India Financial Consultancy

Managerial Remuneration in a Company -2 [SCHEDULE XIII] (See section 198, 269, 310 and 311)

[SCHEDULE XIII]

(See section 198, 269, 310 and 311)

Condition to be fulfilled for the appointment of a managing or whole-time director or a manager with out the approval of the Central Government

[PART I]

Appointments

No person shall be eligible for appointment as a managing or whole-time director or a manager (herein after referred to as marginal 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: –

• The Indian stamp Act, 1899 (2 of 1899),
• The Central Excise and Salt Act, 1944 (1 of 1944),
• The Industries (Development and Regulation) Act, 1951 (65 of 1951),
• The Prevention of Food Adulteration Act, 1954 (37 of 1954),
• The Essential Commodities Act, 1955 (10 of 1955),
• The Companies Act, 1956 (1 of 1956),
• The Securities Contracts (Regulation) Act, 1956 (42 of 1956),
• The Wealth Tex Act, 1957 (27 of 1957),
• The Income Tax Act, 1961 (43 of 1961),
• The Custom Act, 1962 (52 of 1962),
• The Monopolies and Restrictive Trade Practices Act, 1969 (54 of 1969),
• The Foreign Exchange Regulation Act, 1973 (46 of 1973),
• The Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986),
• The Securities and Exchange Board of India Act, 1992 (15 of 1992),
• The Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992),

(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 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 25 years and has not attained the age of 70 years:

Provided that where-

• He has not completed the age of 25 years, but has attained the age of majority; or
• He has attained the age of 70 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

(d) Where he is a managerial person in more than one company he draws remuneration from one or more companies subject to the ceiling provided in section III of Part II;]

(e) He is resident in India.

Explanation ²[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, –

•  For taking up employment in India, or
• for carrying on a business or vocation in India.

³ [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 198 and section 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 five percent of its net profits for one such managerial person, and if there is more than one such managerial person, ten percent for all of them together.

Section II. – Remuneration payable by companies having no profits or inadequate profits.

¹[I. 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 the ceiling limit of Rs. 2400000 per annum or Rs. 200000 per month calculated on the following scale:-

Where the effective capital  Of Company is Monthly remuneration payable shall not exceed (Rupees)

• less than rupees 1 crore                                                            75000
• rupees 1 crore or more but less than rupees 5 crores        100000
• rupees 5 crores or more but less than rupees 25 crores    125000
• rupees 25 crores or more but less than rupees 50 crores  150000
• rupees 50 crores or more but less than Rupees 100 crs   175000
• rupees 100 crores or more                                                      200000

Provided that the ceiling limits specified under this sub paragraph shall apply, if –

• payment of remuneration is approved by a resolution passed by the Remuneration Committee;
• 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. 4800000 per annum or Rs. 400000 per month calculated on the following scale:-

Where the effective capital   Of Company is Monthly remuneration Payable shall not exceed (Rupees)

• Less than rupees 1 crore                                                            150000
• rupees 1 crore or more but less than rupees  crores           200000
• rupees 5 crores or more but less than rupees 25 crores     250000
• rupees 25 crores or more but less than rupees 50 crores  300000
• rupees 50 crores or more but less than rupees 100 crore 350000
• rupees 100 crores or more                                                       400000

Provided that  the ceiling limit specified under this paragraph shall apply, if-

• payment of remuneration is approved by a resolution passed by the Remuneration Committee;Provided that the ceiling limits specified under this sub-paragraph shall apply, if –
• 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;
• A special resolution has been passed at the general meeting of the company for payment of remuneration for a period not exceeding three years;
• A statement along with a notice calling the general meeting referred to in clause (iii) is given to the shareholders containing the following, namely:-

 I.General Information;

• Nature of industry-
• Date or expected date of commencement of commercial production.
• In case of new companies, expected date of commencement of activities as per project approved by financial institutions appearing in the prospectus.
• Financial performance based on given indicators.
• Export performance and net foreign exchange collaborations.
• Foreign investments or collaborators, if any.

 II.Information about the appointee:

• Background details.
• Past remuneration.
• Recognition or awards.
• Job profile and his suitability.
• Remuneration proposed.
• 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.)
• Pecuniary relationship directly or indirectly with the company, or relationship with the managerial personal, if any.

III.Other Information:

• Reason of loss or inadequate profits.
• Steps taken or proposed to be taken for improvement.
• Expected increase in productivity and profits in measurable terms.                          

 IV.  Disclosures:

(A)The shareholders of the company shall be informed of the remuneration package of      the managerial person.

(B)The following disclosures shall be mentioned in the Board of Directors report under       the heading “Corporate Governance”, if any, attached to the annual report: –

• All elements of remuneration package such as salary, benefits, bonuses, stock   options, pension, etc. of all the directors;
• Details of fixed component and performance linked incentives along with the performance criteria;
• Service contracts, notice period, severance fees;
• Stock option details, if and, and whether the same has been issued at a discount as well as the period over which accrued and over which exercisable.

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