No Government Approval Needed for Remuneration of Top Executives

Ministry of Corporate Affairs vide notification dated September 12, 2018 has effected certain amendments in Section 197 of Companies Act, 2013 relating to Managerial Remuneration payable top executives.

In addition, the Ministry has also come up with corresponding amendments in Schedule V of the Companies Act, 2013 and issued Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2018 to give effect to the said changes.

• Now, any person who has been convicted of an offence under IBC, GST Act or the Fugitive Economic Offenders Act will not be eligible for appointment as MD/WTD/Manager of a company.
• Approval of Central Government is no longer required for payment of total remuneration in excess of eleven per cent. of the net profits of the company to all its directors, including MD, WTD and Manager (Managerial Person). The payment beyond the said limit can be made by passing an Ordinary Resolution in the General Meeting of the Company.
• For payment of remuneration exceeding the threshold limits of 5% & 10% to MD/WTD/Manager and 1% & 3% to other directors individually, the approval of shareholders through a Special Resolution shall be required.
• In case of companies who have defaulted in payment of any Bank/PFI/NCD holder or any other secured creditor, prior approval shall be taken from them before placing the matter in the general meeting for obtaining shareholders’ approval for payment in excess of the threshold limits.
• Any application made to the Central Government before amendment to Section 197 which is pending with the Government shall abate, and the companies to obtain the approval of shareholders in accordance with the provisions of the amended section within a period of one year starting from September 12, 2018.
• In case of companies having no profits or inadequate profits, remuneration payable to the MD/WTD/Manager shall be as per the limits prescribed under Schedule V which could earlier be doubled by the shareholders in the General meeting. Now, after the amendment in Schedule V, shareholders can approve any amount in excess of the said limits by passing a Special Resolution in the General Meeting.

Relevant Notifications are as follows:-