Section 198 provides that the total managerial remuneration
payable by a public company or a private company which is subsidiary of a
public company to its directors or manager in respect of any financial year
must not exceed 11 per cent of the net profit of that company for that
financial year. In computing the above ceiling of 11 per cent, the fees payable
to directors for attending Board meetings is not included. If, however, in any
financial year a company has no profits or its profits are inadequate, it may,
subject to the approval of the Central Government, pay to directors (including
managing or whole-time director) or manager by way of minimum remuneration such
sum not exceeding Rs 50,000 per annum (excluding sitting fees) as it considers
reasonable.
What is included in managerial remuneration? Explanation to
s.198 describes the term remuneration. According to it, for the purposes of Ss.
309,310,311 and 387, ‘remuneration’includes the following: (a) any expenditure
incurred by the company in providing rent-free accommodation, or any other
benefit or amenity in respect of accommodation free of charge, to any of its
directors or manager; (b) any expenditure incurred by the company in providing
any other benefit or amenity free of charge or at a concessional rate to any of
the persons aforesaid; (c) any expenditure incurred by the company in respect
of any obligation or service, which, but for such expenditure by the company,
would have been incurred by any of the persons aforesaid; and (d) any
expenditure incurred by the company to effect any insurance on the life of, or
to provide any pension, annuity or gratuity for, any of the persons aforesaid
or his spouse or child.
Section 309 contemplates three kinds of directors, i.e., (i)
Managing Director; (ii) Whole-time director; (iii) Director pure and simple.
Further, s.309 provides that subject to the general provisions of s.198,
dealing with the total managerial remuneration, the remuneration be determined
by the articles, or by a resolution or, if the articles or require, by a
special resolution, passed by the company in general meeting. Any remuneration
paid for services in any other capacity shall not be included if: (a) the
services rendered are of a professional nature; and (b) in the opinion of the
Central Government, the director possesses the requisite qualifications for the
practice of the profession.
A director who is neither in the whole-time employment of
the company nor a managing director may be paid remuneration. (a) by way of a
monthly, quarterly or annual payment with the approval of the Central
Government or (b) by way of commission, if the company by special resolution
authorises such payment; or (c) by both.
However, in either of the above cases, the remuneration paid
to such director, or where there is more than one such director, shall not
exceed: (i) one per cent of the net profit of the company, if the company has
managing or wholetime director or manager; (ii) three per cent of the net
profits of the company in any other case. The company in general meeting may,
however, with the approval of the Central Government, authorise the payment of a
commission at a rate higher than one per cent, or as the case many be, three
per cent of its net profits.
Each director is entitled to receive a sitting fee for each
meeting of the Board or a committee thereof, provided the same is authorised by
the articles.
A whole-time director or a managing director may be paid
remuneration either by way of a monthly payment or at a specified percentage of
the net profits of the company or partly by one way and partly by the other;
provided that except with the approval of the Central Government such
remuneration shall not exceed 5 per cent of the net profits for one such
director and if there is more than one such
director, 10 per cent for all of them together. Furthermore, a managing or whole-time director who is in receipt of any commission from the company cannot receive any remuneration from any subsidiary of the company.
If any director draws or receives, directly or indirectly, by way of remuneration any
sum in excess of the limits stated above, without the sanction
of the Central Government, where it is required, he shall have to refund such
sums to the company and until the refund is made the money will be Held by him
trust for the company. The company cannot waive the recovery of any sum
refundable to it, unless permitted by the Central Government.
The provisions of s.309 will not apply to a private company
unless it is a subsidiary of a public company.
Increase in remuneration. Section 310 provides that every
increase in the remuneration of any director including a managing or whole-time
director granted or provided by any amendment in his term of appointment which
has the effect of increasing, whether directly or indirectly, the amount
payable to him would not be operative unless the same has been approved by the
Central Government. But no approval of
the Central Government would be required if the increase in remuneration made
is a accordance with the conditions specified in Schedule XIII. Also no
approval of the Central Government is necessary, if the increase in the
remuneration is only by way of fee for each meeting of the Board or a committee
of the Board attended by any such director and the amount of the fee after such
increase does not exceed such sum as may be prescribed. The Central Government
has laid down differential scale of sitting fee according to the paid-up
capital of the companies.
As regards remuneration payable to a Manager, s.387 provides
that he may receive remuneration either by way of a monthly payment or by way
of a specified percentage of the ‘net profits’ of the company, or partly by one
way and partly by the other. Such remuneration, however, must not exceed in the
aggregate 5 per cent of the net profits except with the approval of the Central
Government.
Managerial
remuneration vis-a-vis schedule XIII. The Department of Company Affairs
issued guidelines regarding managerial remuneration payable to managing or
wholetime or part-time paid directors or manager in a public limited
company.These were known as administrative ceiling, and s.637-AA empowered the
Government to fix an administrative ceiling within the statutory ceiling on the
managerial remuneration. But the Amendment Act of 1988 inserted statutory
guidelines in the Act itself. Therefore, a public company or a private company
which is subsidiary of a public company, is enabled to appoint its managerial
personnel and fix their remuneration so long as the same is in accordance with
the conditions laid down in Schedule XIII without seeking the prior approval of
the Central Government. Schedule XIII, provides as follows:
Remuneration payable
by companies having profits. subject to the provisions of s.198 and s.309,
a company having profits in a financial year may pay any remuneration, by way
of salary, dearness allowance, perquisites, commission and other allowances,
which shall not exceed 5 per cent of its net profits for one such
managerial person and if there are more than one such managerial persons, 10 per cent for all of them together.
Remuneration payable
by companies having no profits or inadequate profits. 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
other allowance, not exceeding ceiling limit of Rs 10,50,000 per annum or Rs
82,500 per month calculated on the following scale:
|
Where the effective capital of the company is
|
Monthly
remuneration payable shall
not exceed |
|
(i) Less than 1 crore (ii) Rs 1 crore or more but less than Rs 5 crores (iii) Rs crores or more but less than Rs 15 crores (iv) Rs 15 crores or more |
Rs 40,000 Rs 57,000 Rs 72,000 Rs 87,500 |
In addition to the above, certain perquisites like contribution to provident fund, gratuity, leave encashment may be paid. Non-resident Indians may also be paid children education allowance, holiday passage for children studying outside India or family staying abroad, leave travel concession. These additional benefits shall be subject to the limits laid down in Schedule XIII.
The expression ‘effective
capital’ shall mean the aggregate of the paid-up share capital (excluding
share application money or advances against shares); amount, if any, for the
time being standing to the credit of share premium account, reserves and
surplus (excluding revaluation reserve); long term loans and deposits repayable
after one year (excluding working capital loans, overdrafts, interest due on
loans unless funded, bank guarantee, etc. and other short term arrangements) as
reduced by the aggregate of any investments (except in case of investments by
an investment company whose principal business is acquisition of shares, stock,
debentures or other securities), accumulated losses and preliminary expenses
not written off.
Sitting Fee (s.310). The sitting fee payable to a director for each
meeting of the Board of Directors or a committee thereof shall not exceed
ceiling prescribed by the Central Government (presently, Rs 2000). Any increase
in the sitting fee payable to a director shall not require the prior approval
of the Central Govt. if it falls within the prescribed limits.
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