(1) The total managerial payable by a , to its directors, including and , and its in respect of any shall not exceed eleven per cent. of the net profits of that company for that financial year computed in the manner laid down in section 198 except that the remuneration of the directors shall not be deducted from the gross profits:
Provided that the company in general meeting may, , authorise the payment of remuneration exceeding eleven per cent. of the net profits of the company, subject to the provisions of Schedule V:
that, except with the approval of the company in general meeting,—
(i) the remuneration payable to any one managing director; or whole-time director or manager shall not exceed five per cent. of the net profits of the company and if there is more than one such director remuneration shall not exceed ten per cent. of the net profits to all such directors and manager taken together;
(ii) the remuneration payable to directors who are neither managing directors nor whole-time directors shall not exceed,—
(A) one per cent. of the net profits of the company, if there is a managing or whole-time director or manager;
(B) three per cent. of the net profits in any other case.
, where the company has defaulted in payment of dues to any bank or public financial institution or non-convertible debenture holders or any other secured creditor, the prior approval of the bank or public financial institution concerned or the non-convertible debenture holders or other secured creditor, as the case may be, shall be obtained by the company before obtaining the approval in the general meeting.
(2) The percentages aforesaid shall be exclusive of any fees payable to directors under sub-section (5).
(3) Notwithstanding anything contained in sub-sections (1) and (2), but subject to the provisions of if, in any financial year, a company has no profits or its profits are inadequate, the company shall not pay to its directors, including any managing or wholetime director or manager, by way of remuneration any sum exclusive of any fees payable to directors under sub-section (5) hereunder except in accordance with the provisions of Schedule V
(4) The remuneration payable to the directors of a company, including any managing or whole-time director or manager, shall be determined, in accordance with and subject to the provisions of this section, either by the articles of the company, or by a resolution or, if the articles so require, by a special resolution, passed by the company in general meeting and the remuneration payable to a director determined aforesaid shall be inclusive of the remuneration payable to him for the services rendered by him in any other capacity:
Provided that any remuneration for services rendered by any such director in other capacity shall not be so included if—
(a) the services rendered are of a professional nature; and
(b) in the opinion of the Nomination and Remuneration Committee, if the company is covered under sub-section (1) of section 178, or the in other cases, the director possesses the requisite qualification for the practice of the profession.
(5) A director may receive remuneration by way of fee for attending meetings of the Board or Committee thereof or for any other purpose whatsoever as may be decided by the Board:
Provided that the amount of such fees shall not exceed the amount
Provided further that different fees for different classes of companies and fees in respect of may be such .
(6) A director or manager may be paid remuneration either by way of a monthly payment or at a specified percentage of the net profits of the company or partly by one way and partly by the other.
Notwithstanding anything contained in any other provision of this Act but subject to the provisions of this section, an independent director shall not be entitled to any stock option and may receive remuneration by way of fees provided under sub-section(5), reimbursement of expenses for participation in the Board and other meetings and profit related commission as may be approved by the .
(8) The net profits for the purposes of this section shall be computed in the manner referred to in section 198.
(9) If any director draws or receives, directly or indirectly, by way of remuneration any such sums in excess of the limit prescribed by this section or without the prior sanction of the Central Government, where it is required, he shall refund such sums to the company and until such sum is refunded, hold it in trust for the company.
(10) The company shall not waive the recovery of any sum refundable to it under sub-section (9) unless permitted by the Central Government.
where the company has defaulted in payment of dues to any bank or public financial institution or non-convertible debenture holders or any other secured creditor, the prior approval of the bank or public financial institution concerned or the non-convertible debenture holders or other secured creditor, as the case may be, shall be obtained by the company before obtaining approval of such waiver.
(11) In cases where Schedule V is applicable on grounds of no profits or inadequate profits, any provision relating to the remuneration of any director which purports to increase or has the effect of increasing the amount thereof, whether the provision be contained in the company’s or articles, or in an agreement entered into by it, or in any resolution passed by the company in general meeting or its Board, shall not have any effect unless such increase is in accordance with the conditions specified in that Schedule .
(12) Every listed company shall disclose in the Board’s report, the ratio of the remuneration of each director to the median employee’s remuneration and such other details
(13) Where any insurance is taken by a company on behalf of its managing director, whole-time director, manager, , or for indemnifying any of them against any liability in respect of any negligence, default, misfeasance, breach of duty or breach of trust for which they may be guilty in relation to the company, the premium paid on such insurance shall not be treated as part of the remuneration payable to any such personnel:
Provided that if such person is proved to be guilty, the premium paid on such insurance shall be treated as part of the remuneration.
(14) Subject to the provisions of this section, any director who is in receipt of any commission from the company and who is a managing or whole-time director of the company shall not be disqualified from receiving any remuneration or commission from any or of such company subject to its disclosure by the company in the Board’s report.
(15) If any person contravenes the provisions of this section, he shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.
The auditor of the company shall, in his report under section 143, make a statement as to whether the remuneration paid by the company to its directors is in accordance with the provisions of this section, whether remuneration paid to any director is in excess of the limit laid down under this section and give such other details as may be prescribed.
On and from the commencement of the Companies (Amendment) Act, 2017, any application made to the Central Government under the provisions of this section [as it stood before such commencement], which is pending with that Government shall abate, and the company shall, within one year of such commencement, obtain the approval in accordance with the provisions of this section, as so amended. ”
(The exceptions, modifications and adaptations provided above shall be applicable only to those Government Companies which has not committed a default in filing its financial statements under section 137 of the said act or annual return under section 92 of the said act with the registrar, vide notification dated 13th June, 2017)
To view the notification,Click Here
(a) is not a private company;
(b) has a minimum paid-up share capital, as may be prescribed:
Provided that a company which is a subsidiary of a company, not being a private company, shall be deemed to be public company for the purposes of this Act even where such subsidiary company continues to be a private company in its articles
Explanation.—For the purposes of this clause, the power to do administrative acts of a routine nature when so authorised by the Board such as the power to affix the common seal of the company to any document or to draw and endorse any cheque on the account of the company in any bank or to draw and endorse any negotiable instrument or to sign any certificate of share or to direct registration of transfer of any share, shall not be deemed to be included within the substantial powers of management.
Provided that on an application made by a company or body corporate, which is a holding company or a subsidiary or associate company of a company incorporated outside India and is required to follow a different financial year for consolidation of its accounts outside India, the Tribunal may, if it is satisfied, allow any period as its financial year, whether or not that period is a year:
Provided further that a company or body corporate, existing on the commencement of this Act, shall, within a period of two years from such commencement, align its financial year as per the provisions of this clause
Provided also that in case of a Specified IFSC public company, which is a subsidiary of a foreign company, the financial year of the subsidiary may be same as the financial year of its holding company and approval of the Tribunal shall not be required.
Provided also that in case of a Specified IFSC private company, which is a subsidiary of a foreign company, the financial year of the subsidiary may be same as the financial year of its holding company and approval of the Tribunal shall not be required.
Provided ‘that no approval of the company in general meeting shall be required where,—
(a) Nidhi does not have a managing director or a whole-time director or a manager;
(b) the remuneration payable during a financial year to all the directors of the Nidhi does not exceed ten per cent. of the net profits of such Nidhi or fifteen lakh rupees, whichever is less; and
(c) a remuneration payable under clause (b) is approved by a special resolution passed in this behalf by the Nidhi vide notification no. G.S.R. 465(E) dated 5th June, 2015.To view the notification,Click Here
(i) the subscriber to the memorandum of the company who shall be deemed to have agreed to become member of the company, and on its registration, shall be entered as member in its register of members;
(ii) every other person who agrees in writing to become a member of the company and whose name is entered in the register of members of the company;
(iii) every person holding shares of the company and whose name is entered as a beneficial owner in the records of a depository
Explanation.- For the purposes of this clause, the expression “company” includes any body corporate;
(i) controls the composition of the Board of Directors; or
(ii) exercises or controls more than one-half of the total voting power either at its own or together with one or more of its subsidiary companies:
Provided that such class or classes of holding companies as may be prescribed shall not have layers of subsidiaries beyond such numbers as may be prescribed.
Explanation.—For the purposes of this clause,—
(a) a company shall be deemed to be a subsidiary company of the holding company even if the control referred to in sub-clause (i) or sub-clause (ii) is of another subsidiary company of the holding company;
(b) the composition of a company’s Board of Directors shall be deemed to be controlled by another company if that other company by exercise of some power exercisable by it at its discretion can appoint or remove all or a majority of the directors;
(c) the expression “company” includes any body corporate;
(d) “layer” in relation to a holding company means its subsidiary or subsidiaries.
13.1.4-Companies (Appointment and Remuneration of Managerial Personnel) Rules,2014
4. Sitting fees.-
A company may pay a sitting fee to a director for attending meetings of the Board or committees thereof, such sum as may be decided by the Board of directors thereof which shall not exceed one lakh rupees per meeting of the Board or committee thereof: Provided that for Independent Directors and Women Directors, the sitting fee shall not be less than the sitting fee payable to other directors.
13.1.5-Companies (Appointment and Remuneration of Managerial Personnel) Rules,2014
5. Disclosure in Board’s report.-(1)Every listed company shall disclose in the Board’s report-
(i) the ratio of the remuneration of each director to the median remuneration of the employees of the company for the financial year;
(ii) the percentage increase in remuneration of each director, Chief Financial Officer,Chief Executive Officer, Company Secretary or Manager, if any, in the financial year;
(iii) the percentage increase in the median remuneration of employees in the financial year;
(iv) the number of permanent employees on the rolls of company;
(viii) average percentile increase already made in the salaries of employees other than the managerial personnel in the last financial year and its comparison with the percentile increase in the managerial remuneration and justification thereof and point out if there are any exceptional circumstances for increase in the managerial remuneration;
(x) the key parameters for any variable component of remuneration availed by the directors;
and
(xii) affirmation that the remuneration is as per the remuneration policy of the company.
Explanation.- For the purposes of this rule.-(i) the expression “median” means the numerical value separating the higher half of a population from the lower half and the median of a finite list of numbers may be found by arranging all the observations from lowest value to highest value and picking the middle one;
(ii) if there is an even number of observations, the median shall be the average of the two middle values.
(2) The board’s report shall include a statement showing the name of every employee of the company,who
(i) if employed throughout the financial year, was in receipt of remuneration for that year which, in the aggregate, was not less than sixty lakh rupees ;
(ii) if employed for a part of the financial year, was in receipt of remuneration for any part of that year, at a rate which, in the aggregate, was not less than five lakh rupees per month ;
(iii) if employed throughout the financial year or part thereof, was in receipt of remuneration in that year which, in the aggregate, or as the case may be, at a rate which, in the aggregate, is in excess of that drawn by the managing director or or manager and holds by himself or along with his spouse and dependent children, not less than two percent of the equity shares of the company.
(3) The statement referred to in sub-rule (2) shall also indicate –
(i) designation of the employee;
(ii) remuneration received;
(iii) nature of employment, whether contractual or otherwise;
(iv) qualifications and experience of the employee;
(v) date of commencement of employment;
(vi) the age of such employee;
(vii) the last employment held by such employee before joining the company;
(viii) the percentage of equity shares held by the employee in the company within the meaning of clause (iii) of sub-rule (2) above; and
(ix) whether any such employee is a relative of any director or manager of the company and if so, name of such director or manager:
Provided that the particulars of employees posted and working in a country outside India, not being directors or their relatives, drawing more than sixty lakh rupees per financial year or five lakh rupees per month, as the case may be, as may be decided by the Board, shall not be circulated to the members in the Board’s report, but such particulars shall be filed with the Registrar of Companies while filing the financial statement and Board Reports:
Provided further that such particulars shall be made available to any shareholder on a specific request made by him in writing before the date of such Annual General Meeting wherein financial statements for the relevant financial year are proposed to be adopted by shareholders and such particulars shall be made available by the company within three days from the date of receipt of such request from shareholders:
Provided also that in case of request received even after the date of completion of Annual General Meeting, such particulars shall be made available to the shareholders within seven days from the date of receipt of such request.
Amendment of Schedule V of the Companies Act, 2013 vide [S.O.1256(E)] dated 18.03.2021
Amendment to Schedule V [S.O 2922(E)] dated 12/09/2016
Amendment to Schedule V vide notification dated 12.09.2018
Commencement Notification [S.O.1255(E)] dated 18.03.2021
Commencement Notification dated 12th September 2018
Companies (Amendment) Act, 2020 dated 28.09.2020
Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2016 [G.S.R 646(E)] dated 30/06/2016
Enforcement Notification S.O. 902(E) dated 26/03/2014
Exemption to Govt Companies G.S.R. 463(E) dated 05/06/2015
Exemption to Nidhi Companies [G.S.R 465(E)] dated 05/06/2015
Exemption to Specified IFSC Public company [GSR 08(E)] dated 04/01/2017
Exemptions to Government Companies [Amendment to GSR 463(E)] dated 13/06/2017
MCA Notification dated 19.01.2023 regarding Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2023
The Companies (Amendment) Act, 2017 (Effective from 03.01.2018)
The Companies (Amendment) Act, 2019 dated 31.07.2019
The Companies (Amendment) Ordinance, 2018 dated 02.11.2018 [repealed vide the Companies (Amendment) Ordinance, 2019]
The Companies (Amendment) Ordinance, 2019 dated 12.01.2019 w.e.f., 02.11.2018
The Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2018
General Circular 07/2015
Form MR-1 – Substituted vide MCA Notification dated 19.01.2023
Form MR-1. Return for appointment of Managerial Personnel[Amended vide notification dated 30.06.2016]
Form MR-2 – Substituted vide MCA Notification dated 19.01.2023
Form MR-2 w.e.f., 12/09/2018
Form No. MR.2 [Form is Substituted vide Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2018 dated 12.09.2018]
Schedule V
(See sections 196 and 197)
PART I
CONDITIONS TO BE FULFILLED FOR THE APPOINTMENT OF A MANAGING OR WHOLE-TIME DIRECTOR OR A MANAGER WITHOUT THE APPROVAL OF THE CENTRAL GOVERNMENT
APPOINTMENTS
No person shall be eligible for appointment as a managing or whole-time director or a manager (hereinafter referred to as managerial person) of a company unless he satisfies the following conditions, namely:—
(a) he had not been sentenced to imprisonment for any period, or to a fine exceeding one thousand rupees, for the conviction of an offence under any of the following Acts, namely —
(i) the Indian Stamp Act, 1899 (2 of 1899);
(ii) the Central Excise Act, 1944 (1 of 1944);
(iii) the Industries (Development and Regulation) Act, 1951 (65 of 1951);
(iv) the Prevention of Food Adulteration Act, 1954 (37 of 1954);
(v) the Essential Commodities Act, 1955 (10 of 1955);
(vi) the Companies Act, 2013 ;
(vii) the Securities Contracts (Regulation) Act, 1956 (42 of 1956);
(viii) the Wealth-tax Act, 1957 (27 of 1957);
(ix) the Income-tax Act, 1961 (43 of 1961);
(x) the Customs Act, 1962 (52 of 1962);
(xi) the Competition Act, 2002 (12 of 2003);
(xii) the Foreign Exchange Management Act, 1999 (42 of 1999);
(xiii) the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986);
(xiv) the Securities and Exchange Board of India Act, 1992 (15 of 1992);
(xv) the Foreign Trade (Development and Regulation) Act, 1922 (22 of 1922);
(xvi) the Prevention of Money-Laundering Act, 2002 (15 of 2003);
the Insolvency and Bankruptcy Code, 201.6 (31 of 2016)
the Goods and Services Tax Act,20t7 (12 of 2017)
the Fugitive Economic Offenders Act, 2018 (17 of2018)
(b) he had not been detained for any period under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (52 of 1974):
Provided that where the Central Government has given its approval to the appointment of a person convicted or detained under sub-paragraph (a) or sub-paragraph (b), as the case may be, no further approval of the Central Government shall be necessary for the subsequent appointment of that person if he had not been so convicted or detained subsequent to such approval.
(c) he has completed the age of twenty-one years and has not attained the age of seventy years:
Provided that where he has attained the age of seventy years; and where his appointment is approved by a special resolution passed by the company in general meeting, no further approval of the Central Government shall be necessary for such appointment;
(e) he is resident of India.
Explanation I.—For the purpose of this Schedule, resident in India includes a person who has been staying in India for a continuous period of not less than twelve months immediately preceding the date of his appointment as a managerial person and who has come to stay in India,—
(i) for taking up employment in India; or
(ii) for carrying on a business or vacation in India.
Explanation II.—This condition shall not apply to the companies in Special Economic Zones as notified by Department of Commerce from time to time:
Provided that a person, being a non-resident in India shall enter India only after obtaining a proper Employment Visa from the concerned Indian mission abroad. For this purpose, such person shall be required to furnish, along with the visa application form, profile of the company, the principal employer and terms and conditions of such person’s appointment.
PART II
REMUNERATION
Section I.— Remuneration payable by companies having profits:
Subject to the provisions of section 197, a company having profits in a financial year may pay remuneration to a managerial person or persons not exceeding the limits specified in such section.
Where in any financial year during the currency of tenure of a managerial person , a company has no profits or its profits are inadequate, it may, , pay remuneration to the managerial person not exceeding, the limits under (A) and (B) given below:-
| (1) | (2) | (3) | |
| Sl.No | Where the effective capital (in rupees) is | Limit of yearly remuneration payable shall not exceed (in Rupess) in case of a managerial person | Limit of yearly remuneration payable shall not exceed (in rupees) in case of other director |
| (i) | Negative or less than 5 crores. | 60 lakhs | 12 Lakhs |
| (ii) | 5 crores and above but less than 100 crores. | 84 lakhs | 17 Lakhs |
| (iii) | 100 crores and above but less than 250 crores. | 120 lakhs | 24 Lakhs |
| (iv) | 250 crores and above. | 120 lakhs plus 0.01% of the effective capital in excess of Rs.250 crores: | 24 Lakhs plus 0.01% of the effective capital in excess of Rs.250 crores: |
(1) (2)
Where the effective capital is Limit of yearly remuneration payable shall not exceed (Rupees)
(i) Negative or less than 5 crores 60 lakhs
(ii) 5 crores and above but less than 100 crores 84 lakhs
(iii) 100 crores and above but less than 250
crores120 lakhs
(iv) 250 crores and above 120 lakhs plus 0.01% of the effective capital in excess of
Rs. 250 crores :
Provided that the above limits shall be doubled if the resolution passed by the shareholders is a special resolution.
Explanation.- It is hereby clarified that for a period less than one year, the limits shall be pro-rated.
(B) In case of a managerial person who is functioning in a professional capacity, no approval of Central Government is required, if such managerial person is not having any interest in the capital of the company or its holding company or any of its subsidiaries directly or indirectly or through any other statutory structures and not having any direct or indirect interest or related to the directors or promoters of the company or its holding company or any of its subsidiaries at any time during the last two years before or on or after the date of appointment and possess graduate level qualification with expertise and specialized knowledge in the field in which of the company operates:
Provided that any employee of a company holding shares of the company not exceeding 0.5% of its paid up share capital under any scheme formulated for allotment of shares to such employees including Employees Stock Option Plan or by way of qualification shall be deemed to be a person not having any interest in the capital of the company;
Provided further that the limits specified under items (A) and (B) of this section shall apply ,if-
(i) payment of remuneration is approved by a resolution passed by the Board and, in that case of a company covered under sub-section (1) of section 178 also by the Nomination and Remuneration Committee;
the company has not committed any default in payment of dues to any bank or public financial institution or non-convertible debenture holders or any other secured creditor, and in case of default, the prior approval of the bank or public financial institution concerned or the non-convertible debenture holders or other secured creditor, as the case may be, shall be obtained by the company before obtaining the approval in the general meeting.
(ii) the company has not committed any default in repayment of any of its debts (including public deposits) or debentures or interest payable thereon for a continuous period of thirty days in the preceding financial year before the date of appointment of such managerial person and in case of a default, the company obtains prior approval from secured creditors for the proposed remuneration and the fact of such prior approval having been obtained is mentioned in the explanatory statement to the notice convening the general meeting;
(iii) an ordinary resolution or a special resolution, as the case may be, has been passed for payment of remuneration as per the item (A) or a special resolution has been passed for payment of remuneration as per the item (A) or a special resolution has been passed for payment of remuneration as per item (B), at the general meeting of the company 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) Foreign investments or collaborations, 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 with respect to the country of his origin)
(7) Pecuniary relationship directly or indirectly with the company, or relation 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
The following disclosures shall be mentioned in the Board of Director’s report under the heading “Corporate Governance”, if any, attached to the financial statement:
(i) all elements of remuneration package such as salary, benefits, bonuses, stock options, pension, etc., of all the directors;
(ii) details of fixed components and performance linked incentives along with the performance criteria;
(iii) service contracts, notice periods, severance fees; and
(iv) stock option details, if any, and whether the same had been issued at a discount as well as the period over which accrued and over which excercisable.
Explanation: For the purposes of Section II of this part, “Statutory Structure” means an entity which is entitled to hold shares in any company formed under any statute.”
Section II.— Remuneration payable by companies having no profit or inadequate profit without Central Government approval:
Where in any financial year during the currency of tenure of a managerial person, a company has no profits or its profits are inadequate, it may, without Central Government approval, pay remuneration to the managerial person not exceeding the higher of the limits under (A) and (B) given below:—
(A):
Provided that the above limits shall be doubled if the resolution passed by the shareholders is a special resolution.
Explanation.—It is hereby clarified that for a period less than one year, the limits shall be pro-rated.
(B) In the case of a managerial person who was not a security holder holding securities of the company of nominal value of rupees five lakh or more or an employee or a director of the company or not related to any director or promoter at any time during the two years prior to his appointment as a managerial person, — 2.5% of the current relevant profit:
Provided that if the resolution passed by the shareholders is a special resolution, this limit shall be doubled:
Provided further that the limits specified under this section shall apply, if—
(i) payment of remuneration is approved by a resolution passed by the Board and, in the case of a company covered under sub-section (1) of section 178 also by the Nomination and Remuneration Committee;
(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:—
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) Foreign investments or collaborations, if any.
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 with respect to 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.
Disclosures:
The following disclosures shall be mentioned in the Board of Director’s report under the heading “Corporate Governance”, if any, attached to the financial statement:—
(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.
Section III.— Remuneration payable by companies having no profit or inadequate profit in certain special circumstances:
In the following circumstances a company may, , pay remuneration to a managerial person in excess of the amounts provided in Section II above:—
(a) where the remuneration in excess of the limits specified in Section I or II is paid by any other company and that other company is either a foreign company or has got the approval of its shareholders in general meeting to make such payment, and treats this amount as managerial remuneration for the purpose of section 197 and the total managerial remuneration payable by such other company to its managerial persons including such amount or amounts is within permissible limits under section 197.
(i) is a newly incorporated company, for a period of seven years from the date of its incorporation, or
(ii) is a sick company, for whom a scheme of revival or rehabilitation has been ordered by the Board for Industrial and Financial Reconstruction for a period of five years from the date of sanction of scheme of revival, or
(iii) is a company in relation to which a resolution plan has been approved by the National Company Law Tribunal under the Insolvency and Bankruptcy Code, 2016 for a period of five years from the date of such approval,
it may pay remuneration up to two times the amount permissible under section II
(b) where the company—
(i) is a newly incorporated company, for a period of seven years from the date of its incorporation, or
(ii) is a sick company, for whom a scheme of revival or rehabilitation has been ordered by the Board for Industrial and Financial Reconstruction or National Company Law Tribunal, for a period of five years from the date of sanction of scheme of revival,
it may pay remuneration up to two times the amount permissible under Section II.
(c) where remuneration of a managerial person exceeds the limits in Section II but the remuneration has been fixed by the Board for Industrial and Financial Reconstruction or the National Company Law Tribunal:
Provided that the limits under this Section shall be applicable subject to meeting all the conditions specified under Section II and the following additional conditions:—
(i) except as provided in para (a) of this Section, the managerial person is not receiving remuneration from any other company;
(ii) the auditor or Company Secretary of the company or where the company has not appointed a Secretary, a Secretary in whole-time practice, certifies that all secured creditors and term lenders have stated in writing that they have no objection for the appointment of the managerial person as well as the quantum of remuneration and such certificate is filed along with the return as prescribed under sub-section (4) of section 196.
(iii) the auditor or Company Secretary or where the company has not appointed a secretary, a secretary in whole-time practice certifies that there is no default on payments to any creditors, and all dues to deposit holders are being settled on time.
For the purposes of Section I, Section II and Section III, the term ―”or other director” shall mean a non-executive director or an independent director.
Section IV.— Perquisites not included in managerial remuneration:
- A managerial person shall be eligible for the following perquisites which shall not be included in the computation of the ceiling on remuneration specified in Section II and Section III:—
(a) contribution to provident fund, superannuation fund or annuity fund to the extent these either singly or put together are not taxable under the Income-tax Act, 1961 (43 of 1961);
(b) gratuity payable at a rate not exceeding half a month’s salary for each completed year of service; and
(c) encashment of leave at the end of the tenure.
- In addition to the perquisites specified in paragraph 1 of this section, an expatriate managerial person (including a non-resident Indian) shall be eligible to the following perquisites which shall not be included in the computation of the ceiling on remuneration specified in Section II or Section III—
(a) Children’s education allowance: In case of children studying in or outside India, an allowance limited to a maximum of Rs. 12,000 per month per child or actual expenses incurred, whichever is less. Such allowance is admissible up to a maximum of two children.
(b) Holiday passage for children studying outside India or family staying abroad: Return holiday passage once in a year by economy class or once in two years by first class to children and to the members of the family from the place of their study or stay abroad to India if they are not residing in India, with the managerial person.
(c) Leave travel concession: Return passage for self and family in accordance with the rules specified by the company where it is proposed that the leave be spent in home country instead of anywhere in India.
Explanation I.— For the purposes of Section II of this Part, “effective capital” means 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, over drafts, 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 investment by an investment company whose principal business is acquisition of shares, stock, debentures or other securities), accumulated losses and preliminary expenses not written off.
Explanation II.— (a) Where the appointment of the managerial person is made in the year in which company has been incorporated, the effective capital shall be calculated as on the date of such appointment;
(b) In any other case the effective capital shall be calculated as on the last date of the financial year preceding the financial year in which the appointment of the managerial person is made.
Explanation III.— For the purposes of this Schedule, ‘‘family’’ means the spouse, dependent children and dependent parents of the managerial person.
Explanation IV.— The Nomination and Remuneration Committee while approving the remuneration under Section II or Section III, 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 V.— For the purposes of this Schedule, “negative effective capital” means the effective capital which is calculated in accordance with the provisions contained in Explanation I of this Part is less than zero.
Explanation VI.— For the purposes of this Schedule:—
(B) “Remuneration” means remuneration as defined in clause (78) of section 2 and includes reimbursement of any direct taxes to the managerial person.
Section V. —Remuneration payable to a managerial person in two companies:
Subject to the provisions of sections I to IV, a managerial person shall draw remuneration from one or both companies, provided that the total remuneration drawn from the companies does not exceed the higher maximum limit admissible from any one of the companies of which he is a managerial person.
PART III
Provisions applicable to Parts I and II of this Schedule
- The appointment and remuneration referred to in Part I and Part II of this Schedule shall be subject to approval by a resolution of the shareholders in general meeting.
- The auditor or the Secretary of the company or where the company is not required to appointed a Secretary, a Secretary in whole-time practice shall certify that the requirement of this Schedule have been complied with and such certificate shall be incorporated in the return filed with the Registrar under sub-section (4) of section 196.
PART IV
The Central Government may, by notification, exempt any class or classes of companies from any of the requirements contained in this Schedule.
2. The words ‘without Central Government approval’ are omitted vide Amendment Notification dated 12.09.2018.To view the notification,Click Here