Amendments analysis in Schedule V of Companies Act,2013 vide MCA Notification dated 18 March, 2021
Summary/ Gist of Amendments
Amendments in Section I, II and III of Schedule V- Part II- Remuneration
Insertion of Remuneration provisions and Maximum Limit of Remuneration related to Non- Executive or an Independent director
relevant Notifications
| MCA notifies amendment in Section 149 & 197 of Companies Act 2013 | Notification No. S.O.1255(E) | 18/03/2021 |
| Remuneration Limit for non-executive/independent director notified | Notification No. S.O. 1256(E) | 18/03/2021 |
Amendments
Section I- Remuneration payable by companies having profits:
Existing Provisions
Subject to the provisions of section 197, a company having profits in a financial year may pay remuneration to a managerial person or persons not exceeding the limits specified in such section.
Amended Provisions
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.
Section II-Remuneration payable by companies having no profit or inadequate profit
Existing Provisions
Where in any financial year during the currency of tenure of a managerial person , a company has no profits or its profits are inadequate, it may,, pay remuneration to the managerial person not exceeding, the limits under (A) and (B) given below:-
(A)
| S.No. | Where the Effective capital (in rupees) is | Limit of Yearly remuneration payable shall not exceed (in Rupees) in case of a managerial person |
| (i) | Negative or Less than 5 crores | 60 lakhs |
| (ii) | 5 crores and above but less than 100 crores | 84 lakhs |
| (iii) | 100 crores and above but less than 250 crores | 120 lakhs |
| (iv) | 250 crores and above | 120 lakhs plus 0.01% of the effective capital in excess of Rs. 250 crores |
Provided that the remuneration in excess of above Limits may be paid if the resolution passed by the shareholders is a special resolution.
Explanation.- It is hereby clarified that for a period less than one year, the limits shall be prorated.
(B) In case of a managerial person who is functioning in a professional capacity, remuneration as per item (A) may be paid, if such managerial person 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 specialized 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;
Provided further that the limits specified under items (A) and (B) of this section shall apply, if-
(i) payment of remuneration is approved by a resolution passed by the Board and, in the case of a company covered under sub-section (1) of suction 178 also by the Nomination and Remuneration Committee;
(ii)the company has not committed any default in payment of dues to any bank or public financial institution or non-convertible debenture holders or any other secured creditor, and in case of default, the prior approval of the bank or public financial institution concerned or the non-convertible debenture holders or other secured creditor, as the case may be, shall be obtained by the company before obtaining the approval in the general meeting.
(iii) an ordinary resolution or a special resolution, as the case may be, has been passed for payment of remuneration as per item (A) or a special resolution has been passed for payment of remuneration as per item (B), at the general meeting of the company 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) Foreign investments or collaborations, 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 with respect to 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
The following disclosures shall be mentioned in the Board of Director’s report under the heading “Corporate Governance”, if any, attached to the Financial statement:
(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; and
(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.
Explanation: For the purposes of Section II of this part, “Statutory Structure” means any entity which is entitled to hold shares in any company formed wider any statute.
Amended Provisions
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:-
| S. No. | Where the Effective capital (in rupees) is | Limit of Yearly remuneration payable shall not exceed (in Rupees) in case of a managerial person | Limit of Yearly remuneration payable shall not exceed (in Rupees) 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 |
Provided that the remuneration in excess of above Limits may be paid if the resolution passed by the shareholders is a special resolution.
Explanation.- It is hereby clarified that for a period less than one year, the limits shall be pro-rated.
(B) In case of a managerial person who is or other director 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 specialized 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;
Provided further that the limits specified under items (A) and (B) of this section shall apply, if-
(i) payment of remuneration is approved by a resolution passed by the Board and, in the case of a company covered under sub-section (1) of suction 178 also by the Nomination and Remuneration Committee;
(ii)the company has not committed any default in payment of dues to any bank or public financial institution or non-convertible debenture holders or any other secured creditor, and in case of default, the prior approval of the bank or public financial institution concerned or the non-convertible debenture holders or other secured creditor, as the case may be, shall be obtained by the company before obtaining the approval in the general meeting.
(iii) an ordinary resolution or a special resolution, as the case may be, has been passed for payment of remuneration as per item (A) or a special resolution has been passed for payment of remuneration as per item (B), at the general meeting of the company 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) Foreign investments or collaborations, 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 with respect to the country of his origin)
(7) Pecuniary relationship directly or indirectly with the company, or relationship with the managerial personnel or other director, 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
The following disclosures shall be mentioned in the Board of Director’s report under the heading “Corporate Governance”, if any, attached to the Financial statement:
(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; and
(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.
Section III- Remuneration payable by companies having no profit or inadequate profit in certain special circumstances:
Existing provisions
In the following circumstances a company may, pay remuneration to a managerial person in excess of the amounts provided in Section II above :—
(a) where the remuneration in excess of the limits specified in Section I or II 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 including such amount or amounts is within permissible limits under section 197.
(b) where the company—
(i) is a newly incorporated company, for a period of seven years from the date of its incorporation, or
(ii) 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
(iii) 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
(c) where remuneration of a managerial person exceeds the limits in Section 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 under Section 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 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.
Amended provisions
In the following circumstances a company may, pay remuneration to a managerial person or other director in excess of the amounts provided in Section II above:—
(a) where the remuneration in excess of the limits specified in Section I or II 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—
(i) is a newly incorporated company, for a period of seven years from the date of its incorporation, or
(ii) 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
(iii) 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 Section 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 under Section 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.
Explanation.– For the purposes of Section I, Section II and Section III, the term or other director shall mean a non-executive director or an independent director
Note:
The Bold portion in the Amended Provisions column indicates the amendments in the respective section.
Author Bio
Weather SR required under (clause b section iii part II Schedule V ) where company want to pay more remuneration in excess the limit specified in section ii?