Appointment and Remuneration of Managerial Personnel

Definition of terms used in Company Act, 2013

"Chief Executive means an officer of a company, who has been designated as such
Officer" [Section 2(18)] by it.

"Chief Financial Officer" means a person appointed as the Chief Financial Officer of a
[Section 2(19)] company.

"Company Secretary" means a company secretary as defined in clause (c) of sub-

or "secretary" [Section section (1) of section 2 of the Company Secretaries Act, 1980
2(24)] (56 of 1980) who is appointed by a company to perform the
functions of a company secretary under this Act;

"Company secretary in means a company secretary who is deemed to be in practice

practice" [Section under sub-section (2) of section 2 of the Company Secretaries
2(25)] Act, 1980 (56 of 1980).

"Key managerial in relation to a company, means:-

personnel" [Section a) the Chief Executive Officer or the managing director
2(51)], or the manager;
b) the company secretary;
c) the whole-time director;
d) the Chief Financial Officer; and

such other officer as may be prescribed.

means an individual who, subject to the superintendence,

"Manager" [Section control and direction of the Board of Directors, has the
2(53)] management of the whole, or substantially the whole, of the
affairs of a company, and includes a director or any other
person occupying the position of a manager, by whatever name
called, whether under a contract of service or not.
Managing Director Section 2(54) of the Companies Act, 2013 defines a “Managing
[Section 2(54)]: Director” as a director who is entrusted with substantial
powers of management of the affairs of the company by:-

a) virtue of the articles of a company or

b) an agreement with the company or

c) a resolution passed in its general meeting, or by its

Board of Directors,

and includes a director occupying the position of the managing

director, by whatever name called.

Explanation to Section 2 (54) clarifies that substantial powers

of the management shall not be deemed to include the power to
do such administrative acts of a routine nature when so
authorised by the Board such as:

(i) the power to affix the common

seal of the company to any document
or
(ii) to draw and endorse any cheque
on the account of the company in any
bank or
(iii) to draw and endorse any
negotiable instrument or
(iv) to sign any certificate of share or
(v) to direct registration of transfer
of any share.

Whole Time Director “Whole-time director” includes a director in the whole- time
[Section 2(94)]: employment of the company.
 SECTION 196
APPOINTMENT OF MANAGING DIRECTOR, WHOLE TIME DIRECTOR
OR MANAGER

Section 196:- Provides for the provisions for appointment of Managing Director, Whole Time
Director or Manager:-

Section 196(1):- Company shall not appoint or employ a managing director and a manager at the same
time.

(i) No company shall appoint or re-appoint any person as its

Tenure managing director, whole- time director or manager for a
[Section 196(2)] term exceeding five years at a time.

[Note:- Not Apply to (ii) It is further provided that no re-appointment shall be

Govt. Company.] made earlier than one year before the expiry of his term.

No company shall appoint or continue the employment of any person

Disqualification as managing director, whole-time director or manager who-

Section 196(3) (a) is below the age of 21 years or has attained the age of 70
+ years.
Schedule V
Where no such special
Note 1:- A person who has attained the age of seventy years may be
resolution is passed but appointed to such office by the passing of a special resolution.
votes cast in favour of
the motion exceed the But need the explanatory statement annexed to the notice for such
votes, if any, cast against motion shall indicate the justification for appointing such person.
the motion and the
Central Government is (b) is an undischarged insolvent or has at any time been
satisfied, on an adjudged as an insolvent; or
application made by the
Board, that such (c) has at any time suspended payment to his creditors or makes,
appointment is most or has at any time made, a composition with them; or
beneficial to the
company, the
(d) has at any time been convicted by a court of an offence and
appointment of the
person who has attained sentenced for a period of more than six months.
the age of seventy years
may be made.”; in sub-
section (4), for the
words “specified in that
Schedule”, the words
“specified in Part I of
that Schedule.
 `

Some condition as accordance with Schedule V for

appointment without approval of Central Government:-

(i) he had not been sentenced to imprisonment for any period, or

to a fine exceeding one thousand rupees, for the conviction of
an offence under 16 Acts as specified under Schedule V.

(ii) he had not been detained for any period under the
Conservation of Foreign Exchange and Prevention of
Smuggling Activities Act, 1974:

Note:- No further approval of the Central Government shall be

necessary for the subsequent appointment of that person if he had not
been so convicted or detained subsequent to such approval. If his
appointment was made by Central government approval.

(iii) where he is a managerial person in more than one

company, he draws remuneration from one or more
companies subject to the ceiling provided in section V of Part-
II

(iv) he is resident of India.

Note:- A non- Resident of India.

resident in India
shall enter India
only after
obtaining a
proper
Employment Visa
from the concerned
Indian mission
abroad. For this A person who has And who has come to This Condition
purpose, such been staying in stay in India:- shall not apply
person shall be India for a to the
required to furnish, continuous period of companies in
along with the visa
(a) for taking up
not less than twelve employment in Special
application form,
months immediately India; or Economic
profile of the
company, the preceding the date of Zones as
principal employer his appointment as a (b) for carrying on a notified by
and terms and managerial person business or Department of
conditions of such vacation in India. Commerce
person’s from time to
appointment. time.
Procedure for Subject to the provisions of section 197 and Schedule V, the
terms and conditions of such appointment and remuneration
Appointment
payable be:-
[Section 196(4)] (a) approved by the Board of Directors at a meeting.
[Note:- Not Apply to (b) approved by shareholders by a resolution at the next
Govt. Company, general meeting of the company.
Specified IFSC
Public Company
Appointment shall be
and Private
Company.] Appointment is at approved by the Central
variance to the Government.
conditions specified in
the Schedule V.
The notice shall include the
terms and conditions of such
A return in the prescribed form shall appointment, and such other
be filed with the Registrar within matters of appointments.
sixty days.

Subject to the provisions of this Act, where an appointment of a

Validity of acts managing director, whole-time director or manager is not approved
[Section 196(5)] by the company at a general meeting, any act done by him before
such approval shall deemed to be valid.
[Note:- Not Apply to
Govt. Company and
Private Comapany.]
 SECTION 203
APPOINTMENT OF KEY MANAGERIAL PERSONNEL

Section 203 of the Companies Act, 2013 lays down the provisions for appointment of Key
Managerial Personnel of companies.

Section 203(1):-

Every company belonging to such class or classes of companies as may be prescribed, shall
have the following whole time key managerial personnel:-

(a) Managing Director, or

(b) Chief Executive Officer or

(c) Manager and in their absence, a Whole-time Director;

(d) Company Secretary; and

(e) Chief Financial Officer.

According to Rule 8 and Rule 8A of the Companies (Appointment and Remuneration of

Managerial Personnel) Rules, 2014:-

(i) Every listed company and

(ii) Every other public company having:-

(a) A paid-up share capital of Rs. 10 crore or more shall have whole-time key
managerial personnel. ( Rule 8).

(b) A company not covered under Rule 8 above, which has a paid up share
capital of Rs. 5 crore or more shall have a whole- time company secretary.
 [Proviso to section 203(1)]
Prohibition on individual to be appointed as chairperson as well as
Managing Director or Chief Executive Officer at the same time

[First proviso to section 203(1)] [Second proviso to section 203(1)]

An individual shall not be appointed or Provided that the above mentioned prohibition
reappointed as the chairperson of the shall not apply to such class of companies
(Public Company) engaged in multiple businesses
company, in pursuance of the articles of the
and which has appointed one or more Chief
company, as well as the managing director or Executive Officers for each such business as may
Chief Executive Officer of the company at the be notified by the Central Government.
same time unless:- (a) Having Paid-up share capital of Rs. 100 crore
(a) the articles of such a company or more and
provide otherwise; or (b) Annual turnover of Rs. 1,000 or more which
(b) the company does not carry multiple are engaged in multiple businesses and have
businesses. appointed Chief Executive Officer for each
such business.

[Section 203 (2)]:-

Every whole-time key managerial personnel of a
Conditions for appointment: company shall be appointed by means of a
resolution of the Board containing the terms
and conditions of the appointment including the
remuneration.

[Section 203 (3)]:- A whole-time key managerial personnel shall not

hold office in more than one company at the
KMP shall not hold office in more than same time except in its subsidiary company.
one company
Note 1:- Provided that nothing in the above sub
section shall disentitle a key managerial
personnel from being a director in any company
with the permission of the Board.

Note 2:- A company may appoint or employ a

person as its managing director, if he is the
managing director or manager of one, and of not
more than one, other company. (This shall be
approved by Resolution and specific notice of
such meeting, and of the resolution to be moved
thereat has been given to all the directors then in
India and with the consent of all the directors
present at the meeting.)
[Section 203 (4)]:-

Casual Vacancy If the office of any whole-time KMP is vacated,

the resulting vacancy shall be filled-up by the
[The provisions of sub-section (1), (2), (3) Board at a meeting of the Board within a period
and (4) of this section shall not apply to a of six months from the date of such vacancy.
managing director or Chief Executive
Officer or manager and in their absence, a
whole-time director of the Government
company.]

[Section 203 (5)]:-

Penalty for contravention

On director and KMP:-

On company:-
Fine:- May extend to Rs. 50,000 and
Fine:- Shall not be less than Rs. 1 lac
in case of continuing further fine
but may extend to Rs. 5 Lacs.
which may extend to Rs. 1,000 for
every day.
 SECTION 197
OVERALL MAXIMUM MANAGERIAL REMUNERATION AND MANAGERIAL
REMUNERATION IN CASE OF ABSENCE OR INADEQUACY OF PROFITS

Note 1:- This section does not apply to the private company, Government Company
and Specified IFSC Public Company.

Section 197 of the Companies Act, 2013 lays down the provisions for overall maximum
managerial remuneration by every public company and managerial remuneration in
case of absence or inadequacy of profits. The section read with Schedule V defines
maximum remuneration payable to KMPs.

[Section 197(1)]:-

Note:- In case of Nidhis, second proviso to sub-section (1) of section 197 shall apply with
the modification that the remuneration of a director who is neither managing director
nor whole-time director or manager for performing special services to the Nidhis
specified in the articles of association may be paid by way of monthly payment subject
to the approval of the company in general meeting and also to the provisions of section
197:

Provided that no approval of the company in general meeting shall be required where,-
(a) a Nidhi does not have a managing director or a whole-time director or a
manager;
(b) the remuneration payable during a financial year to all the directors of the Nidhi
does not exceed ten per cent. of the net profits of such Nidhi or fifteen lakh
rupees, whichever is less; and
(c) a remuneration payable under clause (b) is approved by a special resolution
passed in this behalf by the Nidhi (Notification No. G.S.R. 465(E) dated 5 th
June, 2015
 Overall Maximum Managerial Remuneration:-

The overall managerial remuneration to the Directors including managing director,

whole time director and manager in respect of any financial year is summarized as
under:-

Maximum Conditions when

Conditions remuneration in remuneration can exceed
S. No. any financial as referred in column (b)
year

(a) (b) (c)

(i) 11% of the net Company in general meeting

Overall limit profits of the with approval of Central
company for that Government subject to
financial year provisions of Schedule V.

(ii) If there is one 5% of the net With the approval of the

Managing director/ profits of the company in general meeting
Whole time company for that this limit may be exceeded.
director/ manager year

(iii) If there is more 10% of the net With the approval of the
than one Managing profits company in general meeting
director/ Whole this limit may be exceeded.
time director/
manager
 1% of the net
(iv) If there is directors profits of the Approval of the company in
who are neither company if there general meeting is required.
Managing director is a managing
nor whole time director or a
directors whole time
director

(v) If there are 3% of the net Approval of the company in

directors who are profits of the general meeting is required.
neither Managing company if there
director nor whole is no managing
time directors director or whole
time director

[Section 197(2)]
The above percentages shall be exclusive of any
fees payable to directors under section 197(5) and
Section 197(8) further provides that the net
profits shall be computed in the manner laid down
in section 198 except that the remuneration of the
directors shall not be deducted from the gross
profits.

[Section 197(3) & (11)]

The company shall not pay by way of
remuneration any sum exclusive of sitting fees to
its directors, including any managing or whole-
time director or manager except in accordance
with the provisions of Schedule V.
If company has no profits or profits
are inadequate
Note 1:- If the company is not able to comply with
such provisions of Schedule V in the above case,
then previous approval of the Central Government
shall be taken.
 In cases of no profits or inadequate profits:-

Section II of part II of Schedule V:-

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’s memorandum Where in any financial year during the
or articles, or in an agreement entered into currency of tenure of a managerial person, a
by it, or in any resolution passed by the company has no profits or its profits are
company in general meeting or its Board, inadequate, it may, without Central
shall not have any effect unless such Government approval, pay remuneration to
increase is in accordance with the the managerial person not exceeding, the
conditions specified in that Schedule and if limits under (A) and (B) given below:-
such conditions are not being complied,
the approval of the Central Government
had been obtained.

Limit of yearly
S. No. Where the effective remuneration
capital is payable shall not
exceed (Rupees)

limits shall be pro- rated.

Note 2:- A period less than one year, the
special resolution.
resolution passed by the shareholders is a
Note 1:- Limits shall be doubled if the
(i) Negative or less than 5 crores 60 Lakhs

(ii) 5 crores and above but less 84 Lakhs

than 100 crores

(iii) 100 crores and above but less 120 Lakhs

than 250 crores

(iv) 250 crores and above 120 lakhs plus 0.01%

of the effective
capital in excess of `
250 crores:

Note:- In case of a managerial person who is functioning in a professional capacity, no

approval of Central Government is required, if such managerial person is not having
any interest in the capital of the company or its holding company or any of its
subsidiaries directly or indirectly or through any other statutory structures and not
having any, direct or indirect interest or related to the directors or promoters of the
company or its holding company or any of its subsidiaries at any time during the
last two years before or on or after the date of appointment and possesses graduate
level qualification with expertise and specialised knowledge in the field in which the
company operates:
Note 2:- Provided that any employee of a company holding shares of the company
not exceeding 0.5% of its paid up share capital under any scheme formulated for
allotment of shares to such employees including Employees Stock Option Plan or by
way of qualification shall be deemed to be a person not having any interest in the
capital of the company;

Important:- Provided further that the limits specified under items (A) and (B) of this
section shall apply, if-

a) Payment of remuneration is approved by a resolution passed by the Board

and, in the case of a company covered under sub-section (1) of suction 178
also by the Nomination and Remuneration Committee;

b) the company has not committed any default in repayment of any of its debts
(including public deposits) or debentures or interest payable thereon for a
continuous period of thirty days in the preceding financial year before the
date of appointment of such managerial person and in case of a default, the
company obtains prior approval from secured creditors for the proposed
remuneration and the fact of such prior approval having been obtained is
mentioned in the explanatory statement to the notice convening the general
meeting;

c) an ordinary resolution or a special resolution, as the case may be, has been
passed for payment of remuneration as per the limits laid down in item (A)
or a special resolution has been passed for payment of remuneration as per
item (13), at the general meeting of the company for a period not exceeding
three years.

d) a statement along with a notice calling the general meeting referred to in

clause (iii) is given to the shareholders containing the following information,
namely:-

 General information:-

i) Nature of industry

ii) Date or expected date of commencement of commercial production

Note:- In case of new companies, expected date of commencement of activities as per

project approved by financial institutions appearing in the prospectus.

iii) Financial performance based on given indicators,

iv) Foreign investments or collaborations, if any.

 Information about the appointee:

a) Background details
b) Past remuneration
c) Recognition or awards
 d) Job profile and his suitability
e) Remuneration proposed
f) Comparative remuneration profile with respect to industry, size of the
company, profile of the position and person (in case of expatriates the
relevant details would be with respect to the country of his origin)
g) Pecuniary relationship directly or indirectly with the company, or
relationship with the managerial personnel, if any.

 Other information:
i) Reasons of loss or inadequate profits
ii) Steps taken or proposed to be taken for improvement
iii) Expected increase in productivity and profits in measurable terms

Disclosures: The following disclosures shall be mentioned in the Board of Director’s

report under the heading “Corporate Governance”, if any, attached to the Financial
statement:

Section 197(4)
Determination of remuneration

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 :-

a) The articles of the company, or

b) A resolution or,

c) If the articles so require, by a special resolution,

passed by the company in general meeting.

Note 1:- The above remuneration payable shall be inclusive of the remuneration
payable to him for the services rendered by him in any other capacity.

Note 2:-Any remuneration for services rendered by any such director in other
capacity shall not be so included if:-

i) the services rendered are of a professional nature; and

ii) 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.
 Section 197(5)
Sitting Fees to directors

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.

As per the Companies (Appointment and Remuneration of Managerial personnel)

Rules, 2014:-
Sitting fees shall not exceed one lakh rupees per meeting of the Board or committee
thereof.

For Independent Directors and Women Directors, the sitting fee shall not be less than the sitting
fee payable to other directors.
Different fees for different classes of companies and fees in respect to independent directors
may be such as may be prescribed.

Note:- The percentages under sub-section (1) shall be exclusive of any sitting fees
payable to directors for attending meetings of the Board or committee thereof or for
any other purpose whatsoever as may be decided by the Board.

•A director or manager may be paid •Notwithstanding anything contained in any

remuneration either by way of a other provision of this Act but subject to the
monthly payment or at a specified provisions of this section, an independent
percentage of the net profits of the director shall not be entitled:-
company or partly by one way and •Any stock option and may receive remuneration
partly by the other. by way of sitting fees in terms of section 197(5),
•reimbursement of expenses for participation in
the Board and other meetings; and
•profit related commission as may be approved
by the members.
Section 197(6)
Section 197(7)
Mode of Payment of
remuneration Restriction on remuneration of ID

•If any director draws or receives, directly or

indirectly, by way of remuneration any such •The company shall not waive the recovery of any
sums in excess of the limit prescribed by sum refundable to it under sub-section(9) unless
this section or without the prior sanction of permitted by the Central Government.
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.
Section 197(9)
Section 197(10)
Refund of excess remuneration
paid
 [Section 197(12)]
Disclosure by listed company

i) Disclose in the Board’s report,

ii) Ratio of the remuneration of each director to the median employee’s remuneration and
such other details as may be prescribed. (Rule 5 of the Companies (Appointment and
Remuneration of Managerial personnel) Rules, 2014.)

The details are prescribed under the Rule 5:-

The board’s report shall include a statement showing the names of the top ten employees in
terms of remuneration drawn and the name of every employee, who-

a) if employed throughout the financial year, was in receipt of remuneration for that
year which, in the aggregate, was not less than one crore and two lakh rupees;

b) if employed for a part of the financial year, was in receipt of remuneration for any part
of that year, at a rate which, in the aggregate, was not less than eight lakh and fifty
thousand rupees per month;

c) if employed throughout the financial year or part thereof, was in receipt of

remuneration in that year which, in the aggregate, or as the case may be, at a rate which,
in the aggregate, is in excess of that drawn by the managing director or whole-time
director or manager and holds by himself or along with his spouse and dependent
children, not less than two percent of the equity shares of the company.

The statement referred to in above para (b) shall also indicate some particulars of the above
employees like:-

a) Designation, remuneration received, nature of employment, qualification and

experience, date of commencement of employment, age, last employment
held by such employee before joining the company,

b) The percentage of equity shares held by the employee in the company within
the meaning of clause (iii) of para (b) above, and

c) Whether any such employee is a relative of any director or manager of the

company and if so, name of such director or manager.
 Section 197(13)
Insurance for indemnification

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.

Section 197(14):- Section 197(15):-

Receiving Commission Contravention

 Subject to the provisions of this Any person contravenes

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 Fine:- shall not May be
disqualified from receiving any be less than Rs. 1 extended to 5
remuneration or commission from Lakh, lakh.
any holding company or
subsidiary company of such
company subject to its disclosure
by the company in the Board’s
report.

Summary:-
 SECTION 198
CALCULATION OF PROFITS

According to section 198 of the Companies Act, 2013:-

Net profits for the purpose of managerial remuneration payable under section
197 shall be calculated as follows:-

Credit shall be given for the sums specified in section 198(2):-

Add: 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.

Credit shall not be given for those specified in section 198(3) Less: (if credited to the
P & L A/c for arriving at Profit before tax:-

a) profits, by way of premium on shares or debentures of the company, which are

issued or sold by the company;

b) profits on sales by the company of forfeited shares;

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 thereof;

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:

Note:- 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 written - down value;

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.
 Sums specified in section 198(4) shall be deducted:-

a) all the usual working charges;

b) directors’ remuneration;

c) bonus or commission paid or payable to any member of the company’s staff, or to any
engineer, technician or person employed or engaged by the company, whether on a
whole-time or on a part-time basis;

d) any tax notified by the Central Government as being in the nature of a tax on excess
or abnormal profits;

e) any tax on business profits imposed for special reasons or in special circumstances
and notified by the Central Government in this behalf;

f) interest on debentures issued by the company;

g) interest on mortgages executed by the company and on loans and advances secured
by a charge on its fixed or floating assets

h) interest on unsecured loans and advances;

i) expenses on repairs, whether to immovable or to movable property, provided the

repairs are not of a capital nature;

j) outgoings inclusive of contributions made under section 181;

k) depreciation to the extent specified in section 123;

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
ascertained;

m) any compensation or damages to be paid in virtue of any legal liability including a

liability arising from a breach of contract;

n) any sum paid by way of insurance against the risk of meeting any liability such as is
referred to in clause (m) above;

o) debts considered bad and written off or adjusted during the year of account.
 Sums specified in section 198(5) shall not be deducted:

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) of Section 198;

b) any compensation, damages or payments made voluntarily, that is to say,

otherwise than in the nature of a liability such as is referred to in clause (m) of
sub-section (4) of section 198;

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 value;

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.

SECTION 199
RECOVERY OF MANAGERIAL REMUNERATION IN CERTAIN CASES

Without prejudice to any liability incurred under the provisions of this Act or any
other law for the time being in force, where a company is required to re-state its
financial statements due to fraud or non-compliance with any requirement under this
Act and the rules made thereunder, the company shall recover from any past or
present managing director or whole-time director or manager or Chief Executive
Officer (by whatever name called) who, during the period for which the financial
statements are required to be re-stated, received the remuneration (including stock
option) in excess of what would have been payable to him as per restatement of
financial statements.
 SECTION 200
CENTRAL GOVERNMENT OR COMPANY TO FIX LIMIT WITH REGARD
TO REMUNERATION

Notwithstanding anything contained in this Chapter, the Central Government or a

company may, while according its approval under section 196, to any appointment or
to any remuneration under section197 in respect of cases where the company has
inadequate or no profits, fix the remuneration within the limits specified in this Act, at
such amount or percentage of profits of the company, as it may deem fit and while
fixing such remuneration the Central Government shall have regard to:

a) the financial position of the company;

b) the remuneration or commission drawn by the individual concerned
in any other capacity;
c) the remuneration or commission drawn by him from any other
company;
d) professional qualifications and experience of the individual
concerned;
e) any other matters as may be prescribed.

According to Rule 6 of the Companies (Appointment and Remuneration of

Managerial Personnel) Rules, 2014, for the purposes of clause (e) above the Central
Government or the company shall have regard to the following matters, namely:-

a) The Financial and operating performance of the company during the three
preceding financial years.

b) The relationship between remuneration and performance.

c) The principle of proportionality of remuneration within the company, ideally by a

rating methodology which compares the remuneration of directors to that of
other directors on the board and employees or executives of the company.

d) Whether remuneration policy for directors differs from remuneration policy for
other employees and if so, an explanation for the difference.

e) The securities held by the director, including options and details of the shares
pledged as at the end of the preceding financial year.
 SECTION 201
FORMS OF, AND PROCEDURE IN RELATION TO, CERTAIN
APPLICATIONS

When the company is not complying with condition given in Schedule V, then the
company would apply to Central Government for approval and the process for
approval is given in section 201.

Every application made to the Central Government under this Chapter shall be in
prescribed form and shall be accompanied by fee as may be specified for the
purpose.

Before any application is made by a company to the Central Government under any of
the sections aforesaid, there shall be issued by or on behalf of the company a general
notice to the members thereof, indicating the nature of the application proposed to be
made.

Such notice shall be published at least once in a newspaper in the principal language
of the district in which the registered office of the company is situate and circulating
in that district, and at least once in English in an English newspaper circulating in
that district.

The copies of the notices, together with a certificate by the company as to the due
publication thereof, shall be attached to the application.

Rule 7 of the Companies (Appointment and Remuneration of Managerial

Personnel) Rules, 2014:-
The companies other than listed companies and subsidiary of a listed company may
without Central Government approval pay remuneration to its managerial personnel, in
the event of no profit or inadequate profit beyond ceiling specified in Section II, Part II of
Schedule V, subject to complying with the following conditions namely:-

 Payment of remuneration is approved by a resolution passed by the Board

and, in the case of a company covered under sub-section (1) of section 178
also by the Nomination and Remuneration Committee, if any. While doing
so, the clear reason and justification for payment of remuneration beyond
the said limit has to be recorded in writing.
 The company has not made any default in repayment of any of its debts
(including public deposits) or debentures or interest payable thereon,
preference shares and dividend on preference shares for a continuous
period of thirty days in the preceding financial year before the date of
payment to such managerial personnel.
 The approval of shareholders by way of a special resolution at a general
meeting of the company for payment of remuneration for a period not
exceeding three years.
 a statement along-with a notice calling the general meeting referred to
above point (c), shall contain the information as per sub clause (iv) of
second proviso to clause (B) of section II of part-II of Schedule V of the Act
including reasons and justification for payment of remuneration beyond the
said limit.
 SECTION 202
COMPENSATION FOR LOSS OF OFFICE OF MANAGING OR
WHOLE-TIME DIRECTOR OR MANAGER

Note:- Nothing in this section shall be deemed to prohibit the payment to a managing
or whole- time director, or manager, of any remuneration for services rendered by
him to the company in any other capacity.

A company may make payment to a managing or whole-time director or manager, but

not to any other director, by way of compensation for loss of office, or as
consideration for retirement from office or in connection with such loss or
retirement.

No payment of compensation shall be made in the following cases:-

a) where the director resigns from his office as a result of the reconstruction of
the company, or of its amalgamation with any other body corporate or bodies
corporate, and is appointed as the managing or whole-time director,
manager or other officer of the reconstructed company or of the body
corporate resulting from the amalgamation;

b) where the director resigns from his office otherwise than on the
reconstruction of the company or its amalgamation as aforesaid;

c) where the office of the director is vacated under sub-section (1) of section
167;

d) where the company is being wound up, whether by an order of the Tribunal
or voluntarily, provided the winding up was due to the negligence or default
of the director;

e) where the director has been guilty of fraud or breach of trust in relation to,
or of gross negligence in or gross mismanagement of, the conduct of the
affairs of the company or any subsidiary company or holding company
thereof; and

f) where the director has instigated, or has taken part directly or indirectly in
bringing about, the termination of his office.

Note:- The compensation payable to such managing director or whole-time director

or manager shall not exceed the remuneration he would have earned if he would
have been in office for the remainder of his term or three years, whichever is shorter,
calculated on the basis of the average remuneration earned by him during a period of
three years immediately preceding the date on which he ceased to hold such office, or
where he held the office of less than three years, then for such shorter period.

No such payment however can be made at all if winding up of the company is

commenced whether before or within 12 months after, the date on which he ceased
to hold office, if the assets on winding up (after deducting expenses on winding up)
 SECTION 204
are not sufficient to repay the shareholders the capital, including premiums if any,
contributed bySECRETARIAL
them. AUDIT FOR BIGGER COMPANIES

Section 204 of the Companies Act, 2013 provides the provisions for secretarial audit
for bigger companies which are as under:

Section 204(1)
Companies that are required to conduct secretarial audit: Every listed company
and a company belonging to other class of companies as may be prescribed, shall
annex with its Board’s report made in terms of section 134 (3), a secretarial audit
report, given by a company secretary in practice, in such form as may be
prescribed.

Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel)

Rules, 2014 provides that for the purposes of section 204 (1), the other class of
companies shall be as under:

a) Every public company having a paid up share capital of

Rs.50 crore or more; or
b) Every public company having a turnover of Rs. 250 crore or
more.

Section 204(2)

It shall be the duty of the company to give all assistance and facilities to the company
secretary in practice, for auditing the secretarial and related records of the company.

Section 204(3)
The Board of Directors, in their Report prepared under section 134(3) shall explain in
full any qualification or observation or other remarks made by the company secretary
in practice in his report.

Section 204(4)
If a company or any officer of the company or the company secretary in practice,
contravenes the provisions of this section, then the company; or every officer of the
company; or the company secretary in practice, who is in default, shall be punishable
with fine which shall not be less than Rs. 1 Lac but which may extend to Rs. 5 Lacs.
 SECTION 205
FUNCTIONS OF COMPANY SECRETARY

Company Secretary is appointed under section 203, shall perform the following
functions:-

According to Section 205(1) read with the Rule 10 of the Companies (Appointment
and Remuneration of Managerial Personnel) Rules, 2014, the functions of the
company secretary shall include:-

i) to report to the Board about compliance with the provisions of this Act,
the rules made thereunder and other laws applicable to the company;
ii) to ensure that the company complies with the applicable secretarial
standards;
iii) to provide to the directors of the company, collectively and individually,
such guidance as they may require, with regard to their duties,
responsibilities and powers;
iv) to facilitate the convening of meetings and attend Board, committee and
general meetings and maintain the minutes of these meetings;
v) to obtain approvals from the Board, general meeting, the government and
such other authorities as required under the provisions of the Act.
vi) to represent before various regulators, and other authorities under the
Act in connection with discharge of various duties under the Act;
vii) to assist the Board in the conduct of the affairs of the company;
viii) to assist and advise the Board in ensuring good corporate governance
and in complying with the corporate governance requirements and best
practices; and
ix) to discharge such other duties as have been specified under the Act or
rules; and
x) such other duties as may be assigned by the Board from time to time.

Note:- The provisions contained in section 204 and section 205 shall not affect the
duties and functions of the Board of Directors, chairperson of the company, managing
director or whole-time director under this Act, or any other law for the time being in
force.