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Companies Act, 1956


PART II 

Remuneration 

Section I.   -   Remuneration payable by companies having profits 

Subject to the provisions of section 198 and section 309, a company 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 per cent of its net profits for one such managerial person, and if there is more than one such managerial person, ten per cent for all of them together. 

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

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** “1. 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.24,00,000 per annum or Rs.2,00,000 per month calculated on the following scale :- 

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

(i) less than rupees 1 crore 75,000 

(ii) rupees 1 crore or more but 1,00,000 less than rupees 5 crores 

(iii) rupees 5 crores or more but 1,25,000 less than rupees 25 crores 

(iv) rupees 25 crores or more but 1,50,000 less than rupees 50 crores 

(v) rupees 50 crores or more but 1,75,000 less than rupees 100 crores 

(vi) rupees 100 crores or more 2,00,000 : 

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

(i) payment of remuneration is approved by a resolution passed by the 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. 

(B) not exceeding the ceiling limit of Rs.48,00,000 per annum or Rs.4,00,000 per month calculated on the following scale :- 

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

(i) less than rupees 1 crore 1,50,000 

(ii) rupees 1 crore or more but 2,00,000 less than rupees 5 crores 

(iii) rupees 5 crores or more but 2,50,000 less than rupees 25 crores 

(iv) rupees 25 crores or more but 3,00,000 less than rupees 50 crores 

(v) rupees 50 crores or more but 3,50,000 less than rupees 100 crores 

(vi) rupees 100 crores or more 4,00,000 : 

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

(i) payment of remuneration is approved by a resolution passed by the 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; - 

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) Export performance and net foreign exchange collaborations 

(6) Foreign investments or collaborators, 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 w.r.t. 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. 

IV. Disclosures : 

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

(2) The following disclosures shall be mentioned in the Board of director’s report under the heading “Corporate Governance”, if any, attached to the annual report : - 

(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. 

(C) exceeding the ceiling limit of Rs.48,00,000 per annum or Rs.4,00,000 per month calculated on the following scale :- 

Where the effective capital of Monthly remuneration payable exceeds Company is (Rupees) 

(i) less than rupees 1 crore 1,50,000 

(ii) rupees 1 crore or more but 2,00,000 less than rupees 5 crores 

(iii) rupees 5 crores or more but 2,50,000 less than rupees 25 crores 

(iv) rupees 25 crores or more but 3,00,000 less than rupees 50 crores 

(v) rupees 50 crores or more but 3,50,000 less than rupees 100 crores 

(vi) rupees 100 crores or more 4,00,000 : 

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

(i) payment of remuneration is approved by a resolution passed by the 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; - 

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) Export performance and net foreign exchange collaborations 

(6) Foreign investments or collaborators, 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 w.r.t. 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. 

IV. Disclosures : 

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

(2) The following disclosures shall be mentioned in the Board of director’s report under the heading “Corporate Governance”, if any attached to the annual report : - 

(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. 

Provided further that the conditions specified in sub-paragraph (C) shall apply in the case the effective capital of the company is negative.

Provided also that the prior approval of the Central Government is obtained for payment of remuneration on the above scale. 

** Substituted by Notification No.G.S.R. 36(E) dated 16.01.2002  

2. A managerial person shall also be eligible to the following perquisites which shall not be included in the computation of the ceiling on remuneration specified in paragraph 1 of this section:

(a) contribution to provident fund, super-annuation fund or annuity fund to the extent these either singly or put together are not taxable under the Income-tax Act, 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.

 

3. In addition to the perquisites specified in paragraph 2 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 paragraph 1 of this section:

(a) Children's education allowance: In case of children studying in or outside India, an allowance limited to a maximum of Rs.5,000 per month per child or actual expenses incurred, whichever is less. Such allowance is admissible upto a maximum of two children.

(b) Holiday passage for children studying outside India/ 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 the 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 section II of this Part, family means the spouse, dependent children and dependent parents of the managerial person.

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** “Explanation IV :- For the purposes of this section, “Remuneration Committee” means that a committee which consists of at least three non-executive independent directors including nominee director or nominee directors, if any. 

Explanation V :- For the purposes of this clause, the Remuneration Committee while approving the remuneration under this section, 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 VI :- for the purposes of Paragraph 1, “ negative effective capital” means the effective capital which is calculated :- 

(a) in accordance with the provisions contained in Explanation I of this Part; 

(b) less than zero”. 

** Inserted by Notification No.G.S.R. 36(E) dated 16.01.2002 

Section III - Remuneration payable to a managerial person in two companies

Subject to the provisions of section I and II, 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.]



Companies Act, 1956 Back




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