CG Approval for Increasing
Managerial Remuneration Over And Above Ceiling Limit
In the article below we will discuss about the
provisions in respect of compliances in respect of increasing the managerial
remuneration to the overall limit as per the provisions of Companies Act, 2013
and also that as amended by the Companies (Amendment) Act, 2017
·
Prior to the
Companies Amendment Act 2017, the company was required to take the approval of
central government in case where it wanted to exceed the overall ceiling of
remuneration of 11% of the net profits of the company, which is now with the
amendment act waived off.
Interpretation:
The company is not at all required to take approval of central government if it
wants’ to pay remuneration in excess of 11% of net profit of the company.
·
Prior to the
Companies Amendment Act 2017, it was further required to take approval from
shareholders through Ordinary resolution
in case where the remuneration limits for the following was to be raised above
given limits
|
S.No
|
Designation
|
Limit
|
|
1.
|
Any
One MD/WTD/Manager
|
5%
|
|
2.
|
More
than one MD/WTD/Manager
|
10%
taken together
|
|
3.
|
Other
than MD/WTD when there is managing or whole-time director or manager
|
1%
|
|
4.
|
Other
cases
|
3%
|
Post the assent by President on Companies
Amendment Act 2017, you are required to take approval from shareholders through special resolution
·
It is further
added that if the company is in default for payment of dues to any bank or
public financial institution or non-convertible debenture holders or any other
secured creditor, then the company is required to take prior approval of those
stakeholders before taking approval in general meeting
Interpretation:
if you have a default of non-payment of dues with banks and other institutions
then first take their approval and then you may take approval of the
shareholders in the general meeting through special resolution.
·
Earlier the
company was allowed to pay remuneration to its director in case of loss or
inadequate profits in accordance with Schedule V or Central government as the
case may be. But now the approval from Central Government is omitted.
Interpretation:
Now if a company incurs Losses or has Inadequate Profits then it can pay
remuneration to its directors ONLY in accordance with the provisions of
Schedule V.
·
If a director
draws excess salary then he was required to refund such sum to company or until
refunded, hold such sum in Trust for the company.
But the
amendment act has given the director a relief of refunding such amount within TWO
YEARS or such lesser period as may be allowed by the company, and until such sum is refunded, hold it in trust for
the company.
·
The company was
not allowed to waive off the refundable amount without the prior approval of
Central Government, but now the company need not take CG approval, with the
amendment act the Company is allowed to waive such refundable amount by passing
a Special Resolution within TWO YEARS from the date the sum becomes refundable.
·
It is further
added that if the company is in default for payment of dues to any bank or
public financial institution or non-convertible debenture holders or any other
secured creditor, then the company is required to take prior approval of those
stakeholders before taking approval for waiver.
Interpretation:
if you have a default of non-payment of dues with banks and other institutions
then first take their approval and then you may take approval for waiver.
·
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
·
It is also
proposed to provide relief to the company whose application is pending for
approval before the Central Government under section 197 by making a provision
under which 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.
CRUX
|
S.No
|
Compliance
with reference to sections
|
Prior
to amendment
|
Post
amendment
|
|
1.
|
Proviso to sub section 1 of section
197_ Approval of CG to remunerate directors over and above ceiling of 11%
|
Required to take CG approval before
remunerating directors over and above 11%
|
Not required to take approval from CG
|
|
2.
|
Second proviso_ Approval from
shareholders for remunerating over and above ceiling
|
Through Ordinary resolution
|
Through Special Resolution
|
|
3.
|
New proviso for NOC from Financial
Institution (in case of default of dues)
|
-
|
Mandatory to take before passing SR
|
|
4.
|
Sub section 3 of section 197
Remuneration to directors in case of
loss or inadequate profit
|
As per Schedule V and/or Central
government approval
|
Only Schedule V
|
|
5.
|
Sub section 9 of section 197
Refund of excess salary withdrawn
|
refund such sum to company or until
refunded, hold such sum in Trust for the company
|
Refund within 2 yrs or such lesser
period as prescribed by company, or hold such amount in trust for the
company.
|
|
6.
|
Sub section 10 of section 197
waive off the refundable amount
|
With approval of Central Government
|
Only by passing a Special Resolution
within TWO YEARS from the date the sum becomes refundable
|
|
7.
|
New proviso for NOC from Financial
Institution (in case of default of dues)
|
-
|
Mandatory to take before passing SR
|
|
8.
|
New sub section 16_ Audit report for
compliance
|
-
|
Mandatory
|
|
9.
|
Newly added_ relief to the company whose
application is pending for approval before the Central Government under
section 197
|
-
|
Such application 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
|
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