MCA vide its notification dated
September 12, 2016 amends Schedule V of Companies Act, 2013 giving
relaxation to the companies in terms of payment of remuneration by
companies having no profit or inadequate profit without Central Government
approval subject to stringent conditions in line with the Mr. Narendra Modi's
slogan of "MINIMUM GOVERNMENT, MAXIMUM GOVERNANCE."
The said notification is effective from
the date of its publication in official gazette.
Section 197 of Companies Act, 2013 read
with SCHEDULE V deals
with the overall maximum managerial remuneration and managerial remuneration in
case of absence or inadequacy of profits.
However Companies Act, 2013 doesn’t
impose any restriction or limit on payment of remuneration by a private
company.
This article discussed/analyzed the
recent amendment made in aforesaid Schedule V of Companies Act, 2013.
The amended portion has been marked in
blue.
Schedule V
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Existing Provisions
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Amended Provisions
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Comment/Remark
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Item A of SECTION II
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Limit of yearly remuneration payable shall
not exceed(Rupees)
i)Rs. 30 lakhs, where the effective capital
is Negative or less than 5 crores.
ii)Rs. 42 lakhs, where the effective
capital is 5 crores and above but less than 100 crores.
iii) Rs.60 lakhs, where the effective
capital is 100 crores and above but less than 250 crores.
iv) 60 lakhs plus 0.01% of the effective
capital in excess of Rs.250 crores, where the effective capital is 250
crores or above.
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Limit of yearly remuneration payable shall
not exceed(Rupees)
i) Rs. 60 lakhs, where the effective
capital is Negative or less than 5 crores.
ii)Rs. 84 lakhs, where the effective
capital is 5 crores and above but less than 100 crores.
iii)Rs.120 lakhs, where the effective
capital is 100 crores and above but less than 250 crores.
iv)120 lakhs plus 0.01% of the
effective capital in excess of Rs.250 crores, where the effective
capital is 250 crores or above.
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The amendment aims to enhance the statutory
yearly remuneration limit considerably i.e. twice the existing limits.
Apart from keeping many practical
difficulties at bay, this will lead to reduction in compliances with more
remuneration to managerial persons.
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Item B of SECTION II and 1st Proviso to
Item B of SECTION II
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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:
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In case of a managerial person who is
functioning in a professional capacity, no approval of Central Government is
required, if such managerial person is not having any interest in the capital
of the company or its holding company or any of its subsidiaries directly or
indirectly or through any other statutory structures and not having any
direct or indirect interest or related to the directors or
promoters of the company or its holding company or any of its subsidiaries
at any time during the last two years before or on or after the
date of appointment and possesses graduate level qualification with expertise
and specialised knowledge in the field in which the company operates:
Explanation: For the purpose of Section II
of this part ,”Statutory Structure” means an entity which is entitled to hold
shares in any company formed under any statue.
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The amendment has done a volte face by
increasing the scope of payment of remuneration but with lay stricter norms
with less formalities.
This new insertion suits the Mr. Narendra
Modi's slogan of MINIMUM GOVERNMENT, MAXIMUM GOVERNANCE as it
done away the provisions of Central Government approval requirement (even if
company exceed double limit), which can be matter of great concerns for small
shareholders. Now companies are free to pay any remuneration subject to the
conditions.
However on the other hand, MCA has made the
provisions stringent to avail the benefits under Item B :
As of now managerial person can hold max
Rs.5 lakhs nominal value of security in the company and may be
related to directors or employees of holding or subsidiaries company and the
specified conditions need to be complied before appointment
but now even after appointment also.
By virtue of
amendment managerial person who is functioning in professional
capacity is debarred from having any
i)Interest in the capital of the
company(neither through statutory structures),
ii) Interest or related to directors or
promoters
of its holding company or any of its
subsidiaries directly or indirectly during the last two years
before or ON OR AFTER the date of appointment.
Besides this he should possess graduation
level qualification with expertise and specialization in field in which
company operates.
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1st Proviso to Item B of
SECTION II
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Provided that if the resolution passed by
the shareholders is a special resolution, this limit shall be doubled:
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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 ESOP or by way of qualification shall be deemed to be a person not
having any interest in the capital of the company
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The new insertions mandates the passing of
Special resolution for payment of remuneration as per item (B) with the
removal of requirement of CG approval. (even if company exceed double limit)
Any employee holding shares upto 0.5% of
paid up share capital under ESOP or any other formulated scheme may be paid
remuneration under item (B) and shall be deemed to be a person not having any
interest in the capital of the company.
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2nd Proviso to Item B of
SECTION II
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Provided further that the
limits specified under this section shall apply if:
Xxxx
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;
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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 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 special
resolution, as the case may be, has been passed for payment of
remuneration as per the limit laid down in 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.
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ii) This is a welcome amendment as of now
if company is debarred from payment of remuneration under Section II if it
has committed any default in payment of debts. But by virtue of amendment,
company can pay remuneration by obtaining prior approval from secured
creditors and mentioning this fact in explanatory
Statement to the notice of GM.
ii)This is a clarificatory change as it
introduce ordinary resolution for limit laid down in item (A)(where limit in
item (A)is not doubled)
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Disclaimer: This write up is based on the understanding and
interpretation of author and the same is not intended to be a professional
advice.
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