Date and Number of notification : Notification No. S.O. 1256(E) Dated 18.03.2021

Effective Date of the Notification : 01.04.2021

Schedule V :

Generally the company has to pay managerial remuneration as per Section 197 of the Companies Act, 2013. However if the company has inadequate profits/no profits in any financial year then the managerial remuneration payment should be made on complying with Schedule V of the Companies Act,2013. The Schedule consists of four parts and are as follows:

Part I Conditions to be fulfilled for the Appointment of a Managing or Whole-Time Director or A Manager without the approval of the Central Government appointments
Part II Remuneration
Part III Provisions applicable to Parts I and II of this Schedule
Part IV Central Government power to exempt class of Companies

Amendment made in Schedule V is covered as follows and the amended scripts are bolded

Part II : Remuneration

(i)Remuneration payable by companies having profits:

Subject to the provisions of section 197, a company having profits in a financial year may pay remuneration to a managerial person or persons or other director or directors not exceeding the limits specified in such section.

(ii)Remuneration payable by companies having no profit or inadequate profit:

Where in any financial year during the currency of tenure of a managerial person or other director, a company has no profits or its profits are inadequate, it may pay remuneration to the managerial person or other director not exceeding, the limits under (A) and (B) given below:-

(A)

Sl. No Where the effective capital (in Rs.) is Limit of yearly remuneration payable shall not exceed (in Rs.) in case of a managerial person Limit of yearly remuneration payable shall not exceed (in Rs.) in case of other director
(i) Negative or less than 5 crores 60 lakhs 12 lakhs
(ii) 5 crores and above but less than 100 crores. 84 lakhs 17 lakhs
(iii) 100 crores and above but less than 250 crores. 120 lakhs 24 lakhs
(iv) 250 crores and above. 120 lakhs plus 0.01% of the effective capital in excess of Rs.250 crores 24 Lakhs plus 0.01% of the effective capital in excess of Rs.250 crores

(B) In case of a managerial person or other director  who is functioning in a professional capacity, remuneration as per item (A) may be paid, if such managerial person or other director 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 speciali007Aed knowledge in the field in which the company operates:

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 Employees Stock Option Plan or by way of qualification shall be deemed to be a person not having any interest in the capital of the company;

“Statutory Structure” means any entity which is entitled to hold shares in any company formed wider any statute.

Remuneration payable by companies having no profit or inadequate profit in certain special circumstances:

In the following circumstances a company may pay remuneration to a managerial person or other director in excess of the amounts provided above(ii)

(a) where the remuneration in excess of the limits is paid by any other company and that other company is either a foreign company or has got the approval of its shareholders in general meeting to make such payment, and treats this amount as managerial remuneration for the purpose of section 197 and the total managerial remuneration payable by such other company to its managerial persons or other directors including such amount or amounts is within permissible limits under section 197.

(b) where the company—

  • is a newly incorporated company, for a period of seven years from the date of its incorporation, or
  • is a sick company, for whom a scheme of revival or rehabilitation has been ordered by the Board for Industrial and Financial Reconstruction for a period of five years from the date of sanction of scheme of revival, or
  • is a company in relation to which a resolution plan has been approved by the National Company Law Tribunal under the Insolvency and Bankruptcy Code, 2016 for a period of five years from the date of such approval, it may pay any remuneration to its managerial persons or other directors.

(c) where remuneration of a managerial person or other director exceeds the limits in (ii) but the remuneration has been fixed by the Board for Industrial and Financial Reconstruction or the National Company Law Tribunal:

Provided that the limits under this Section shall be applicable subject to meeting all the conditions specified in (ii) and the following additional conditions:—

(i) except as provided in para (a) of this Section, the managerial person  is not receiving remuneration from any other company;

(ii) the auditor or Company Secretary of the company or where the company has not appointed a Secretary, a Secretary in whole-time practice, certifies that all secured creditors and term lenders have stated in writing that they have no objection for the appointment of the managerial person or other director as well as the quantum of remuneration and such certificate is filed along with the return as prescribed under sub-section (4) of section 196.

(iii) the auditor or Company Secretary or where the company has not appointed a secretary, a secretary in whole-time practice certifies that there is no default on payments to any creditors, and all dues to deposit holders are being settled on time.

The term “or other director” shall mean a non-executive director or an independent director.

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