Chapter V
MANAGERIAL
REMUNERATION [Topics 112‑130]
Topic 112
DO YOU WISH TO INCREASE THE REMUNERATION
PAYABLE TO ANY OF YOUR COMPANY'S MANAGERIAL PERSONNEL?
In the case of an ordinary director, managing and
whole‑time director and manager:
1. Before making
an application, ensure that the increase is not in accordance with the
provisions of Schedule XIII. [Sections 310 and 311]. If the increase is in
accordance with the conditions of the Schedule, no approval is necessary.
2. In the case of
a private company, not being a subsidiary of a public company, call a Board
Meeting after giving notice to all the directors of the company as per Section
286.
3. Please keep in
mind that every officer of the company whose duty is to give notice of the
Board Meeting as aforesaid and who fails to do so will be punishable with fine
of upto Rs. 1000/-. [Section 286(2)]
4. In the aforesaid Board Meeting pass a resolutionf
increasing the remuneration.
5. If the
Articles of Association so require, hold a General Meeting by issuing notice at
least twenty‑one days before the date of the meeting along with
explanatory statement and pass the said resolution therein. [Section 171(1)
read with Section 173(2)]
6. Wherever necessary, complete proceedings to alter
Articles also, vide Topic 26.
7. In the case of
a public company or its subsidiary, increase the remuneration of the managing
director or whole‑time director within the limits fixed under sections
198 and 309 by holding a General Meeting by issuing notice in writing at least
twenty‑one days before the date of the meeting along with relevant
explanatory statement and pass an Ordinary Resolution and if the payment of
increased remuneration exceeds Rs. 24,00,000/‑ per annum or Rs. 2,00,000/‑
per month but does not exceed Rs. 48,00,000/‑ per annum or Rs. 4,00,000/‑
per month calculated on the scale specified in paragraph (B) or exceeds Rs.
48,00,000/‑ per annum or Rs. 4,00,000/‑ per month
calculated on the scale specified in Paragraph (C) of section II of Part II of
Schedule XIII then pass a special Resolution, where the company has no profits
or its profits are inadequate in any financial year during the currency or
tenure of the managerial person. [Section 171(1) read with Section 173(2)]
8. Ensure that
the explanatory statement to the aforesaid Special Resolution contains the
information specified in Paragraph (B) and (C)(iv), I, II, III and IV of
section II of Part II of Schedule XIII.
9. Keep in mind
that the aforesaid Special Resolution, will be subject to the prior approval of
the Central Government if the payment of increased remuneration exceeds the
ceiling limit of Rs. 48,00,000/‑ per annum or Rs. 4,00,000/‑
per month and the effective capital is negative.
10. Ensure that
the payment of the increased remuneration to a managing director or whole‑time
director as aforesaid is approved by a resolution passed by the Remuneration
Committee of your company.
11. The aforesaid
resolution will, however, be subject to the approval of the Central Government,
in case of increase in director's sitting fees, Vrovided such fee, after the
increase, does not exceed the amount of Rs. 5,000/‑ per director, per
sitting. [Section 310 read with Rule 10B]
12. Forward three
copies of the notices issued to the shareholders and a copy of the proceedings
of the General Meeting to the Stock Exchange if your company is listed on a
recoinised Stock Exchange. [Clause 31(c) and (d) of the Standard Listing
Agreement]
13. The limits to
the remuneration payable to the managing director or wholetime director is five
per cent of the net profits of the company when there is one such person and
ten per cent when there are more than one such director.
14. The aforesaid
limits can again be exceeded with the approval of the Central Government.
[Section 309(3)]
15. In case of a
manager, the limit is five per cent of the net profits of the company which can
be exceeded with the approval of the Central Government. [Section 387]
16. In the case of
any other director, the remuneration payable must be within one or three per
cent of the net profits of the company which can only exceed with the approval
of the Central Government, depending (if one or three per cent) on whether the
company has or does not have a managing, whole‑time director or manager.
[Section 309(4)]
17. The overall
limit of all such remuneration must be within eleven per cent of the net
profits of the company. [Section 198]
18. The aforesaid
percentages should be taken note of while increasing the remuneration.
19. For increasing
the remuneration of a managing director, file Form No. 23 with the concerned
Registrar of Companies' within thirty days of the passing of the Board
resolution varying the remuneration or the making of the agreement for
variation after paying the requisite filing fee in cash as prescribed by
Schedule X of the Act. [Section 192(4)(c)]
20. Please keep in
mind that if default is made in complying with aforesaid requirement, the
company and every officer of the company who is in default will be punishable
with fine upto to Rs. 200/- for every day during which the default continues.
[Section 192(5)]
21. In the case of
the managing director or manager (in respect of which any director is concerned
or interested in any way), send an abstract of terms of variation within twenty‑one
days of the variation to every member of your company. [Section 302(1) &
(2)]
22. Please keep in
mind that if default is made in complying with the aforesaid requirement, the
company and every officer of the company who is in default will be punishable
with fine upto Rs. 500/- for every day during which the default continues.
[Section 302(3)]
23. Give general
notice to all the members indicating the nature of the application to be made
to the Central Government.
24. Publish the
notice at least once in a newspaper printed 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. [Section 640B]
25. If your
company is listed on a recognised Stock Exchange, then forward promptly to the
Stock Exchange three copies of the notice so published. [Clause 31(e) of the
Standard Listing Agreement]
26. Make the application in Form No. 261 and
enclose thereto the following:
(i) A certified true copy of the proposed amendments to the
Articles of Association and also of the agreement, if any;
(ii) A
certified true copy of the resolution concerned;
(iii) Two copies of each of the notices published in the newspapers
duly certified by the company as to their due publication under Section 640B;
(iv) A treasury challan or demand draft evidencing payment of the
requisite fees prescribed under the Companies (Fees on Applications) Rules,
1999;
(v) A certified true copy of the annual accounts of the company
for the last two years but in case the company has submitted this, along with
some other application to the Department, a copy of such of the annual accounts
which has not been furnished to the Department.
27. If the
application fee is paid by way of treasury challan, then pay the requisite fee
of minimum of Rs. 500/‑ and maximum of Rs. 2000/‑, as the case may
be, and as prescribed by the Companies (Fees on Applications) Rules, 1999, by
way of treasury challan prepared in triplicate and paid in cash into any of the
specified brancheslo of the Punjab National Bank for credit.
28. The
description of the Head of account of the treasury challan should be as
prescribed under Rule 22(2) of the Companies (Central Government's) General
Rules and Forms, 1956 and as amended vide GSR 251(E), dated 21‑6‑1996
(w.e.f. 21‑6‑1996). For account head and code please see Rule 22(2)
in Appendix 1.
29. Two copies of
the challan will be given back to the depositor by the said branch of the bank
and the original copy should be attached to the application made to the Central
Government.
30. If the
application fee is paid by way of demand draft, then draw the demand draft in
favour of "Pay and Accounts Officer, Department of Company Affairs, New
Delhi" and payable at any bank located in New Delhi, and the said demand
draft should be attached to the application.
31. Send a copy of
the application with all enclosures to the concerned Registrar of
Companies." [Rule 20A]
32. On receipt of
the approval, the increase in remuneration will be effective from the date as
mentioned in the approval letter.
33. If your
company is a Government company, then you are exempted from all the provisions
of Section 198 .
34. Note that as
per the Citizen's Charter of the Department of Company Affairs, Schedule I,
Serial No. 10, the application to the Central Government will be processed
within 30 days. [No. 5/25/99‑CL‑V, Press Note No. 9199, dated 9‑8-1999]
35. Refer to the following Departmental Clarification
before making the application:
Modification of the above clarification of sub‑para
(a) by Department's Circular Letter No. 2/10/CL‑VII/99, dated 28‑10‑1999.
Filing of return with ROC
Under sub‑section (2) of section 269,
a return is required to be filed with the Registrar within 90 days
from the date of appointment of a managerial personnel, in case the appointment
is within the parameters laid down in Schedule XIII, not requiring approval of
the Central Government. The return has to be certified by the auditor or the
secretary of the company, or where the company has not appointed a secretary,
the return may be certified by a secretary in whole‑time practice, as
defined in section 2(45A).
Topic 113
DO YOU WISH TO INCREASE REMUNERATION OF
THE DIRECTORS OF YOUR COMPANY?
1. If your
company is a public company or a private company which is a subsidiary of a
public company, then you have to obtain the approval of the Central Government
for increasing the amount of remuneration of any of your directors in case the
increase is not in accordance with the conditions specified in Schedule XIII as
amended by GSR 36(E), dated 16th January, 2002 to the Act. [Section 310]
2. If such
increase in the amount of remuneration is by way of increase in sitting fees
not exceeding the specified amount which is Rs. 5,000/‑ per sitting of
the Board or Committee thereof for attending Board Meetings or Committee
Meetings, then you are not required to obtain any approval of the Central
Govemment. [Section 310, Proviso]
3. Consult the
Articles of your company whether it contains provision for such increase,
otherwise amend the articles vide Topic 26.
4. Convene a
Board Meeting after giving notice to all the directors of the company as per
Section 286 to fix the date, time, place and agenda of the General Meeting to
pass a Resolution increasing the amount of remuneration of the director subject
to the approval of the Central Government.
5. Please keep in
mind that every officer of the company whose duty is to give notice of the
Board Meeting as aforesaid and who fails to do so will be punishable with fine
of upto Rs. 1000/-. [Section 286(2)]
6. Issue notices in writing at least twenty‑one days before the date of the General Meeting and hold the General Meeting and pass the ordinary resolution or special resolution (if required by the Articles) subject to the approval of the Central Government. [Section 171(1) read with sections 173(2) and 189]
7. If your
company is listed on a recognised Stock Exchange, forward promptly to the
concerned Stock Exchange, three copies of the notice and a copy of the
proceedings of the General Meeting. [Clause 31(c) and (d) of the Standard
Listing Agreement]
8. If the
resolution passed is a Special Resolution, file it in Form No. 23 with the
Reostrar within thirty days of its passing [Section 192] after paying
the requisite fee in cash prescribed under Schedule X to the Companies Act,
1956.
9. Please keep in
mind that if default is made in complying with aforesaid requirement, the
company and every officer of the company who is in default will be punishable
with fine upto to Rs. 200/‑ for every day during which the default
continues. [Section 192(5)]
10. Before making
an application to the Central Government, publish a general notice indicating
the nature of the proposed application at least once in a newspaper in the
principal language of the district in which the registered office of your
company is situate and once in an English newspaper in English language both
the newspapers having wide circulation in that district. [Section 640B]
11. If your
company is listed on a recognised Stock Exchange, then forward promptly to the
Stock Exchange three copies of the notice so published. [Clause 31(e) of the
Standard Listing Agreement]
12. Make an
application to the Central Government in Form No. 26t and at tach the
following documents to the application:
(i) Two copies of each of the notices published in English and
the vernacular paper under Section 640B, duly certified by the company as to their
due publication;
(ii) A certified true copy of the Board resolution or the
resolution passed in the General Meeting, as the case may be, regarding the
increase in remuneration;
(iii) A certified true copy of the annual accounts of the company
for the two years. If your company has already submitted this along with other
applications to the Department, then a copy of such of the annual accounts
which had not been furnished to the Department should be sent;
(iv) A certified true copy of the proposed amendments to the
Articles of Association and also of the agreement, if any;
(v) Receipted treasury challan or a demand draft evidencing
payment of the requisite fees, prescribed by the Companies (Fees on
Applications) Rules, 1999.
13. If the ap
lication fee is paid by way of treasury challan then pay the requisite fee of
minimum of Rs. 500/‑ and maximum of Rs. 2000/‑ as the case
may be, and as prescribed under the Companies (Fees on Applications) Rules,
1999, into any of the branches of the Punjab National Bank in cash through
treasury challan prepared in triplicate for credit.
14. The
description of the Head of account of the treasury challan should be as
prescribed under Rule 22(2) of the Companies (Central Government's)
General Rules and Forms, 1956 and as amended vide GSR 251(E), dated 21‑6‑1996
(w.ef 21‑6‑1996). For account head and code please see Rule
22(2) in Appendix 1.
15. Two copies of
the treasury challan will be given back to the depositor by the said branch of
the bank and the original copy should be attached to the application made to
the Central Government.
16. If the
application fee is paid by way of demand draft then draw the demand draft in
favour of "Pay and Accounts Officer, Department of Company Affairs, New
Delhi" and payable at New Delhi and the said demand draft should be
attached to the application.
17. Give full
justification in the application for increasing the remuneration payable to a
director or directors along with full details of prerequisites, valued in
monetary terms, paid to the director.
18. Deliver to the
concerned Registrar of Companies a copy of the application together with a copy
of each of the documents enclosed thereto simultaneously with the application
to the Central Government. [Rule 20A(1)]
19. If your company
is a Government company, then it is exempted from the provisions of Section
310.
20. Note that as
per the Citizen's Charter of the Department of Company Affairs, Schedule I,
Serial No. 10, the application to the Central Government will be processed within
30 days. [No. 5/25/99‑CL‑V, Press Note No. 9/99, dated 9‑8-1999]
Topic 114
DO YOU WISH TO PAY INCREASED
REMUNERATION WITHOUT GOVERNMENT APPROVAL?
1. Note that no
approval of the Central Government is required for paying increased
remuneration so lo Y as the requirements of Schedule XIII as amended by GSR
36(E), dated 16‑1‑2002 are complied with.
2. Note also that
the requirements of Schedule XIII are divided into three parts, one relating to
appointment, the other relating to remuneration as per profits or no profits or
inadequacy of profits of the company, and the other relating to provisions
applicable to the two parts, and the part relating to no profits or inadequacy
of profits is again divided into three parts (A), (B) and (C). Therefore, the
appointment of the person must be shown to satisfy all the requirements of
three parts of Schedule XIII.
3. In the case of
an appointee who had been appointed prior to the date of revised Schedule XIII
effective from 16‑1‑2002, it can increase the remuneration subject
to the provisions of the revised Schedule without the approval of the Central
Government even where the earlier appointment/remuneration had been approved by
the Central Government.
4. Ensure that aforesaid approval given by the Central
Government is not conditional.
5. All appointees
appointed after 16th January, 2002 where such appointments are fresh
appointments or re‑appointments can take the benefit of getting increased
remuneration by passing necessary resolution under Section 310 if the increase
does not militate against any condition laid down in Schedule XIII. Therefore,
at the time of making the increase by passing a resolution under Section 310,
ensure that all conditions of Schedule XIII are fully complied with.
6. Please keep in
mind that remuneration specified in Section 2 of Part II of Schedule
XIII of the Act is itself, the minimum remuneration therefore Central
Goverm‑nent's approval is not needed where a managerial person had been
appointed with or without Central Government's approval on a specified salary
with a provision for ten per cent reduction in salary in the event of loss
or inadequacy of net profit in any financial year.
7. Except for the
steps recommended for obtaining approval of the Central Government, follow the
other steps for paying increased remuneration, as per Topics 112 and 113.
8. Note that even
if your company has not taken the approval of the Central Government for
increase of remuneration where required, as the failure of the resolution to
take effect does not constitute any violation of the Act, nor any disobedience
of any Central Government order so as to enable the Registrar to prosecute the
company. The provisions of section 310 relating to approval are declaratory
only and do not cast any obligation on the company to communicate to the
Central Government its resolution for increasing the directors' remuneration.
[Fenner (India) Ltd. v. Additional ROC, (1994) 80 Com. Cases (Mad)]
9. Further note
that expenses incurred by a company on travel of the managing or whole‑time
director or manager and his family members and on transportation of his
personal effects from his place of duty to his home town or to a place where he
intends to settle, on expiry of his tenure are not in the nature of perquisites
and are not therefore covered in Schedule XIII provided the relevant travelling
rules of the company provide for incurring such expenditure. No approval of the
Central Government would be required in such cases. [Circular No. 9/93; F. No.
1/4/92‑CL‑V, dated 28‑7‑1993]
Topic 115
DO YOU WISH TO FIX REMUNERATION OF
MANAGING/ WHOLE‑TIME DIRECTOR?
1. Remuneration
of a managing/whole‑time director may be fixed in any of the following
ways subject to the limit of eleven per cent prescribed in Section 198:
(i) by
the company's Articles of Association;
(ii) by
an Ordinary resolution;
(iii) by a Special Resolution if the Articles of the company so
require.[Section 309(1)]
2. If the
remuneration so fixed is five per cent or less of the net profits of the company
for one such director and ten per cent or less for more than one such director,
then [Section 309(3)]:
(a) Convene a Board Meeting after giving notice to all the
directors of the company as per Section 286 to fix the date, time, place and
agenda of the General Meeting to pass an Ordinary or Special Resolution.
(b) Issue notices in writing at least twenty‑one days
before the date of the General Meeting proposing the Ordinary or Special
Resolution with suitable Explanatory Statement.
(c) Hold
the General Meeting and pass the Ordinary or Special Resolution.
(d) File a certified true copy of the Special Resolution with
Explanatory Statement in Form No. 23 with the Registrar of Companies within
thirty days of its passing [Section 192] after paying the requisite
filing fee' in cash as per Schedule X of the Companies Act, 1956.
(e) Forward three copies of the notices and a copy of the
proceedings of the General Meeting to the Stock Exchange with which your
company is enlisted. [Clause 31(c) and (d) of the Standard Listing Agreement]
3. Please keep in
mind that every officer of the company whose duty is to give notice of the
Board Meeting as aforesaid and who fails to do so will be punishable with fine
upto Rs. 1000/-. [Section 286(2)]
4. Please also
keep in mind that if default is made in filing a certified true copy of the
Special Resolution as aforesaid, the company and every officer of the company
who is in default will be punishable with fine upto Rs. 200/- for every day
during which the default continues. [Section 192(5)]
5. If the
remuneration so fixed is more than five per cent (in the case of one such
director) or ten per cent (in the case of more than one such directors) of the
net profits of the company, then do the following ‑
(i) Follow
the procedure mentioned under item 2(a) to (e) above.
(ii) Make an application to the Central Government in Form No.
25AI along with the following documents :
(a) A certified true copy of the Memorandum and Articles of
Association of your company;
(b) A certified true copy of the Board resolution or the Special
Resolution, as the case may be;
(c) A certified true copy of each of the audited accounts,
director's report and auditor's report of the company for the last three years;
(d) Receipted treasury Challan or demand draft in token of
payment of the prescribed fees pursuant to the Companies (Fees on Application)
Rules, 1999.
(iii) If the application fee is paid by way of treasury challan then
pay the requisite fee of minimum of Rs,. 500/‑ and maximum of Rs. 2000/‑
as the case may be, and as prescribed under the Companies (Fees on
Applications) Rules, 1999, into any of the specified branches of the Punjab
National Bank in cash through treasury challan prepared in triplicate for
credit.
(iv) The description of the Head of account of the treasury challan
should be as prescribed under Rule 22(2) of the Companies (Central
Government's) General Rules and Forms, 1956 and as amended vide GSR 251(E),
dated 21‑6‑1996 (w.e.y 21‑6‑1996). For account head and
code please see Rule 22(2) in Appendix 1.
(v) Two copies of the treasury challan will be given back to the
depositor by the said branch of the bank and the original copy should be
attached to the application made to the Central Government.
(vi) Send a copy of this application, along with copy of each of
the documents attached to it, to the Registrar of Companies simultaneously.
(vii) On receipt of the approval of the Central Government, the
remuneration fixed will be effective from the date as mentioned in the approval
letter.
6. Any
remuneration paid to a duly qualified person and recognised as such by the
Central Government who is a wholetime/managing director for rendering
professional services shall not be included in fixing remuneration payable to
him under the provisions of the Act. [Section 309(1)] proviso (a) and (b)]
7. Note that as
per the Citizen's Charter of the Department of Company Affairs, Schedule I,
Serial No. 10, the application to the Central Government will be processed
within 30 days. [No. 5/25/99‑CL‑V, Press Note No. 9/99, dated 9‑8-1999]
Topic 116
DO YOU WISH TO PAY MANAGERIAL
REMUNERATION WITHOUT GOVERNMENT'S APPROVAL?
1. Note that you cannot pay managerial remuneration
without Government approval in any of the following events, namely:
(a) the managerial personnel must have completed the age of
twenty‑five years and has not attained the age of seventy years or the
age of retirement, if any, specified by the company, whichever is earlier;
(b) the managerial personnel is not a managing or whole‑time
director or manager in any other company and even if he is so, he opts to draw
remuneration from any one company;
(c) if the managerial personnel is not a resident in India.
Resident in India means that the person is staying in India for a continuous
period of not less than twelve months, immediately preceding the day of his
appointments and has come to stay in India for taking up employment in India or
for carrying on business or vocation in India.
2. Note that the
condition precedent for paying managerial remuneration without Government
approval is total compliance with the requirements of the three Parts of
Schedule XIII as amended by GSR 36(E), dated 16‑1‑2002 namely, the
requirements as to resolution to be passedl, and the certificate to be given by
the Auditor or Secretary of the company or where the company has not appointed
a secretary, by a secretary in whole‑time practice, laid down respectively
in Parts I, II and III of that Schedule.
3. Quantum of
remuneration should be within the limits for companies earning profits and
also for companies having no profits or inadequate profits.
4. Note carefully
the Circular No. 2 of 1994, dated 10‑2‑1994 [(1994) 79 Com
Cas 7081 (St)] issued by the Department of Company Affairs in this regard.
Note, in particular, the following points:
(i) There will be no restriction for companies having adequate
net profits, on the nature or quantum of remuneration to be paid to their
managerial personnel as long as the remuneration paid during any financial year
is within 5% or 10% of the net profits as the case may be. Section I of Part II
of Schedule XIII governs it.
(ii) Section II of Part II, of Schedule XIII governs the
remuneration to be paid to managerial personnel of companies having no or
inadequate profits. In the case of such companies they will have full freedom
to work out suitable remuneration package within the limit specified in para 1
of Section II. In computing the said limit, perquisites specified in paras 2
and 3 of Section II are not to be taken into account.
(iii) The remuneration specified in Section II of Part II of
Schedule XIII is the "minimum remuneration" under Section 198 and no
separate approval of the Central Government is necessary under Sections 198(4)
and 309(3) if the remuneration paid is in accordance with the provisiom of
that section in the event of absence or inadequacy of net profits in any
financial year.
(iv) If at a relevant time, in view of availability of adequate
profits remuneration is initially fixed in accordance with the provisions of
Section I of Part II of Schedule XIII but later on if in any financial year
there is inadequacy of profits provisions of Section II of Part II would be
automatically applicable and remuneration will have to refixed accordingly
unless it is already within the specified ceiling. If there is any excess
remuneration already paid then it is to be regularised by taking Central
Government's approval.
(v) Where Section II of Part II is apphcable but there is
reduction in calculation of effective capital in any financial year subsequent
to the year of appointment of the managerial personnel and as a result of such
reduced effective capital remuneration is also required to scaled down and if
not so done then approval of Central Government should be obtained for payment
of remuneration in excess of the limits.
5. Further note
the Notification No. GSR 215(E), dated 2‑3‑2000 which further
increases the remuneration to be paid to managerial personnel of companies
having no profits or inadequate profits by amending Part II Section II of Schedule
XIII.
6. Also note that
the Notification No. GSR 36(E), dated 16‑1‑2002 which again
increases the remuneration to be paid to managerial personnel of companies
having no profits or inadequate profits by radically amending paragraph 1 of
section II of Part II of Schedule XIII.
7. Following the
intention of the above circular if your company wants to increase the
remuneration it may do so from 16th January, 2002 subject to the proy/isions of
revised Schedule XIII without the approval of the Central Government except the
appointment made under paragraph 1 (c) of section II of Part II of Schedule
XIII even where the earlier remuneration had been approved by the Central
Government except in those cases where the Central Government had accorded
conditional approval.
8. Note that the
re‑appointment made in compliance of Section 311, when such re‑appointment
satisfies the requirement of Schedule XIII, can be made to pay remuneration
without Central Government's approval.
9. Note that
where specific or special conditions had been imposed by the Central Government
while approving the remuneration such conditions still require to be complied
with unless varied by the Central Government.
10. Where there
are no profits or the profits are inadequate, convene a Board Meeting, after
giving notice to all the directors of the company as per Section 286 and
pass a Board Resolution and constitute a Remuneration Committee of the Board of
Directors which committee should consist of at least three nonexecutive
directors, if any and making the appointment and determining the managerial
remuneration strictly in accordance with the prescribed slabs of effective
capital laid down in paragraphs 1(A), (B) and (C) of Section II of Part II of
Schedule XIII by passing resolution of such Remuneration Committee.
11. If your
company has no profits or its profits are inadequate and wants to pay
remuneration not exceeding Rs. 48,00,000/‑ per annum or Rs.
4,00,000/‑ per month or exceeding the said amount, a Special Resolution
should be passed by convening general meeting of the company.
12. If a Special
Resolution is required to be passed then file the said Special Resolution
within 30 days of its passing with the Registrar of Companies in Form 23.
13. The
appointment should not be made for a period exceeding five years as required by
Section 317 except in case of appointments made under paragraph 1 (B) and (C)
of section II of Part II of Schedule XIII where the period should not exceed 3 years.
14. Board
resolution passed shall be such as to say that the appointment and remuneration
are subject to approval of the shareholders at the next general meeting of the
company.
15. Within ninety
days of making the appointment, file a return with the Registrar in Form 25C
giving the certificate in the form laid down therein in compliance with Part
III of Schedule XIII.
16. Enclose a copy
of the resolution passed by the Board of directors and/or share‑holders
in General Meeting with the return.
17. The resolution
in the General Meeting can be passed even after the expiry of the ninety days
period from the date of appointment by the Board of directors and the aforesaid
return is not required to be filed with the Registrar so long as the resolution
passed by the Board has already been enclosed with the said return.
18. Have the
appointment and remuneration approved at the General Meeting of the share‑holders
held first after the Board resolution is passed.
19. If you satisfy
the above requirements, you may pay managerial remuneration without Government
approval. No further approval of the Government would be necessary for paying
minimum remuneration under Section 198 of the Act because the remuneration is
also taken care of by providing slabs of remuneration in Part II of Schedule
XIII.
20. Expenses
incurred on travelling and transportation of personal effects of managing or
whole‑time directors or manager and his family member from the place of
his duty to his home town or to a place where he intends to settle on expiry of
his terms are not in the nature of perquisites and are not therefore covered in
amended Schedule XIII from 2nd March, 2000 and thereafter also from amended
Schedule XIII from 16th January, 2002.
21. Reimbursement
of medical expenses incurred within limits prescribed under Schedule XIII
accompanied by an essentiality certificate issued and signed by Director
General of Health Services of the concerned State Governmentfunion Territory
will not require Central Government's approval, but if it exceeds the said
limit Central Government's approval for increase of remuneration under section
310 will be entertained upto Rs. 9 lakhs. [Circular Letter No. 2/31/CL-VII/95,
dated 7‑11‑1996 modified by Circular letter No. 2/10/CL‑VII/99
dated 28‑10‑1999]
22. For
proper appreciation of the gradual changes made in payment of remuneration the
following clarifications and circulars are given below:
I. Departmental Clarification: The following Departmental Clarifications Circular
No. 3 of 1989, dated 13‑4‑1989, [(1989) 65 Comp Cas 528 (St)]
as regards the amendments made by the Companies (Amendment) Act, 1988 may be
noted:
Appointment and remuneration of managerial
personnel:
Approval of the Central Government is not required
in the case of appointment of managerial personnel made on or after June 15,
1988 (the date when the amended provisions were enforced), in accordance
with the conditions specified in Schedule XIII to the Act. A return in the
prescribed form (Form No. 25C) is to be filed with the concerned
Registrar within 90 days from the date of such appointment. While filing
the return in Form No. 25C, a copy of the resolution passed by the Board
of directors and/or share‑holders in the General Meeting is required to
be enclosed with the return. In terms of paragraph I of Part III of Schedule
XIII to the Act, the appointment and remuneration of managerial personnel shall
be subject to approval by a resolution of the share‑holders in the
General Meeting. The said resolution in the General Meeting can be passed even
after the expiry of ninety days' period from the date of appointment by the
Board of directors, and is not required to be filed with the Registrar, so long
as the resolution passed by the Board of directors has already been enclosed with
the said return.
II. Departmental
Clarirication‑Appointments‑Schedule XIII, Part I.
(a) The conditions specified therein are required to be satisfied
only at the time of appointment. In case the appointee, after appointment, does
not satisfy any of the said conditions, it will not debar the person concerned
from continuing in office for the full tenure of his appointment. For example,
as per clause (c), an appointee must not have attained the age of 70 years at
the time of his appointment. If, for example, the appointment is made at the
age of 69 years and thereafter, the appointee crosses the age of 70 years
during the tenure of his appointment no approval of the Central Government is
required under section 269 for the latter part of his appointment which
may fall outside the upper age limit.
(b) In so far as clause (f) is concerned, the company has to
ensure at the time of appointment of its managerial personnel that it had not
suffered loss or had adequate profits during the financial year immediately
preceding the financial year in which the appointment is made or in any of the
three financial years in the four financial years immediately preceding the
financial year in which the appointment is made.
Remuneration‑Schedule XIII, Part II.-
(a) The slabs of remuneration laid down in paragraph 1 of Part II
are not subject to the ceilings of 11% specified in section 198(1) and
of 5% and 10% specified in section 309(3) of the Act. If the
remuneration of managerial personnel exceeds the aforesaid ceilings in any
financial year, the company can pay managerial remuneration subject to the
ceilings relateable to the effective capital, slabs of which have been laid
down in paragraph 1 of Part II of Schedule XIII.
(b) As indicated vide Note (d) on 'Notes' below Schedule
VI, "Long Term Loans" for the purpose of 'effective capital' would
mean loans repayable after one year, whether secured or unsecured. [Circular
No. 3 of 1989, dated 13‑4‑1989, [(1989) 65 Comp
Cas 558 (St)]
Note:‑ (New) Schedule XIII is in force w.e.f. 1‑2‑1994 substituting
the earlier Schedule XIII. (New Schedule XIII is reproduced in Appendix 71 hereinafter.
Certain Circulars, on Schedule XIII which seem to
be inforce w.e.f. 14‑7‑1993, are reproduced hereunder:
Press Note No. 3/93, dated 23‑6‑1993
Managerial Remuneration‑Schedule XIII of the
Companies Act, 1956
1. Various
associations of trade and industry have been requesting Govt. for upward
revision in managerial remuneration. They have been representing that
managerial remuneration limits fixed under Schedule XIII in June 1988, have
become unremunerative and are not in.tune with the present ground realities
specially in the context of globalisation of the economy. It is stated that
this has not only resulted in flight of managerial talent from India to other
countries but is also prompting professional executives not to accept board‑level
managerial assignment for fear of substantial reduction in their salary and
perquisites. This has also led to an anomalous situation in which executives in
some of the companies are enjoying higher salary and perquisites than the
Managing or Wholetime Directors in these companies. The associations of trade
and industry have also been pleading for removal of the distinction in the
matter of remuneration between Indian and ex‑patriate managerial
personnel and for removal of the mandatory 10% reduction in salary in the event
of loss or inadequacy of net profits.
2. The Government
have, accordingly, decided to amend Schedule XIII to the Companies Act, 1956
so as to give necessary freedom and discretion to companies to appoint
their managerial personnel and fix their salaries and perquisites in accordance
with higher revised ceilings.
The amended Schedule XIII has since been notified
w.e.f. 1‑2‑1994. The salient features of amended Schedule
XIII are as under:
(i) The maximum salary admissible under Schedule XIII even in
the event of loss or inadequacy of profits has been raised from Rs. 87,500/‑
p.m. with corresponding increase, relatable to the effective capital of the
company, down the line.
(ii) The distinction between Indian and ex‑patriate
managerial personnel in regard to admissibility of salary has been done away
with.
(iii) Corresponding
to increase in the salary, perquisites have also been raised.
(iv) The provision for 10% reduction in the salary of managerial
personnel in the event of loss or inadequacy of profits has been deleted.
(v) The ceiling on commission on net profits, namely, 50% of the
annual salary, has been removed, subject to the condition that for companies
making adequate profits total remuneration payable to managerial personnel
shall be within 5% or 10% of the net profits, as the case may be.
(vi) Even for sick companies (i.e., companies which have
completely eroded their net worth), it shall no longer be necessary for loss
making companies or companies with inadequate net profits to obtain Central
Government's approval for appointment of Managing or Wholetime Directors or
Managers and for payment of remuneration to them within the prescribed
ceilings.
3. The amended
provisions of Schedule XIII will enable salaries and perquisites within the
stipulated limits without any reduction of 10%. The profit making companies
will, however, be in a position to pay higher remuneration to their managerial
personnel following removal of the sub ceiling on commission on net profits,
subject to the same over‑all limit of 5% or 10% of the net profit, as the
case may be.
4. Government is
also likely to bring about necessary legislative amendments, in due course, in
the Companies Act to withdraw regulatory provisions governing remuneration of
managerial personnel.
5. Government
have also amended Rule 10B of the Companies (Central Govt.'s) General Rules and
Fon‑ns, 1956 raising the maximum amount of remu‑ neration by way of
fee for each meeting of the Board of Directors or a Committee thereof from Rs.
1000/‑ to Rs. 2000/‑. Companies will have discretion to pay such
amount by way of sitting fee as may be considered appropriate within the revised
ceiling of Rs. 2000/‑. Necessary notification in this behalf has
already been issued.
[Issued by the Government of India Ministry of Law, Justice & Co. Affairs Department of Company Affairs [No. 1/4/92‑CL‑V]].
Increase in the Remuneration of Managing/Whole‑time
Directors and Managers
[Circular No. 8/93; F.No. 1/4/192‑CL‑V, dated 27‑7‑1993 issued by the Ministry of Law, Justice & Company Affairs, Department of Company Affairs]
1. I am
directed to say that the revised Schedule XIII to the Companies Act, 1956 (1 of
1956), has been notified by Central Government in the Gazette of India
Extraordinary on 14‑7‑1993 and has become effective from the date
of its notification. Appointment and remuneration of managing/whole‑time
directors and managers from the date of notification of revised Schedule XIII
will be regulated by the provisions of revised Schedule XIII. However,
appointment of managing or whole‑time directors and managers from a date
earlier than the date of notification and payment of remuneration to them upto 13‑7‑1993,
will continue to be governed by the provisions of Schedule XIII as in force
upto 13‑7‑1993.
2. It is also
clarified that where a company intends to increase the remuneration of its
managing/whole‑time director or manager already in position on the date
of notification, it may do so, from a date not earlier than the date of the
said notification, subject to the provisions of the revised Schedule read with
the provisions of sections 198, 269, 309, 310, 311, 387 and 388 of
the Companies Act, 1956, without the approval of the Central Government,
even where the earlier appointment/remuneration had been approved by the
Central Government, ex-cept in those cases where the appointment/remuneration
had been approved by the Central Government while approving
appointment/remuneration, those conditions will still have to be complied with
unless varied by the Central Government.
3. It is also
clarified that for the purpose of payment of salary and perquisites under
revised Schedule XIII, the effective capital will have to be calculated as on
the last date of the financial year, preceding the financial year in which the
appointment is made or in which the remuneration is fixed/revised. However, in
those cases where companies have been incorporated in the same financial year
in which the appointment has been made or the remuneration has been fixed or
revised, it would be in order for such companies to make the appointment or
fix/ revise remuneration with reference to the effective capital as on the date
preceding the date of appointment.
4. You are requested to bring these clarification to
the notice of all your constituents.
Note: Please note that the
essence of this circular is still valid for the revised schedule, w.e.f. 1‑2‑1994.
Circular III
Expenses incurred on Travelling and Transportation
of Personal Effects of Managing or Whole‑time Director or Manager
[Circular No. 9/93; F. No. 1/4/92‑CL‑V, dated 28‑7‑1993 issued by the Ministry of Law, Justice & Company Affairs, Department of Company Affairs]
I am directed to say that some companies have
sought a clarification whether it would be in order for them to meet the
expenses on travel of the managing or whole‑time director or manager and
his family members and on transportation of his personal effects from the place
of his duty to his home town or to a place where he intends to settle, on
expiry of his tenure. In this connection, it is clarified that these expenses
are not in the nature of perquisites and are not therefore, covered in Schedule
XIII (though Schedule XIII does contain a provision in regard to reimbursement
of expenses incurred on joining duty and return to the home country in respect
of expatriate managerial personnel). The companies, may therefore, incur
expenses on travel of the managing or whole‑time director or manager and
his family members and on transportation of his personal effects from his place
of duty to his home town or to a place where he intends to settle, on expiry of
his tenure, provided the relevant travelling rules of the company provide for
incurring such expenditure. No approval of Central Government would be required
in such cases.
It is requested that this may kindly be brought to
the notice of your constituents.
[Notification No. GSR 215(E), New Delhi, dt. 2nd March, 2000, the Gazette of India Extraordinary, Part II‑Section 3, Sub‑section (1), Ministry of Law, Justice and Company Affairs, Department of Company Affairs]
G.S.R. 215(E).‑ In exercise of
the powers conferred by sub‑section (1) of section 641 of the
Companies Act, 1956 (1 of 1956), the Central Government hereby makes the
following remuneration in Schedule XIII to the said Act, namely:
In the said Schedule for para 1 of section II of
PART II relating to remuneration and the entries related thereto, the following
entries shall be substituted, namely:
"1. Notwithstanding anything contained in this
part, wherein any financial year during the currency of tenure of the
managerial person a company has no profits or its profits are inadequate, it
may pay remuneration to a managerial person by way of salary, dearness
allowance, perquisite and any other allowances, not exceeding ceiling limit of
Rs. 24,00,000 per annum or Rs. 2 '00,0005 per month calculated on
the following scale:
|
Where the effective capital of Company is‑ |
Monthly remuneration payable shall not exceed |
|
(i) Less than rupees 1 crore |
rupees 75,000 |
|
(ii) rupees 1 crore or more but less than rupees 5 crores |
rupees 1,00,000 |
|
(iii) rupees 5 crores or more but less than rupees 25 crores |
rupees 1,25,000 |
|
(iv) rupees 25 crores or more but less than rupees 100 crores |
rupees 1,50,000 |
|
(v) rupees 100 crores or more |
rupees 2,00,000" |
G.S.R. 36(E), dt. 16‑1‑2002.‑ In exercise of the powers conferred by sub‑section
(1) of section 641 of the Companies Act, 1956 (1 of 1956), the
Central Government hereby makes the following further amendments in Schedule
XIII of the said Act, namely:
In the said Schedule, in Part II, in section II,
(a) for
paragraph 1, the following shall be substituted, namely:
"1. Notwithstanding anything contained in this
Part, where in any financial year during the currency of tenure of the
managerial person a company has no profits or its profits are inadequate, it
may pay remuneration to a managerial person by way of salary, dearness
allowance, perquisites and any other allowances,
(A) not
exceeding ceiling limit of Rs. 24,00,000 per annurn or Rs. 2,00,000 per
month calculated on the following scale:
|
Where the effective capital of Company is‑ |
Monthly remuneration payable shall not exceed |
|
(i) Less than rupees 1 crore |
75,000/- |
|
(ii) rupees 1 crore or more but less than rupees 5 crores |
1,00,000/- |
|
(iii) rupees 5 crores or more but less than rupees 25 crores |
1,25,000/- |
|
(iv) rupees 25 crores or more but less than rupees 50 crores |
1,50,000/- |
|
(v) rupees 50 crores or more but less than rupees 100 crores |
1,75,000/- |
|
(vi) rupees 100 crores or more |
2,00,000/-. |
Provided that the ceiling limits specified under this sub‑paragraph shall
apply, if
(i) payment of remuneration is approved by a resolution passed
by the Remuneration Committee.
(ii) the company has not made 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.
(B) not exceeding
the ceiling limit of Rs. 48,00,000 per annurn or Rs. 4,00,000 per month
calculated on the following scale:
|
Where the effective capital of Company is‑ |
Monthly remuneration payable shall not exceed |
|
(i) Less than rupees 1 crore |
1,50,000/- |
|
(ii) rupees 1 crore or more but less than rupees 5 crores |
2,00,000/- |
|
(iii) rupees 5 crores or more but less than rupees 25 crores |
2,50,000/- |
|
(iv) rupees 25 crores or more but less than rupees 50 crores |
3,00,000/- |
|
(v) rupees 50 crores or more but less than rupees 100 crores |
3,50,000/- |
|
(vi) rupees 100 crores or more |
4,00,000/-. |
Provided that the ceiling limits specified under
this sub‑paragraph shall apply,
(i) payment of remuneration is approved by a resolution passed
by the Remuneration Committee;
(ii) the company has not made 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;
(iii) a special resolution has been passed at the general meeting of
the company for payment of remuneration for a period not exceeding three years;
(iv) 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
I. General Information:
(1) Nature
of industry
(2) Date or expected date of commencement of commercial
production
(3) In case of new companies, expected date of commencement of
activities as per project approved by financial institutions appearing in the
prospectus
(4) Financial
performance based on given indicators
(5) Export
performance and net foreign exchange collaborations
(6) Foreign
investments or collaborators, if any.
II. Information about the appointee:
(1) Background
details
(2) Past
remuneration
(3) Recognition
or awards
(4) Job
profile and his suitability
(5) Remuneration
proposed
(6) 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 w.r.t. the country of his origin)
(7) Pecuniary relationship directly or indirectly with the
company, or relationship with the managerial personnel, if any.
III. Other information:
(1) Reasons
of loss or inadequate profits
(2) Steps
taken or proposed to be taken for improvement
(3) Expected increase in productivity and profits in measurable
terms.
IV. Disclosures
(1) The shareholders of the company shall be informed of the
remuneration package of the managerial person.
(2) The following disclosures shall be mentioned in the Board of
Director's report under the heading "Corporate Governance", if any,
attached to the annual report:
(i) All elements of remuneration package such as salary,
benefits, bonuses, stock options, pension etc. of all the directors;
(ii) Details of fixed component and performance linked incentives
along with the performance criteria;
(iii) Service
contracts, notice period, severance fees;
(iv) Stock option details, if any, and whether the same has been
issued at a discount as well as the period over which accrued and over which
exercisable.
(C) exceeding
the ceiling limit of Rs. 48,00,000 per annum or Rs. 4,00,000 per month
calculated on the following scale:
|
Where the effective capital of Company is‑ |
Monthly remuneration payable shall not exceed |
|
(i) Less than rupees 1 crore |
1,50,000/- |
|
(ii) rupees 1 crore or more but less than rupees 5 crores |
2,00,000/- |
|
(iii) rupees 5 crores or more but less than rupees 25 crores |
2,50,000/- |
|
(iv) rupees 25 crores or more but less than rupees 50 crores |
3,00,000/- |
|
(v) rupees 50 crores or more but less than rupees 100 crores |
3,50,000/- |
|
(vi) rupees 100 crores or more |
4,00,000/-. |
Provided that the ceiling limits specified under
this sub‑paragraph shall apply, if
(i) payment of remuneration is approved by a resolution passed
by the Remuneration Committee;
(ii) the company has not made 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;
(iii) a special resolution has been passed at the general meeting of
the company for payment of remuneration for a period not exceeding three years;
(iv) 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
I. General Information:
(1) Nature
of industry
(2) Date or expected date of commencement of commercial
production
(3) In case of new companies, expected date of commencement
of activities as per project approved by financial institutions appearing in
the prospectus
(4) Financial
performancebased on given indicators
(5) Export
performance and net foreign exchange collaborations
(6) Foreign
investments or collaborators, if any.
II. Information about the appointee:
(1) Background
details
(2) Past
remuneration
(3) Recognition
or awards
(4) Job
profile and his suitability
(5) Remuneration
proposed
(6) 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 w.r.t. the country of his origin)
(7) Pecuniary relationship directly or indirectly with the
company, or relationship with the managerial personnel, if any.
III. Other information:
(1) Reasons
of loss or inadequate profits
(2) Steps
taken or proposed to be taken for improvement
(3) Expected increase in productivity and profits in measurable
terms.
IV. Disclosures :
(1) The shareholders of the company shall be informed of the
remuneration package of the managerial person
(2) The following disclosures shall be mentioned in the Board of
director's report under the heading "Corporate Governance", if any,
attached to the annual report:
(i) All elements of remuneration package such as salary,
benefits, bonuses, stock options, pension etc. of all the directors;
(ii) Details of fixed component and performance linked incentives
along with the performance criteria;
(iii) Service
contracts, notice period, severance fees;
(iv) Stock option details, if any, and whether the same has been
issued at a discount as well as the period over which accrued and over which
exercisable:
Provided further that the conditions
specified in sub‑paragraph (C) shall apply in the case the effective
capital of the company is negative:
Provided also that the prior approval of the
Central Government is obtained for payment of remuneration on the above scale.
(b) after Explanation III, the following
Explanations shall be inserted, namely,
"Explanation IV.‑ For the purposes of this section, "Remuneration Committee" means that a committee which consists of at least three non‑executive independent directors including nominee director or nominee directors, if any.
Explanation V.‑ For the purposes of this clause, the Remuneration Committee while approving the remuneration under this section, shall,
(a) take into account, financial position of the company, trend
in the industry, appointee"s qualification, experience, past performance,
past remuneration etc.
(b) be in a position to bring about objectivity in determining
the remuneration package while striking a balance between the interest of the
company and the shareholders.
Explanation VI.‑ For the purposes of Paragraph 1, "negative effective capital" means the effective capital which is calculated:-
(a) in
accordance with the provisions contained in Explanation 1 of this Part;
(b) less
than zero".
Topic 117
DO YOU WISH TO PAY REMUNERATION WITH
CENTRAL GOVERNMENT'S APPROVAL?
1. Note that, in
the following circumstances, you have to seek Central Government’s approval
for paying managerial remuneration:
(a) Where the proposed appointee does not satisfy one or more of
the conditions of Schedule XIII.
(b) Where the appointee had been appointed prior to 16th January,
2002 and you want to increase managerial remuneration by passing a resolution
under Section 310, where the proposed remuneration is in excess of the
provisions of revised schedule XIII.
(c) Where the profits are inadequate and yet you want to pay
managerial remuneration, in excess of the slabs given in paragraph 1(A) and (B)
of Section II of Part II of Schedule XIII or as per slabs given in paragraph
1(C) of section II of Part II of Schedule XIII.
(d) Where you wish to pay sitting fee exceeding the prescribed
limits of Rs. 5 9000/- by passing a resolution under Section 310.
(e) Where your, company has become a deemed public company under
Section 43A with effect from 1st February, 1994, and you find that
the remuneration which was hitherto being paid was in excess of the limits laid
down in Sections 198 and 309 read with Schedule XIII and you have to obtain
approval of the Central Government for paying that remuneration.
2. Make the
application for approval of remuneration or for approval of appointment and
remuneration as the case may be.
3. Follow the
procedure laid down in Topics 112, 113 and 114 for increasing the managerial
remuneration, that of Topic 115 for fixing remuneration, that of Topic 118 for
increasing sitting fees, that of Topics 119, 121 and 124 for paying minimum
remuneration in excess of the slabs mentioned in Section II of Schedule XIII or
remuneration beyond statutory limits, mutatis mutandis.
Topic 118
DO YOU WISH TO INCREASE THE SITTING FEES
OF DIRECTORS BEYOND PRESCRIBED LIMITS?
Note : The Sitting Fees prescribed by the Government, under‑Rule 10B of
the Companies (Central Government's) General Rules and Forms, 1956, is Rs.
5000/‑ for each meeting of the board of directors or committee thereof:
1. Convene a
Board Meeting after giving notice to all the directors of the company as per
section 286 and pass resolutionf increasing sitting fees of directors beyond
the prescribed limits of Rs. 5000/‑ per director per meeting unless
otherwise required by your Articles subject to the approval of the Central
Government. [Section 310, Proviso]
2. Please keep in
mind that every officer of the company whose duty is to give notice of the
Board Meeting as aforesaid and who fails to do so will be punishable with fine
of upto Rs. 1000/-. [Section 286(2)]
3. If the sitting
fee of a managing director is increased then file a certified true copy of the
Board Resolution in Form No. 23 with the Registrar of Companies' within thirty
days of its passing [Section 192(1) read with (4)(c)] after paying the
requisite fee in cash as per Schedule X of the Companies Act, 1956.
4. Please also
keep in mind that if default is made in complying with the aforesaid
requirement, the company and every officer of the company who is in default
will be punishable with fine of upto Rs. 200/- for every day during which the
default continues. [Section 192(5)]
5. Prepare a
general notice to the members of your company indicating the nature of the
Central Government's application to be made for increasing the sitting fees of
directors beyond the prescribed limits. [Section 64OB(2)(a)]
6. Publish the
general notice at least once in a newspaper in the principal language of the
district in which the registered office of your company is situate and
circulating in that district and at least once in an English newspaper
circulating in that district. [Section 640B(2)(b)]
7. If your
company is listed on a recognised Stock Exchange, then forward promptly to the
Stock Exchange three copies of the notice so published. [Clause 31(e) of the
Standard Listing Agreement]
8. Make an
application to the Central Government in Form No. 26 and attach the following
documents thereto:
(i) Two copies of each of the notices published in English and
vernacular papers, certified by the company as to their due publication;
(ii) A certified true copy of the resolution passed by the Board
of Directors regarding the increase in sitting fees beyond the prescribed limit
per meeting;
(iii) A certified true copy of the balance sheet and profit and loss
account each for last two years;
(iv) A certified true copy of the proposed amendment in the
Articles if such increase in sitting fees is in excess of that stated in the
articles;
(v) A receipted treasury challan or demand draft evidencing
payment of the requisite fees as prescribed under the Companies (Fees on
Application) Rules, 1999.
9. If the
application fee is paid by way of treasury challan then pay the requisite fee
and as prescribed by the Companies (Fees on Application) Rules, 1999, by way of
treasury challan prepared in triplicate and paid in cash into any of the
specified branches of the Punjab National Bank for credit.
10. The
description of the Head of account of the treasury challan should be as
prescribed under Rule 22(2) of the Companies (Central Government's) General
Rules and Forms, 1956 and as amended vide GSR 251(E), dated 21‑6‑1996
(w.ef 21‑6‑1996). For account head and code please see Rule
22(2) in Appendix 1.
11. Two copies of
the challan will be given back to the depositor by the said branch of the bank
and the original copy should be attached to the application made to the Central
Government.
12. If the
application fee is paid by way of demand draft then draw the demand draft in
favour of "Pay and Accounts Officer, Department of Company Affairs, New
Delhi" and payable at New Delhi and the said demand draft should be
attached to the application to the Central Government.
13. If the
increase in sitting fees beyond the prescribed slab of fee per meeting leads to
amendment of your company's Articles, then before making an application to the
Central Government, amend the Articles as per Topic 26.
14. Forward a copy
of the application along with a copy of each of the documents attached to it,
to the Registrar of Companies as soon as you make the application to the
Central Government. [Rule 20A]
15. The approval
of the Central Government will not be necessary unless your company is a public
company or its subsidiary.
16. If your
company is a Government Company, then you are not required to take the approval
of the Central Government for increasing the sitting fees.
17. Note that as
per the citizen's charter of the Department of Company Affairs, Schedule I,
Serial No. 10, the application made to the Central Government will be processed
within 30 days. [No. 5/25/99‑CL‑V,‑ Press Note No. 9/99
dated 9‑8‑1999.]
Topic 119
1. The approval
of the Central Government is needed to pay mmimurn. remuneration to, managers
or directors or managing/whole‑time directors in case your company is not
eligible to pay such remuneration in accordance with slabs given in para 1 (A)
(B) or as per slabs given in para 1(C) of Section II of Part II of Schedule
XIII as amended on 16th January, 2002. [Section 198(4)]
2. Convene a
Board Meeting after giving noticef to all the directors of the company as per
Section 286 and pass a resolution approving the payment of remuneration subject
to the approval of the Central Government and giving authority to apply to the
Central Government.
3. Please keep in
mind that every officer of the company whose duty is to give notice of the
Board Meeting as aforesaid and who fails to do so will be punishable with fine
of upto Rs. 1000/‑. [Section 286(2)]
4. If the minimum
remuneration is to be paid to the Managing Director or whole‑time
director of your company then file a certified copy of the Board Resolution in
Form No. 23 with the Registrar of Companies within thirty days of its passing [Section
192(1) read with (4)(c)] after paying requisitie fee in cash as per
Schedule X of the Companies Act, 1956.
5. Please also
keep in mind that if default is made in complying with the aforesaid
requirement, the company and every officer of the company who is in default
will be punishable with fine upto Rs. 200/‑ for every day during which
the default continues. [Section 192(5)]
6. Make an
application to the Central Government for approval to the payments of
remuneration or of remuneration in excess of the limits prescribed under
Section 309(3), in Form No. 25A (Part‑B) and attach the
following documents thereto:
(i) One certified true copy of the Memorandum and Articles of
Association 'of the company;
(ii) One certified true copy of the balance‑sheet and profit
and loss account, director's report and auditor's report of the company for the
last three years;
(iii) A certified true copy of the Board resolution authorising the
making of application to the Central Government;
(iv) Treasury challan or demand draft evidencing the payment of
requisite feeS3 prescribed under the Companies (Fees on Application) Rules, 1999.
7. If the
application fee is paid by way of treasury challan then pay the requisite fee
and as prescribed by the Companies (Fees on Application) Rules, 1999 by way of
treasury challan prepared in triplicate and paid in cash into any of the
specified branches of the Punjab National Bank for Credit.
8. The
description of the Head of account of the treasury challan should be as
prescribed under Rule 22(2) of the Companies (Central Government's)
General Rules and Forms, 1956 and as amended vide GSR 251(E), dated 21‑6‑1996
(w. ef 2.1‑6‑1996). For account head and code please see Rule 22(2)
in Appendix 1.
9. Two copies of
the challan will be given back to the depositor by the said branch of the bank
and the original copy should be attached to the application made to the Central
Government.
10. If the
application fee is paid by way of demand draft then draw the demand draft in
favour of "Pay and Accounts Officer, Department of Company Affairs, New
Delhi" and payable at New Delhi and the said demand draft should be
attached to the application to the Central Government.
11. Deliver to the
concerned Registrar of Companies a copy of the application together with a copy
of each of the documents enclosed thereto simultaneously with the application
to the Central Government. [Rule 20A(1)]
12. If your
company is a Government Company, then it is exempted from the provisions of
Section 198.
13. Note that as
per the Citizen's Charter of the Department of Company Affairs, Schedule I, Serial
No. 10, the application made to the Central Government will be processed within
30 days. [No. 5/25/99‑CL‑V, Press Note No. 9/99, dated 9‑8‑1999]
Topic 120
1. Please note
that, in addition to the requirements mentioned below, you will have to ensure
that the appointee is not proposed to be paid remuneration exceeding the limits
laid down in Section 198 and Section 309 of the Act.
2. Please check
that the requirements of Schedule XIII' to the Act are complied with,
particularly with reference to the following :
(a) The proposed appointee had not been sentenced to imprisonment
for any, period or to fine exceeding Rs. 1,000/‑ for the conviction of an
offence under any of the Act mentioned in clause (a) of Part I of Schedule.
XIIII.
(b) The proposed appointee had not been detained for any period
under the conservation of Foreign Exchange and Prevention of Smuggling
Activities Act, 1974. Even in a case where such conviction was there in an
earlier period but the Central Government had approved the appointment
notwithstanding such conviction, the appointment can be made without
Government's approval.
(c) The proposed appointee should not be less than 25 years of
age or more than 70 years of age or in case there is an age of retirement, he
should not have attained the age of retirement.
(d) He should not be holding the job of managerial personnel in
more than one company and if he does hold such a job he opts to draw
remuneration from only one company.
(e) The
proposed appointee must be a resident in India.
3. Please keep in
mind that the remuneration by way of salary proposed to be paid by companies
having profits should not exceed the percentages mentioned in Section I of Part
II of Schedule XIII.
4. Please also
keep in mind that the remuneration by way of salary proposed to be paid by
company having no profits or inadequate profits should not exceed the absolute
amounts corresponding to the effective capital of the company mentioned in Para
I (A) and (B) of Section II of Part II of Schedule XIII. Thus, salary exceeding
Rs. 75,000/‑ or Rs. 1,50,000/- per month cannot be paid if the effective
capital of the company is less than Rs. 1 crore, without the Central
Government's approval.
5. Note that
where commission is proposed to be paid along with the salary, such commission
along with salary should not exceed five per cent or ten per cent of net
profits of the company for one managerial personnel or more than one as the
case may be.
6. Also note that
where the appointee is proposed to be remunerated by way of commission only,
the percentages mentioned in Section I of Part II of the Schedule XIII is the
maximum that can be paid.
7. Further note
that commission can be paid only by companies having profits and therefore
effective capital of Para 1 (A), (B) and (C) of Section II of Part II of
Schedule XIII need not be taken into account as that talks of only about
companies having no profits or inadequate profits.
8. Further note
that perquisites on uniform scales can be paid to the appointee irrespective of
whether he is remunerated by way of (a) salary plus commission or (b)
commission only.
9. Further note
that the only limit on perquisites is that they have to be paid as per Paras 2
and 3 of Section II of Part II of Schedule XIII and such payment of perquisites
should not be taken into account for computing the ceiling on remuneration.
10. If the person
is to be appointed and also remunerated without Government's approval, the
following further conditions need be satisfied, namely:
(a) Although the person may be appointed by a Board Resolution,
the appointment and remuneration have to be subsequently approved in the very
first meeting of the shareholders after the appointment is made.
(b) The auditor of the company or the secretary of the company or
where, the company has not appointed a secretary, a secretary in whole‑time
practice shall certify, within a period of ninety days, that the requirements
aforesaid have been complied with and this certificate must be incorporated in
a return to be filed within the said period of ninety days with the concerned
Registrar of Companies in Form No. 25C, prescribed pursuant to sub‑section
(2) of Section 269.
11. Please note
that once the appointment has been made as aforesaid, it will not be necessary
for the company to approach the Central Government for approval of minimum
remuneration.
12. Where a
managerial personnel had already been appointed by a company on a specified
salary with or without Central Government's approval with a provision for a cut
of 10% in salary in the event of loss or inadequacy of net profits that company
can delete the said provision without obtaining Central Government's approval
in accordance with the provisions of Section 3 10.
Topic 121
1. If you wish to
appoint an expatriate as a director with remuneration, not free of tax, but far
in excess of the guidelines prescribed, follow the normal procedure for
applying for appointment and remuneration of director but making out a case for
payment of higher remuneration on the following, among other, grounds:
(a) The services of the appointee are required for a specified
period and the appointee would go back after the expiry of that period;
(b) The appointee possesses qualifications and experience which
are not otherwise available;
(c) In his own country, the appointee is/was already getting
remuneration which, when converted into rupees would amount to the remuneration
applied for;
(d) The company has agreed, in terms of collaboration agreement,
to bear the expenses of hiring the services of foreign technicians and the
payment of remuneration is in fulfilment of that obligation;
(e) The company has agreed, in terms of collaboration, to take on
the Board of directors, a nominee of the foreign collaborator on certain terms
and conditions which include the payment of remuneration applied for.
2. If you wish to
pay tax‑free remuneration to any foreign technician you should move the
Central Board of Direct Taxes justifying the payment of tax free remuneration
on the grounds and under the circumstances mentioned in Section 10 of the
Income‑tax Act, 1961.
3. Once the
payment of tax‑free remuneration to the technician has the approval of
the Central Board of Direct Taxes, you can also appoint the technician as a
director and in that case, the guidelines on managerial remuneration would not
apply to such a director.
4. Payment
of tax‑free remuneration is prohibited by section 200 of the Companies
Act, 1956 except to the extent that there is any commitment as to any arrear of
remuneration which had been agreed to be paid tax‑ free prior to the
coming into force of the Companies Act, 1956.
5. In
case the person proposed to be appointed is a non‑resident and has
specialised knowledge in certain specified fields and the company is prepared
to pay the tax which may be payable on the remuneration, to the Central
Government, then notwithstanding the provision obtained in section 200 of the
Act, the person concerned may be paid tax‑free remuneration by the
company, subject to the conditions required to be fulfilled by virtue of the
provisions of section 10 of the' Income‑Tax Act, 1961.
6. Payment
of perquisites to expatriate managerial person including a nonresident Indian
should be made as per Paras 2 and 3 of Section II of Part II of Schedule XIII,
of the Act.
7. The
aforesaid payment of perquisites to expatriate managerial person will not be
included in computing the ceiling on remuneration specified in paragraph 1 (A),
(B) and (C) of Section II of Part II of Schedule XIII, of the Act.
Topic
122
1. Convene
a Board Meeting after giving notice to all the directors of the company as per
Section 286 and take the decision by passing a resolution to waive recovery of
remuneration from the director concerned.
2. Please
keep in mind that every officer of the company whose duty is to give notice of
the Board Meeting as aforesaid and who fails to do so will be punishable with
fine of upto Rs. 1000/‑[Section 286(2)]
3. Also,
pass a resolution at the aforesaid Board Meeting authorising the secretary or
any director if there is no secretary of the company to apply to the Central
Government.
4. Make
an application to the Central Government on a plain paper preferably on the
letter head of the company mentioning the full details of such waiver of
recovery of remuneration and the names and addresses of the concerned
directors. [Section 309(5B)]
5. Address
the aforesaid application to the Secretary, Department of Company Affairs,
Ministry of Law, Justice and Company Affairs, Shastri Bhavan, 5th Floor, 'A'
Wing, Dr. Rajendra Prasad Road, New Delhi‑ 110 001.
6. Pay
the requisite application fee of minimum Rs. 500/‑ and maximum Rs. 2000/‑
as the case may be, as prescribed under the Companies (Fees on Applications)
Rules, 1999, either by way of treasury challan or by way of demand draft.
7. If
the application fee is paid by way of treasury challan then pay the requisite
fee as prescribed by the Companies (Fees on Application) Rules, 1999 by way of
treasury challan prepared in triplicate and paid in cash into any of the
specified branches of the Punjab National Bank for credit.
8. The
description of the Head of account of the treasury challan should be as
prescribed under Rule 22(2) of the Companies (Central Government's) General
Rules and Forms, 1956 and as amended vide GSR 251(E), dated 21‑6‑1996
(w.ef 21‑6‑1996). For account head and code please see Rule 22(2)
in Appendix 1.
9. Two
copies of the treasury challan will be given back to the depositor by the said
branch of the Bank and the original copy should be attached to the application
made to the Central Government.
10. If
the application fee is paid by way of demand draft then draw the demand draft
in favour of "Pay and Accounts Officer, Department of Company Affairs, New
Delhi" and payable at New Delhi and the said demand draft should be
attached to the application made to the Central Government.
11. Attach the following
documents to the application:
(i) A certified
true copy of the latest audited balance‑sheet and profit and loss
account;
(ii) A certified true copy of the resolution
passed by the Board of directors;
(iii) A receipted
treasury challan or demand draft evidencing the payment of fees, prescribed by
the Companies (Fees on Application) Rules, 1999.
12. Forward
simultaneously to the Registrar of Companies a copy of the application along
with a copy of each of the documents attached to the application. [Rule 20A(i)]
13. On
receipt of the approval of the Central Government, forward a copy of the
approval to the Registrar of Companies.
14. Approval
of the Central Government will be needed only if your company is a public
company or its subsidiary. [Section 309(9)]
15. If
the company is a Government company then it is totally exempted from the
provisions of Section 309.
16. Note
that as per the Citizen's Charter of the Department of Company Affairs,
Schedule I, Serial No. 10, the application made to the Central Government will
be processed within 30 days. [No. 5/25/99‑CL‑V; Press Note No.
9/99, dated 9‑8‑1999.]
Topic
123
1. If
your company has a managing or whole‑time director, then directors does
not have such managerial personnel, then directors may be paid three per cent
of the net profits of your company. [Section 309(4), 1st Proviso]
A. Remuneration to a director by way of
monthly, quarterly or annual payments:
2. If
you want to pay remuneration to directors by way of a monthly, quarterly or
annual payment, then do the following:
(i) Convene a
Board Meeting after giving notice to all the directors of the company as per
Section 286 and fix the date, time, place and agenda of the General Meeting to
pass an Ordinary Resolution;
(ii) Issue
notices in writing at least twenty‑one days before the date of the
General Meeting proposing the Ordinary Resolution subject to Central
Government's approval along with suitable Explanatory Statement. [Section
171(1) read with Section 173(2)] by ordinary majority;
(iii) Hold the
General Meeting and pass the Ordinary Resolution by simple majority. [Section
189(1)];
(iv) Forward
three copies of notices and a copy of the proceedings of the General Meeting to
the Stock Exchange with which your company is enlisted. [Clause 31 (c) and (d)
of the Standard Listing Agreement];
(v) Make an
application to the Central Government on a plain paper preferably on the letter
head of the company giving full details of such proposed payment of
remuneration. [Section 309(4)(a)];
(vi) Address the
aforesaid application to the Secretary, Department of Company Affairs, Ministry
of Law Justice and Company Affairs, Shastri Bhavan, 5th Floor, 'A' Wing, Dr.
Rajendra Prasad Road, New Delhi‑ 110 001;
(vii) Attach the following documents to the
aforesaid application:
(a) A certified
true copy each of the balance‑sheet and profit and loss account for the
last three years;
(b) A certified
true copy of the Memorandum and Articles of Association of your company;
(c) A certified true copy of the Ordinary
Resolution;
(d) A receipted
treasury challan or demand draft evidencing the payment of the requisite fees
as prescribed under the Companies (Fees on Applications) Rules, 1999;
(viii) If the
application fee is paid by way of treasury challan then pay the requisite fee
as prescribed by the Companies (Fees on Applications) Rules, 1999 by way of treasury
challan prepared in triplicate and paid in cash into any of the specified
branches of the Pun ab National Bank for credit.
(ix) The
description of the Head of account of the treasury challan should be as
prescribed under Rule 22(2) of the Companies (Central Govemment's) General
Rules and Forms, 1956 and as amended vide GSR 251(E), dated 21‑6‑1996
(w.e.f. 21‑6‑1996). For account head and code please see Rule 22(2)
in Appendix 1;
(x) Two copies
of the challan will be given back to the depositor by the said branch of the
bank and the original copy should be attached to the application made to the
Central Government;
(xi) If the
application fee is paid by way of demand draft then draw the demand draft in
favour of "Pay and Accounts Officer, Department of Company Affairs, New
Delhi" and payable at New Delhi and the said demand draft should be
attached to the application to the Central Government;
(xii) Forward
simultaneously to the Registra r of Companies' a copy of the application along
with a copy of each of the documents attached to it [Rule 20A(1)];
(xiii) On receipt
of the approval from the Central Government, send a copy of the approval to the
Registrar of Companies.
3. Please
keep in mind that every officer of the company whose duty is to give notice of
the Board Meeting as aforesaid and who fails to do so will be punishable with
fine of upto Rs. 1000/-. [Section 286(2)]
4. Note
that as per the Citizen's Charter of the Department of Company Affairs,
Schedule I, Serial No. 10, the application made to the Central Government will
be processed within 30 days. [No. 5/25/99‑CL‑V, Press Note No.
9/99, dated 9‑8‑1999.]
B. Remuneration to a Director by way of
Commission:
5. If
you want to pay remuneration to directors by way of commission, then do the following:
(i) Convene a
Board Meeting after giving notice to all the directors of the company as per
Section 286 to fix the date, time, place and agenda of the General Meeting to
pass a Special Resolution for paying remuneration to directors by way of commission;
(ii) Issue
notices in writing at least twenty‑one days before the date of the
General Meeting proposing the Special Resolution with suitable Explanatory
Statement. [Section 171(1) read with Section 173(2)];
(iii) Hold the
General Meeting and pass the Special Resolution by three, fourths majority.
[Section 189(2)];
(iv) Forward
three copies of the notices and a copy of the proceedings of the General
Meeting to the Stock Exchange with which your company is enlisted. [Clause 31
(c) and (d) of the Standard Listing Agreement];
(v) File a copy
of the Special Resolution along with the Explanatory Statement with the
Registrar of Companies within thirty days of its passing in Form No. 23.
[Section 309(4)(b)] after paying the requisite filing fee in cash as per
Schedule X of the Companies Act, 1956.
6. Please
also keep in mind that every officer of the company whose duty is to give
notice of the Board Meeting as'aforesaid and who fails to do so will be
punishable with fine of upto Rs. 1000/-. [Section 286(2)]
7. Further
keep in mind that if default is made in complying with requirement of filing
the Special Resolution as aforesaid, the company and every officer of the
company who is in default will be punishable with fine upto Rs. 200/- for every
day during which the default continues. [Section 192(5)]
8. If
your company is a private company and not a subsidiary of a public company,
then pay remuneration to your directors only by a resolution passed by your
Board of directors. [Section 309(9)]
9. If
your company is a Government Company then provisions of Section 309 will not be
applicable to your company.
10. If
your company is a nidhi or a mutual benefit society and is not having a
managing or whole‑time director and the remuneration payable to all the
directors does not exceed 10% of the net profits of such nidhi or mutual
benefit society or five lakh rupees whichever is less and the remuneration
payable is approved by a special resolution then Central Government's approval
is not required.
Topic
124
1. Convene
a Board Meeting after giving notice$ to all the directors of the companyas per
section 286 to fix the date, time, place and agenda of the General Meeting to
pass an Ordinary Resolution. [Section 309(4)(b)(ii), Proviso]
2. Please
keep in mind that every officer of the company whose duty is to give notice of
the Board Meeting as aforesaid and who fails to do so will be punishable with
fine of upto Rs. 1000/‑.[Section 286(2)]
3. Issue
notices in writing at least twenty‑one days before the date of the
General Meeting proposing the Ordinary Resolution subject to Central
Government's approval with suitable Explanatory Statement. [Section 171(1) read
with Section 173(2)]
4. Hold
the General Meeting and pass the Ordinary Resolution by simple majority.
[Section 189(1)]
5. Make
an applicationt to the Central Government on a plain paper giving full details
as there is no prescribed form for this.
6. Address
the applicationce to the Secretary, Department of Company Affairs, Ministry of
Law, Justice and Company Affairs, Shastri Bhavan, 5th Floor, 'A' Wing, Dr.
Rajendra Prasad Road, New Delhi‑ 110 001.
7. Attach the following
documents to the aforesaid application:
(i) A certified
true copy of each of the balance‑sheet and profit and loss account for
the last three years;
(ii) A certified true copy of the Memorandum
and Articles of Association;
(iii) A certified true copy of the Ordinary
Resolution;
(iv) A receipted
treasury challan or demand draft evidencing the payment of the requisite fee
prescribed under the Companies (Fees on Application) Rules, 1999.
8. If
the application fee is paid by way of treasury c1hallan then pay the requisite
fee of minimum of Rs. 500/‑ and maximum Rs. 2000/‑ as the case may
be, as prescribed by the Companies (Fees on Applications) Rules, 1999 by way of
treasury challan prepared in triplicate and paid in cash into any of the
specified branches of the Punjab National Bank for credit.
9. The
description of the Head of account of the treasury challan should be as
prescribed under Rule 22(2) of the Companies (Central Government's) General
Rules and Forms, 1956 and as amended vide GSR 25](E), dated 21‑6‑1996
(w.ef 21‑6‑1996). For account head and code please see Rule 22(2)
in Appendix 1.
10. Two
copies of the challan will be given back to the depositor by the said branch of
the bank and the original copy should be attached to the application made to the
Central Government.
11. If
the application fee is paid by way of demand draft then draw the demand draft
in favour of Pay and Accounts Officer, Department of Company Affairs, New Delhi
and payable at New Delhi and the said demand draft should be attached to the
application to the Central Government.
12. Forward
simultaneously to the Registrar of Companie a copy of the application along
with a copy of each of the documents attached to it.
13. Forward
three copies of the notices and a copy of the proceedings of the General
Meeting to the Stock Exchange with which your company is enlisted. [Standard
Listing Agreement]
14. On
receipt of the approval of the Central Government, forward a copy of it to the
Registrar of Companies.
15. See
that the total payment of managerial remuneration is well within eleven per cent of the net profits of the
company. [Section 198(1)]
16. If
your company is a Government Company then the provisions of Section 309 will
not be applicable to your Company.
17. Note
that as per the Citizen's Charter of the Department of Company Affairs,
Schedule I, Serial No. 10, the application made to the Central Government will
be processed within 30 days. [No. 5/25/99‑CL‑V, Press Note No.
9/99, dated 9‑8‑1999]
18. Further
note that if your company's paid‑up share capital is less than Rs. 50
lakhs but is equal to or more than Rs. 10 lakhs, your company is required to
obtain a Compliance Certificate from a secretary in whole‑time practice
to be filed with the Registrar of Companies mentioning therein inter alia that
the company has obtained all necessary approval of the Central Government as
may be prescribed under the various provisions of the Act as per paragraph 17
of the Form of Compliance Certificate appended to the Companies (Compliance
Certificate) Rules, 2001. [Section 383‑A(1) proviso].
Topic
125
DO YOU WISH TO PAY REMUNERATION TO A DIRECTOR IN ANY OTHER
CAPACITY?
1. Verify whether the
remuneration proposed to be paid is:
(a) in any other capacity than as a director
of the company; or
(b) (i) for
services rendered which are professional in nature; and
(ii) for which
Central Government is satisfied that he is qualified to practice the
profession. [Section 309(1), Proviso]
2. In
case of (a) above, follow the procedure for appointment to an office or place
of profit as mentioned below:
(a) Convene a
Board Meeting after giving noticef to all the directors of the company as per
Section 286 to consider the proposal and to fix up the date, time, place and
agenda for the General Meeting to obtain by a Special Resolution the consent
for holding the office or place of profit. [Section 314(1)(a)];
(b) Such consent
can also be accorded in the General Meeting held for the first time after the
holding of such office or place of profit where a relative or a partner of a
director has been appointed to such office or place of profit without the
knowledge of the director concerned, the consent can be obtained within three
months of such appointment even if the first General Meeting has been held
earlier than that;
(c) However, if
the persons mentioned in Section 314(1B) are appointed to any office or place
of profit carrying total monthly remuneration of not less than Rs. 20,000/‑,
prior consent of the company in General Meeting by Special Resolution and
approval of the Central Government is necessary;
(d) Issue
notices$ in writing with suitable Explanatory Statement, at least twenty‑one
days before the date of the General Meeting and hold the General Meeting and
pass the Special Resolution by three fourths majority. [Section 171(1) read
with sections 173(2) and 189(2)];
(e) Forward
three copies of notices issued to the share‑holders and a copy of the
proceedings of the General Meeting to the Stock Exchange with which your
company is enlisted. This will not be required for unquoted companies. [Clause
31(c) and (d) of the Standard Listing Agreement];
(f) File a copy
of the Special Resolution with Explanatory Statement in Form No. 23 with the
Refistrar within thirty days of the passing after paying the requisite fee in
cash prescribed under Schedule X to the Companies Act, 1956 Act. [Section
192(4)];
(g) Apply to the
Central Government in Form No. 24B along with a copy of the Special Resolution
passed by the company and a treasury challan or demand draft evidencing the
payment of the requisite fee, of minimum Rs. 500/‑ or maximum Rs. 2000/‑
as the case may be, as prescribed under the Companies (Fees on Application)
Rules, 1999;
(h) Deliver a
copy of the application along with a copy of all enclosures to the Registrar of
Companies;
(i) If a
managing director or a whole‑time director is appointed to an office or
place of profit carrying a monthly remuneration of Rs. 20,000/or more, then
approval of the Central Government will not be necessary under Section 314(1B)
if such approval is already taken under Section 198, 269, 310 or 311.
3. Please
keep in mind that every officer of the company whose duty is to give notice of
the Board Meeting as aforesaid and who fails to do so will be punishable with
fine of upto Rs. 1000/-. [Section 286(2)]
4. Further
keep in mind that if default is made in complying with the filing of the
Special Resolution with Explanatory Statement in Form No. 23, the company, and
every officer of the company who is in default will be punishable with fine
upto to Rs. 200/- for every day during which the default continues. [Section
192(5)]
5. If
the application fee is paid by way of treasury challan then pay the requisite
fee as prescribed by the Companies (Fees on Application) Rules, 1968 by way of
treasury challan prepared in triplicate and paid in cash into any of the
specified branches' of the Punjab National Bank for credit.
6. The
description of the Head of account of the treasury challan should be as
prescribed under Rule 22(2) of the Companies (Central Government's) General
Rules and Forms, 1956 and as amended vide GSR 251(E), dated 21‑6‑1996
(w.e.f 21‑6‑1996). For account head and code please see Rule 22(2)
in Appendix 1.
7. Two
copies of the challan will be given back to the depositor by the said branch of
the bank and the original copy should be attached to the application made to
the Central Government.
8. If
the application fee is paid by way of demand draft then draw the demand draft
in favour of "Pay and Accounts Officer, Department of Company Affairs, New
Delhi" and payable at New Delhi and the said demand draft should be
attached to the application to the Central Government.
9. In case of 1(b) above,
take the following steps:
(a) Convene a
Board Meeting after giving notice to all the directors of the company as per
Section 286 and pass a resolution authorisin.g such payment for professional
services;
(b) Make, an
application to the Central Government on a plain paper giving full details and
asking of its opinion whether the concerned director possesses the requisite
qualifications for the practice of the profession;
(c) The
expression of opinion by the Central Government under the proviso to Section
309(1) of the Act is required for rendering services by any Director, which are
of a professional nature. The said proviso is also applicable for practice of
the profession as an advocate, as per express provisions made thereunder;
(d) The company
in which the advocate concerned is a director, should apply to the Central
Government;
(e) While making
an application, the company should, inter alia, state the name(s) of the
company(ies) in which the Advocate/director is a director. The expression of
opinion will be required separately for each such director by each such
company, if so desired;
(f) Section 309
deals with remuneration of directors individually and not with the firms in
which such a director is a partner. The proviso to Sub‑section (1) refers
to services rendered by any director in any professional capacity and,
therefore, the question of seeking approval by the Advocates' firms does not
arise;
(g) Address the
application to the Secretary, Department of Company Affairs, Ministry of Law,
Justice and Company Affairs, Shastri Bhavan, 5th Floor, 'A' Wing, Dr. Rajendra
Prasad Road, New Delhi‑ 110 001;
(h) Attach to the application the following
documents:
(i) A certified
true copy of the certificate evidencing the professional qualification of the
director;
(ii) A certified
true copy of the latest audited balance‑sheet and profit and loss
account;
(iii) A receipted
treasury challan or demand draft evidencing the payment of the requisite fee
prescribed under the Companies (Fees on Applications) Rules, 1999;
(i) Forward
simultaneously to the Registrar of Companies'o a copy of the application along
with a copy of each of the documents attached to it.
10. Please
keep in mind that every officer of the company whose duty is to give notice of
the Board Meeting as aforesaid and who fails to do so will be punishable with
fine of upto Rs. 1000/‑.[Section 286(2)]
11. If
the application fee is paid by way of treasury challan then pay the requisite
fee as prescribed by the Companies (Fees on Applications) Rules, 1999 by way of
treasury challan prepared in triplicate and paid in cash into any of the
specified branches of the Punjab National Bank for credit.
12. The
description of the Head of account of the treasury challan should be as
prescribed under Rule 22(2) of the Companies (Central Government's) General
Rules and Forms, 1956 and as amended vide GSR 251(E), dated 21‑6‑1996
(w.ef 21‑6‑1996). For account head and code please see Rule 22(2)
in Appendix 1.
13. Two
copies of the challan will be given back to the depositor by the said branch of
the bank and the original copy should be attached to the application made to
the Central Government.
14. If
the application fee is paid by way of demand draft then draw the demand draft
in favour of "Pay and Accounts Officer, Department of Company Affairs, New
Delhi" and payable at New Delhi and the said demand draft should be
attached to the application to the Central Government.
15. The
Central Government often insists on an application to be made for increase in
remuneration under Section 310.
16. In
case you are not to convince the Central Government that such an application
is not required to be made, follow the procedure as for Topic 113.
17. Note
that as per the Citizen's Charter of the Department of Company Affairs,
Schedule I, Serial No. 10, the application made to the Central Government will
be processed within 30 days. [No. 5/25/99‑CL‑V, Press Note No.
9/99, dated 9‑8‑1999]
18. Further
note that if your company's paid‑up share capital is less than Rs. 50
lakhs but is equal to or more than Rs. 10 lakhs, your company is required to
obtain a Compliance Certificate from a secretary in whole‑time practice
to be filed with the Registrar of Companies mentioning therein inter alia that
the company has obtained all necessary approval of the Central Government as
may be prescribed under the various provisions of the Act as per paragraph 17
of the Form of Compliance Certificate appended to the Companies (Compliance
Certificate) Rule, 2001. [Section 383‑A(1) proviso]
Topic
126
1. Note
that depreciation has to be calculated strictly in accordance with the
provisions of section 350 of the Act for arriving at net profits for purposes
of managerial remuneration.
2. Note
that the requirement of section 350 is going to be the amount of depreciation
to be deducted in pursuance of section 349(4)(k) being the amount of
depreciation on assets at the end of each financial year at the rates specified
in Schedule XIV.
3. Depreciation
will be calculated in the same way as provided in the profit and loss account
of your company.
4. Therefore,
you have to arrive at the amount of depreciation on assets of your company at
the rate laid down in Schedule XIV.
5. See also Topic 202 for
calculation of depreciation.
IMPORTANT
NOTE:
Sections
205, 350 and Schedule XIV : Departmental Circular: The
following Departmental Circular in regard to the amendment made by the
Companies (Amendment) Act, 1988 may be noted:
Clarifications
and Notifications on the provisions relating to depreciation under the
Companies Act, 1956, as amended by the Companies (Amendment) Act, 1988.
This
Department has been receiving queries from different quarters on the subject
mentioned above, from time to time, and, accordingly the following
clarifications and Notifications are issued:
(1)
Date on which the new provisions relating to deprectiation become effective :
The Companies (Amendment) Act, 1988,
specifically provides that Schedule XIV shall be deemed to have come into force
on 2nd April, 1987. The amended provisions of Sections 205 and 350 of the Act
have come into force on 15th June, 1988, by virtue of the notification issued
by this Department. A question arises, therefore, whether depreciation can be
charged on assets on the basisof the rates provided in Schedule XIV for
accounting years ending between 2nd April, 1987 and 14th June, 1988.
In
view of the intention of the Legislature behind the amendments in Sections 205
and 350 of the Act, the amended provisions have come into force with effect
from 2nd April, 1987.
(2)
Recomputation of specified period:
It
is stated that in 1986, the Department had issued a circular stating that
specified period once determined may not be recomputed. Accordingly, the
Department had advised the companies that it was open to them not to recompute
the specified period even when there is a change in the rates of depreciation
later on (as against the position of the Department's earlier circular of 1985
on the subject). It is argued that as far as the existing assets are concerned,
the companies can follow either of the two circulars. An option under the 1986
circular would thus be available to the companies as at present not recomputing
the specified period where the Straight Line Method (SLM) is used. In other
words, where a company decides to follow the 1986 circular, assets on which SLM
depreciation was being charged can continue to be depreciated at the old SLM
rates.
In
view of this Department's Circular No. 1 of 1986 (No. 1/1/86‑CL‑V),
dated 21st May, 1986, specified period once determined may not be
recomputed. The companies which follow this circular may, therefore, continue
to charge depreciation at the old SLM rates in respect of the assets already
acquired against which depreciation has been provided in earlier years on SLM
basis.
(3)
Can higher rates of depreciation be charged?
It
is stated that Schedule XIV clearly states that a company should disclose
depreciation rates if they are different from the principal rates specified in
the Schedule. On this basis, it is suggested that a company can charge
depreciation at rates which are lower or higher than those specified in
Schedule XIV.
It
may be clarified that the rates as contained in Schedule XIV should be viewed
as the minimum rates, and, therefore, a company shall not be permitted to
charge depreciation at rates lower than those specified in the Schedule in
relation to assets purchased after the date of applicability of the Schedule.
However, if on the basis of a bonafide technological evaluation, higher rates
of depreciation are justified, they may be provided with proper disclosure by
way of a note forming part of annual account.
(4)
Can SLM rates be different than those specified under Schedule XIV?
It
is stated that SLM rates (corresponding to the Written Down Value (WDV) rates,
as per Schedule XIV) can be different than those prescribed under Schedule XIV
provided a company continues to determine the rates as provided under Section
205. Thus, against SLM rates prescribed under Schedule XIV of 11.31 per cent
(triple shift rate for general plant and machinery), a company can charge
depreciation at the rate of 10.56 per cent.
It
may be mentioned that the rate of 11.31 per cent has been determined on the
basis of eight years and six months or so of specified period whereas if 95 per
cent is divided by nine years, the corresponding SLM rate comes to 10.56 per
cent. The argument is that for calculating the SLM rates, complete years have
to be taken into account whereas the rates under Schedule XIV also take into
account fractions of years.
It
is clarified that a company must necessarily provide SLM depreciation at the
rates prescribed under Schedule XIV and the interpretation that fractions of
years cannot be taken into account is not correct. [Circular No. 2 of 1989,
dated 7th March, 1989 issued by the Company Law Board, (1989) 65 Comp Cas 628
(St.)]
(5) Notification GSR No. 756(E), dated 16‑12‑1993.
(6) Notification GSR No. 728(E), dated 4‑11‑1994.
(7) Notification GSR No. 101(E), dated 1‑3‑1995.
For
text of Schedule XIV and Notifications see Ramaya's Guide to the Companies Act,
15th Edn., 2001.
Topic
127
1. Verify the following
before making any payment of compensation:
(a) Such
compensation is proposed to be paid only to a managing director or to a
director holding the office of manager or in the whole‑time employment of
the company and not to any other director of the company. [Section 318(1) and
(2)];
(b) Such compensation is proposed to be paid
only in, the following cases :-
(i) The
director has not resigned office in view of the reconstruction or amalgamation
of the company after being appointed as the managing director or manager of the
reconstructed or amalgamated company;
(ii) The
director has not resigned office otherwise than as mentioned in (i) above;
(iii) The office
of the director is not vacated by virtue of Section 203 or any of the clauses
of Section 283(1);
(iv) Where the
company is being wound up it is not due to the negligence or default of the
director,
(v) The director
is not 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 or holding company thereof,
(vi) The director
has not instigated or taken part directly or indirectly in bringing about the
termination of his office. [Section 318(3)]
2. See
that compensation proposed to be paid does not exceed the remuneration which
such director would have earned if he had been in office for the unexpired
residue of his term or for three years, whichever is shorter. [Section 318(4)]
3. Calculate
the amount of the compensation on the basis of the average remuneration
actually earned by him during a period of three years immediately preceding the
date on which he ceased to hold office or where he held office for a lesser
period than three years, during such period.
4. Convene
a Board Meeting after giving notice to all the directors of the company as per
Section 286 and pass Board Resolution and approve the payment of compensation
to managing/whole‑time director or to a director holding the office of a
manager.
5. Please
keep in mind that every officer of the company whose duty is to give notice of
the Board Meeting as aforesaid and who fails to do so will be punishable with
fine of upto Rs. 1000/‑.[Section 286(2)]
6. See
that such payment of compensation is not made to the managing/whole‑time
director or to a director holding the office of a manager in the company, in
the event of the commencement of the winding up of the company, whether before
or at any time within twelve months after the date on which such a director
ceased to hold office.
7. Such
payment is prohibited only when the ass ets of the company on the winding up,
after deducting the expenses thereof are not sufficient to repay to the share‑holders
their share capital contributed by them. [Section 318(4), Proviso]
Topic
128
1. See
that the payment of compensation to a director of a company for loss of office
or for retirement from office or in connection with such loss or retirement as
a result of the transfer of the whole or any part of any undertaking or
property of the company is not made by the transferor company itself. [Section
319(1)(a)]
2. The
transferee of such undertaking or property or any other person apart from the
transferor company can pay such compensation to the director of the transferor
company for loss of or retirement from office. [Section 319(1)(b)]
3. Before making such
payment‑.
(a) Convene a
Board Meeting after giving notice to all the directors of the company as per
Section 286 and fix the date, time, place and agenda of the General Meeting to
pass an Ordinary Resolution;
(b) Issue
notices in writing at least twenty‑one days before the date of the General
Meeting proposing the Ordinary Resolution along with suitable Explanatory
Statement. [Section 171(1) read with section 173(2)];
(c) Forward
particulars of such proposed payment to the members along with the notice of
the General Meeting;
(d) Hold the
General Meeting and pass the Ordinary Resolution by simple majority. [Section
189(1)]
4. Please
keep in mind that every officer of the company whose duty is to give notice of
the Board Meeting as aforesaid and who fails to do so will be punishable with
fine of upto Rs. 1000/‑.[Section 286(2)]
5. Forward
three copies of notice and a copy of the proceedings of the General Meeting
promptly to the Stock Exchange with which your company is enlisted. [Clause 31
(c) and (d) of the Standard Listing Agreement]
6. Keep
in mind that payment of compensation for loss of office permissible under
Section 318 will not affect the operation of this section.
Topic
129
1. See
that the payment of compensation to directors of the company for loss of office
or for retirement from office in connection with such loss or retirement as a
result of the transfer of shares of that company to another body corporate or
individual is not made by the transferor company. [Section 320(1)(iv)(a)]
2. See that such transfer
of shares has resulted from:
(a) An offer
made to the General Body of share‑holders of the company; [Section
320(1)(i)];
(b) An offer
made by or on behalf of some other body corporate with a view to the company
becoming a subsidiary of such body corporate or a subsidiary of its holding
company; [Section 320(1)(ii)];
(c) An offer
made by or on behalf of an individual with a view to his obtaining the right to
exercise, or control the exercise of, not less than one‑third of the
total voting power at any General Meeting of the company; or [Section
320(1)(iii)];
(d) Any other
offer which is conditional on acceptance to a given extent. [Section
320(1)(iv)]
3. The
transferees of the shares or any person other than the transferor company can
pay compensation to the directors for the loss of office or for retirement of
office as a result of such transfer of shares.
4. Before
making such payment, include the particulars of such payment in the notice of
the offer made to the share‑holders of the company for transfer of their
shares. [Section 320(2)]
5. If
particulars of such payment are not included in the notice of the offer, then
send the particulars of such payment to the share‑holders along with the
notice of the offer for shares. [Section 320(2)]
6. Please
keep in mind that if default is made in complying with the aforesaid
requirements, the director concerned will be punishable with fine upto Rs.
2500/-. [Section 320(3)]
7. If
particulars of such payment are neither included in, nor sent along with the
notice of the offer for shares to the share‑holders of the company, then
before making the proposed payment:
(a) Convene a
Board Meeting after giving notice to all the directors of the company as per
Section 286 to fix the date, time, place and agenda of the General Meeting of
the holders of shares to which the offer relates and other holders of shares of
the same class to pass an Ordinary Resolution;
(b) Issue notices
in writing at least twenty‑one days before the date of the General
Meeting proposing the Ordinary Resolution with suitable Explanatory Statement.
[Section 171(1) read with section 173(2)];
(c) Hold the
General Meeting and pass the Ordinary Resolution by simple majority. [Section
189(1)]
8. Please
keep in mind that every officer of the company whose duty is to give notice of
the Board Meeting as aforesaid and who fails to do so will be punishable with
fine of upto Rs. 1000/‑.[Section 286(2)]
9. If
your company's shares are listed on a recognised Stock Exchange, then forward
three copies of notices and a copy of the proceedings of the General Meeting so
held to that Stock Exchange. [Clause 31 (c) and (d) of the Standard Listing
Agreement]
10. Note
that the requirements of sub‑section (2) of section 320 as mentioned
aforesaid are not complied with in relation to any such payment or if the
making of the proposed payment is not approved by a meeting as aforesaid, any
sum received by the director on account of the payment will be deemed to have
been received by him in trust for any person who have sold their shares as a
result of the offer made and the expenses incurred by him in distributing that
sum amongst those persons will be borne by him and not retained out of that
sum. [Section 320(4)]
11. If
at the General Meeting held under item 6 above, a quorum is not present, then
adjourn till a later date and if at that adjourned meeting also quorum is not
present, then the payment shall be deemed to have been approved. [Section
320(5)]
Topic
130
DO YOU WISH TO MAKE OBJECTION TO A PROPOSAL CONTAINED IN A NOTICE
PUBLISHED UNDER SECTION 640B?
1. Before
any application is made to the Central Government under the following sections
a general notice to the members is required to be published by the company
making the application indicating therein the nature of the application
proposed to be made to the Central Government:
(a) Increase in number of Directors beyond
twelve. [Section 259]
(b) Amendment of
provision relating to managing or whole‑time or nonrotational director.
[Section 268]
(c) Appointment of managing or whole‑time
director or manager. [Section 269]
(d) Increase in remuneration of Directors.
[Section 310]
(e) Increase in
remuneration of managing or whole‑time director on reappointment or
appointment. [Section 311]
2. The
aforesaid general notice is required to be published at least once in a
newspaper in the principal language of the district in which the registered
office of the company is situated and circulating in that district and at least
once in English in an English newspaper circulating in that district. [Section
640B(2)(b)]
3. Communicate
your objection, if any, in writing to the proposal contained in any general
notice published under Section 640B within thirty days of the publication of
such notice in the newspapers, to the Secretary, Department of Company Affairs,
Shastri Bhawan, 5th Floor, 'A' Wing, Dr. Rajendra Prasad Road, New Delhi‑
110 001. [Rule 20A(2)]
4. In your communication
you should duly substantiate your objection.
5. Give
a copy of your objection to the company concerned and also to the concerned
Registrar of Companies.