†the¬†undertaking or¬†any¬†of¬†the¬†undertakings¬†of¬†the¬†company¬†or¬†of¬†any¬†part¬†thereofÕĺ (d)¬†profits¬†from¬†the¬†sale¬†of¬†any¬†immovable¬†property¬†or¬†fixed¬†assets¬†of¬†a¬†capital nature¬†comprised¬†in¬†the¬†undertaking¬†or¬†any¬†of¬†the¬†undertakings¬†of¬†the¬†company, unless¬†the¬†business¬†of¬†the¬†company¬†consists,¬†whether¬†wholly¬†or¬†partly,¬†of¬†buying¬†and selling¬†any¬†such¬†property¬†or¬†assets: Provided¬†that¬†where¬†the¬†amount¬†for¬†which¬†any¬†fixed¬†asset¬†is¬†sold¬†exceeds¬†the written¬≠down¬†value¬†thereof,¬†credit¬†shall¬†be¬†given¬†for¬†so¬†much¬†of¬†the¬†excess¬†as¬†is¬†not higher¬†than¬†the¬†difference¬†between¬†the¬†original¬†cost¬†of¬†that¬†fixed¬†asset¬†and¬†its¬†writtendown valueÕĺ (e)¬†any¬†change¬†in¬†carrying¬†amount¬†of¬†an¬†asset¬†or¬†of¬†a¬†liability¬†recognised¬†in equity¬†reserves¬†including¬†surplus¬†in¬†profit¬†and¬†loss¬†account¬†on¬†measurement¬†of¬†the asset¬†or¬†the¬†liability¬†at¬†fair¬†value. (4)¬†In¬†making¬†the¬†computation¬†aforesaid,¬†the¬†following¬†sums¬†shall¬†be¬†deducted,¬†namely:‚ÄĒ (a)¬†all¬†the¬†usual¬†working¬†chargesÕĺ (b)¬†directors‚Äô¬†remunerationÕĺ (c)¬†bonus¬†or¬†commission¬†paid¬†or¬†payable¬†to¬†any¬†member¬†of¬†the¬†company‚Äôs¬†staff, or¬†to¬†any¬†engineer,¬†technician¬†or¬†person¬†employed¬†or¬†engaged¬†by¬†the¬†company,¬†whether on¬†a¬†whole¬≠time¬†or¬†on¬†a¬†part¬≠time¬†basisÕĺ (d)¬†any¬†tax¬†notified¬†by¬†the¬†Central¬†Government¬†as¬†being¬†in¬†the¬†nature¬†of¬†a¬†tax¬†on excess¬†or¬†abnormal¬†profitsÕĺ (e)¬†any¬†tax¬†on¬†business¬†profits¬†imposed¬†for¬†special¬†reasons¬†or¬†in¬†special circumstances¬†and¬†notified¬†by¬†the¬†Central¬†Government¬†in¬†this¬†behalfÕĺ (f)¬†interest¬†on¬†debentures¬†issued¬†by¬†the¬†companyÕĺ (g)¬†interest¬†on¬†mortgages¬†executed¬†by¬†the¬†company¬†and¬†on¬†loans¬†and¬†advances secured¬†by¬†a¬†charge¬†on¬†its¬†fixed¬†or¬†floating¬†assetsÕĺ (h)¬†interest¬†on¬†unsecured¬†loans¬†and¬†advancesÕĺ (i)¬†expenses¬†on¬†repairs,¬†whether¬†to¬†immovable¬†or¬†to¬†movable¬†property,¬†provided the¬†repairs¬†are¬†not¬†of¬†a¬†capital¬†natureÕĺ (j)¬†outgoings¬†inclusive¬†of¬†contributions¬†made¬†under¬†section¬†181Õĺ (k)¬†depreciation¬†to¬†the¬†extent¬†specified¬†in¬†section¬†123Õĺ (l)¬†the¬†excess¬†of¬†expenditure¬†over¬†income,¬†which¬†had¬†arisen¬†in¬†computing¬†the net¬†profits¬†in¬†accordance¬†with¬†this¬†section¬†in¬†any¬†year¬†which¬†begins¬†at¬†or¬†after¬†the commencement¬†of¬†this¬†Act,¬†in¬†so¬†far¬†as¬†such¬†excess¬†has¬†not¬†been¬†deducted¬†in¬†any subsequent¬†year¬†preceding¬†the¬†year¬†in¬†respect¬†of¬†which¬†the¬†net¬†profits¬†have¬†to¬†be ascertainedÕĺ (m)¬†any¬†compensation¬†or¬†damages¬†to¬†be¬†paid¬†in¬†virtue¬†of¬†any¬†legal¬†liability including¬†a¬†liability¬†arising¬†from¬†a¬†breach¬†of¬†contractÕĺ (n)¬†any¬†sum¬†paid¬†by¬†way¬†of¬†insurance¬†against¬†the¬†risk¬†of¬†meeting¬†any¬†liability such¬†as¬†is¬†referred¬†to¬†in¬†clause¬†(m)Õĺ (o)¬†debts¬†considered¬†bad¬†and¬†written¬†off¬†or¬†adjusted¬†during¬†the¬†year¬†of¬†account. (5)¬†In¬†making¬†the¬†computation¬†aforesaid,¬†the¬†following¬†sums¬†shall¬†not¬†be¬†deducted, namely:‚ÄĒ (a)¬†income¬≠tax¬†and¬†super¬≠tax¬†payable¬†by¬†the¬†company¬†under¬†the¬†Income¬≠tax Act,¬†1961,¬†or¬†any¬†other¬†tax¬†on¬†the¬†income¬†of¬†the¬†company¬†not¬†falling¬†under¬†clauses¬†(d) and¬†(e)¬†of¬†sub¬≠section¬†(4)Õĺ (b)¬†any¬†compensation,¬†damages¬†or¬†payments¬†made¬†voluntarily,¬†that¬†is¬†to¬†say, otherwise¬†than¬†in¬†virtue¬†of¬†a¬†liability¬†such¬†as¬†is¬†referred¬†to¬†in¬†clause¬†(m)¬†of¬†sub¬≠section¬†(4)Õĺ (c)¬†loss¬†of¬†a¬†capital¬†nature¬†including¬†loss¬†on¬†sale¬†of¬†the¬†undertaking¬†or¬†any¬†of¬†the undertakings¬†of¬†the¬†company¬†or¬†of¬†any¬†part¬†thereof¬†not¬†including¬†any¬†excess¬†of¬†the written¬≠down¬†value¬†of¬†any¬†asset¬†which¬†is¬†sold,¬†discarded,¬†demolished¬†or¬†destroyed over¬†its¬†sale¬†proceeds¬†or¬†its¬†scrap¬†valueÕĺ (d)¬†any¬†change¬†in¬†carrying¬†amount¬†of¬†an¬†asset¬†or¬†of¬†a¬†liability¬†recognised¬†in equity¬†reserves¬†including¬†surplus¬†in¬†profit¬†and¬†loss¬†account¬†on¬†measurement¬†of¬†the asset¬†or¬†the¬†liability¬†at¬†fair¬†value.



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