MANAGERIAL REMUNERATION

Every Director including Executive and Non-Executive can be paid remuneration except an Independent Director. In pursuance of Section 197(7) an Independent Director is not entitled for any Stock Options an Independent Director is entitled for following payments only

In case a Public Company require to pay a managerial remuneration in excess of 11% of the net profit of the company than company require approval of member via Ordinary Resolution and  Central Government herein referred as “CG” Approval



In case a Public Company require to pay a remuneration in excess of limit from “Clause b to  ClauseE” above approval of the member is required via Ordinary Resolution

Part II Schedule V deals with the remuneration of director in case of inadequate profits or no profits

Where companies do not have adequate profits, the remuneration payable is computed with reference to the remuneration computed using effective capital (A) and current relevant profit (B), whichever is higher.

Effective Capital=PUC + Reserves and Surplus+ Long Term Loans +Deposits Repayable After One Year +Accumulated Losses And Preliminary Expenses Not Written Off

Remuneration cannot be paid exceeding the following limits as under without the approval of the Central Government:

A Managerial Person who was not a security holder holding securities of the company of nominal value of rupees five lakh or more or an employee or a director of the company or not related to any director or managerial person at any time during the two years prior to his appointment as a managerial person is eligible for 2.5% of the current relevant profit.


The limits, as stated above in both the situations (A) and (B), can be doubled through a special resolution passed by the shareholders



Perquisites -Following perquisites not be included in the above limit in case there are inadequate or no profit
(a) Contribution to provident fund, superannuation fund or annuity fund to the extent these either singly or puttogether are not taxable under the Income-tax Act, 1961 (43 of 1961);


(b) Gratuity payable at a rate not exceeding half a month’s salary for each completed year of service; and


(c) Encashment of leave at the end of the tenure.


Further for an expatriate there are certain other perquisites Children’s Education Allowance, Holiday Passage for Children and Leave Travel Concession


Procedure /Prerequisites to remuneration under Schedule V

• a. Board Resolution-Approval of remuneration
• b. Special Resolution-Payment of remuneration for a Period not exceeding 3 years
• c. No default in payment of debts including public deposits
• d. Special resolution- To pay above remuneration double the above limit.

 

• II. Payment of managerial remuneration in having no or inadequate profit without CG Approval in case of Special Circumstances

Company may without the CG Approval can pay remuneration in excess of the amount specified in Section II of Schedule V as expounded in Part I above

• a. Remuneration is paid by any other company- Remuneration is paid by any other company and that other company is either a foreign company or has got the approval of its shareholders in general meeting to make payment and treat this amount as total managerialremuneration payable by the other company to its managerial persons including the amount or amounts whichis within permissible limits under section 197
• b. Newly Incorporated Company- Remuneration up to two times the amount permissible can be paid in case of Company is newly incorporated and the period is less than seven years from the date of incorporation
• c. Sick Company- Remuneration up to two times the amount permissible can be paid in case of Company who is a sick company and a scheme of revival or rehabilitation has been ordered by the Board for Industrial and Financial Reconstruction or National Company Law Tribunal for a period of five years from the date of sanction of scheme

And in addition the following conditions are to be met :

• a. Managerial person is not receiving remuneration from any other company except from a company which is a foreign company and has its approval from shareholders in a general meeting and the remuneration is within the allowable limits.
• b. The auditor or Company Secretary of the company or in his absence, a secretary in whole time practice certifies that all secured creditors and term lenders have stated in writing that they have no objection for the appointment of the managerial person and the quantum of remuneration

• Special Economic Zone – The Company in a special economic zone as notified by department of commerce from time to time and is a company:

(i) which has not raised any money by public issue of shares or debentures in India and


(ii) has not made any default in India in repayment of any of its debts, including public deposits, or debenturesor interest payable thereon for a continuous period of thirty days in any financial year, may pay remuneration up to Rs 2, 40, 00,000 per annum