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Remuneration Payable to Managerial Personnel

[Submitted by Sachin Manohar Dumbre,
B.Com., CA(Final) Student,
Mumbai, Maharashtra]

February 14, 2008

To Increase the Remuneration Payable to any of Your Company's Managerial Personnel

To Increase Remuneration of the Directors of Your Company

To Pay Increased Remuneration Without Government Approval

To Fix Remuneration of Managing / Whole-Time Director

To Increase the Sitting Fees of Directors Beyond Prescribed Limits

To Pay Minimum Remuneration to Managers or Directors or MAnaging/Whole-time Directors in case Your Company is Sick

To Pay Remuneration to a Director in any Other Capacity

 

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 by issuing notice at least twenty one days before the date of the meeting along with explanatory statement and pass a resolution increasing the remuneration and, if the Articles of Association so require, hold a General Meeting after giving notice to all the directors of the company as per section 286 and pass the said resolution therein. [Section 171(1) read with section 173(2)] Wherever necessary, complete proceedings to alter Articles also.
     
  3. In the case of a public company or its subsidiary, increase the remuneration within the limits fixed under sections 198 and 309 by holding a General Meeting by issuing notice at least twenty one days before the date of the meeting along with relevant explanatory tatement and passing an Ordinary Resolution [Section 171(1) read with section 173(2)]. This will, however, be subject to the approval of the Central Government unless, in case of increase in director's sitting fees, such fee, after the increase, does not exceed the amount of Rs.2000/-, per director, per sitting. [Section 310 read with Rule 10B of the companies (Central Government's) General Rules & Forms, 1956].
     
  4. 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 recognized Stock Exchange.
     
  5. The limits to the remuneration payable to the managing director or whole time director is five per cent of the net profits of the company when there is one such person and 10 per cent when there are more than one such director. These limits can be exceeded with the approval of the Central Government.
     
  6. In case of a manager, the limit is five per cent of the et profits of the company which can be exceeded with the approval of the Central Government.
     
  7. 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.
     
  8. The overall limit of all such remuneration must be within eleven per cent of the net profits of the company. (Section 198). These percentages should be taken note of while increasing the remuneration.
     
  9. 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.
     
  10. In the case of the managing director or manager (in respect of which any director is concerned or interested in an way), send an abstract of terms of variation within twenty one days of the variation to every member of your company.
     
  11. Give general notice to all the members indicating the nature of the application to be made to the Central Government. 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.
     
  12. Make the application in Form No.26 and enclose thereto the following:-
     
    1. A copy of the proposed amendments to the Articles of Association and also of the agreement, if any;
       
    2. A copy of the resolution concerned;
       
    3. Two copies of each of the notices published in the newspapers certified by the company to have been duly published under section 640B;
       
    4. A treasury challan or demand draft evidencing payment of the requisite fees prescribed under the companies (Fees on Applications) Rules, 1968;
       
    5. A 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
       
  13. If the application fee is paid by way of treasury challan, then pa the requisite fee of minimum of Rs.50/- and maximum of Rs.500/- as the case may be, in cash and as prescribed by the companies (Fees on Applications) Rules, 1968, by way of treasury challan prepared in triplicate and paid into any of the specified branches of the Punjab National Bank for credit under the head of account 'Major Head 104-Other General Economic Services - Regulation of Joint Stock Companies - Fees realized by the Central Government on application made to it under the companies Act, 1956 [Rule 22(2)]. Two copies of the challan will be given back to the depositor by the said branch of the said bank and the original copy should be attached to the application.
     
  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 any bank located in New Delhi, and the said demand draft should be attached to the application.
     
  15. Send a copy of the application with all enclosures to the concerned Registrar of Companies.
     
  16. On receipt of the approval, the increase in remuneration will be effective from the date as mentioned in approval letter.
     
  17. If your company is a Government company, then you are exempted from all the provisions of section 198.
     

Important Note

Sections, 310, 311 : Departmental Clarification: Departmental Clarification [Circular No.3 of 1989, dated 13-4-1989 (1989) 65 Com Cases 558 (St.)] regarding the amendments made by the companies (Amendment) Act, 1988 may be noted:--

Section 310/311:
Approval of the Central Government will not be required in cases where the increase in remuneration is in accordance with the terms and conditions specified in Part II read with Part III of Schedule XIII. However, no return is required to be filed with the concerned Registrar of Companies and no further resolution in respect of paragraph 1 of Part III will be required to be passed if the proposed increase is already covered b an earlier resolution of the share holders. Similarly, resolution regarding 10% cut will also not be required, if covered by an earlier resolution. [This liberal interpretation may not be strictly correct legal view as the two prerequisites for the purposes of section 310 or section 311 are:--

  1. the case for increase should be one to which Schedule XIII (as a whole) is applicable; and
  2. the increase should be in accordance with Schedule XIII

 

TO INCREASE REMUNERATION OF THE DIRECTORS OF YOUR COMPANY

  1. If your company is a public company or a private company which is 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 to the Act.
     
  2. If such increase in the amount of remuneration is by way of increase in sitting fees not exceeding the specified amount [Refer item No.3 of Topic 95] for attending Board Meetings or Committee Meetings, then you are not required to obtain any approval of the Central Government.
     
  3. Consult the Articles of your company whether it contains provision for such increase, otherwise amend the articles vide topic 24.
     
  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. Issue notices 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.
     
  6. If your company is listed on a recognized Stock Exchange, forward promptly to the concerned Stock Exchange, three copies of the notice and a copy of the proceedings of the General Meeting.
     
  7. If the resolution passed is a Special Resolution, file it in Form No.23 with the Registrar within thirty days of its passing [Section 192] after paying the requisite fee in cash or by postal order prescribed under Schedule X to the Companies Ac t, 1956. Postal order is accepted up to Rs.50/-.
     
  8. 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.
     
  9. If your company is listed on a recognized Stock Exchange, then forward promptly to the Stock Exchange three copies of the notice so published.
     
  10. Make an application to the Central Government in Form No.26 and attach the following documents to the application:--

    i) Two certified copies of each of the notices published in English and the vernacular paper under section 640B

    ii) A 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 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 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 in token of the payment of the prescribed fees, prescribed b the companies (Fees on Applications) Rules, 1968.
     
  11. If the application fee is paid by way of treasury challan then pa the requisite fee as prescribed under the Companies (Fees on Applications) Rules, 1968, in cash, into any of the branches of the Punjab National Bank through treasury challan prepared in triplicate for credit under the head account, "Major Head 104 -Other General Economic Services-Regulation of Joint Stock Companies-Fees realized by the Central Government o n applications made to it under the Companies Act, 1956". [Rule 22(2)]. 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.
     
  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.
     
  13. 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.
     
  14. 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.
     
  15. If your company is a Government company, then it is exempted from the provisions of section 310.
     
  16. Note : See also Departmental Clarification Circular No.3 of 1989 dated 13-4-1989 printed at the end of Topic 95.

 

TO PAY INCREASED REMUNERATION WITHOUT GOVERNMENT APPROVAL

  1. Note that no approval of the Central Government is required for paying increased remuneration so long as the requirements of Schedule XIII are complied with.
     
  2. Note also that the requirements of Schedule XIII are divided basically into two parts, one relating to appointment and the other relating to remuneration as per certain slabs or as per profits of the company. Therefore, the appointment of the person must be shown to satisfy the requirements of Schedule XIII. It follows that in the case of an appointee who had been appointed prior to 15th June, 1988, the question of complying with the requirements of Schedule XIII would not simply arise.
     
  3. All appointees appointed after 15th June, 1988 where such appointments are fresh appointments or reappointments can take the benefit of getting increased remuneration b 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.
     
  4. Except for the steps recommended for obtaining approval of the Central Government, follow the other steps for paying increased remuneration, as per Topics 95 and 96. 

  

TO FIX REMUNERATION OF MANAGING/WHOLE TIME DIRECTOR

  1. Remuneration of a managing/whole time director may be fixed in an 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;
     
  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 directors, 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 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 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.
     
  3. 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 (c) above;

    ii) Make an application to the Central government in Form No.25A along with the following documents:
     
        a) A copy of the Memorandum and Articles of Association of your company;
     
        b) A copy of the Board resolution or the Special Resolution, as the case may be;
     
        c) A 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, 1968.
     
    iii) Send a copy of this application, along with copy of each of the documents attached to it, to the Registrar of Companies simultaneously.
     
    iv) On receipt of the approval of the Central Government, the remuneration fixed will be effective from the date as mentioned in the approval letter.
     
  4. Any remuneration paid to a duly qualified and recognized as such by the Central Government to a whole time/managing director for rendering professional services shall not be included in fixing remuneration payable to him under the provisions of the Act.

  

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.2000/- 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 resolution increasing sitting fees of directors beyond the prescribed limits unless otherwise required by your Articles subject to the approval of the Central Government.
     
  2. 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.
     
  3. 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.
     
  4. Make an application to the Central Government in Form No.26 in accordance with Rules 20A of Companies General Rules & Forms, 1956 and attach the following documents thereto:--
     
    i) Two certified copies of each of the notices published in English and vernacular papers;
     
    ii) A certified 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 copy of the balance sheet and profit and loss account each for last two years.
     
    iv) A 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 in token of the payment of the requisite fees as prescribed under the companies (Fees on Application) Rules, 1968.
     
  5. If the application fee is paid by way of treasury challan then pay the requisite fee in cash and as prescribed by the companies (Fees on Application) Rules, 1968 by way of treasury challan prepared in triplicate and paid into any of the specified branches of the Punjab National Bank for Credit under the head of account Major Head 104 - Other General Economic Services - Regulation of Joint Stock Companies - Fees realised by the Central Government on application made to it under the Companies Act, 1956. 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.
     
  6. 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.
     
  7. 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 24.
     
  8. 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.
     
  9. The approval of the Central Government will not be necessary unless your company is a public company or its subsidiary.
     
  10. 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.

  
TO PAY MINIMUM REMUNERATION TO MANAGERS OR DIRECTORS OR MANAGING/WHOLE TIME DIRECTORS IN CASE YOUR COMPANY IS SICK

  1. The approval of the Central Government is needed to pay minimum remuneration to managers or directors or managing/whole time directors in case you are not eligible to pay such remuneration in accordance with Schedule XIII.
     
  2. Convene a Board Meeting after giving notice to all the directors of the company as per section 286 and pass a resolution giving authority to apply to the Central Government.
     
  3. 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.25-A (Part-B) and attach the following documents thereto:--
     
    i) One certified copy of the Memorandum and Articles of Association of the company;
     
    ii) One certified 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 copy of the Board resolution authorizing the making of application to the Central Government.
     
    iv) Treasury challan or demand draft evidencing the payment of requisite fees prescribed under the Companies (Fees on Application) Rules, 1968.
     
  4. If the application fee is paid by way of treasury challan then pay the requisite fee in cash and as prescribed by the Companies (Fees on Application) Rules, 1968 by way of treasury challan prepared in triplicate and paid into any of the specified branches of the Punjab National Bank for Credit under the head of account Major Head 104 - Other General Economic Services - Regulation of Joint Stock Companies - Fees realized by the Central Government on application made to it under the Companies Act, 1956. 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.
     
  5. 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.
     
  6. Forward three copies of notice and a copy of proceedings of the General Meeting promptly to the Stock Exchange with which your company is enlisted.

  

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.
     
  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 notice 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.
     
    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.6,000, prior consent of the company in General Meeting by Special Resolution and approval of the Central Government is necessary;
     
    d) Issue notices 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; [Section 171(1) read with section 173(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.
     
    f) File a copy of the Special Resolution with Explanatory Statement in Form No.23 with the Registrar within thirty days of the passing after paying the requisite fee in cash prescribed under Schedule X to the Companies Act, 1956 Act.
     
    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, prescribed under the companies (Fees on Application) Rules, 1968 and deliver a copy of the application along with a copy of all enclosures to the Registrar. Pay the requisite fee prescribed under the companies (Fees on Applications) Rules, 1968;
     
    h) If a managing director or a whole time director is appointed to an office or place of profit carrying a monthly remuneration of Rs.12,000 or more, then approval of the Central Government will not be necessary under section 314(1B) since such approval is already taken under section 198, 269, 310 or 311.
     
  3. If the application fee is paid by way of treasury challan then pay the requisite fee in cash and as prescribed by the companies (Fees on Application) Rules, 1968 by way of treasury challan prepared in triplicate and paid into any of the specified branches of the Punjab National Bank for Credit under the head of account Major Head 104 - Other General Economic Services - Regulation of Joint Stock Companies - Fees realised by the Central Government on application made to it under the companies Act, 1956. 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.
     
  4. 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.
     
  5. 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 authorizing 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 there under.
     
    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 subsection (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 Additional 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 copy of the certificate evidencing the professional qualification of the director;
        ii) A certified 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, 1968.
     
    i) Forward simultaneously to the Registrar of Companies a copy of the application along with a copy of each of the documents attached to it.
     
  6. If the application fee is paid by way of treasury challan then pay the requisite fee in cash and as prescribed by the Companies (Fees on Application) Rules, 1968 by way of treasury challan prepared in triplicate and paid into any of the specified branches of the Punjab National Bank for Credit under the head of account Major Head 104 - Other General Economic Services - Regulation of Joint Stock Companies - Fees realized by the Central Government on application made to it under the companies Act, 1956. 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.
     
  7. 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 the said demand draft should be attached to the application to the Central Government.
     
  8. The Central Government often insists on an application to be made for increase in remuneration under section 310. 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 96.

  

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