Q1. Whether Independent director can be paid remuneration by way of a monthly salary?
e.g Bajaj Consumer, Sterling Tools and VST Industries has passed a resolution in AGM of 2022 to pay remuneration by way of monthly sum also to non-executive non-independent directors.
Q2. Whether an independent director can be paid commission? If yes, how much percentage of the commission can it be paid?
i. Remuneration can be paid at 1% of net profit, if there is Managing Director or Whole Time Director or Manager
ii. Remuneration can be paid at 3% of net profit in case there is no Managing Director or Whole Time Director or Manager employed by the company.
Q3. Can sitting fees paid to independent directors differ based on experience or qualifications?
As per Section 197 (5), an director may receive remuneration by way of fee for attending meetings of a board or committee thereof or any other purpose whatsoever as may decide by boards. If an independent director provides service in other capacity such as if he or she provide services in professional nature and the director poses requisite qualification for practice of a profession then such a board of directors can get additional fees other than sitting fees or commission paid to him..
In this regard it needs to be highlighted that the board or nomination and remuneration committee may pay different fees for different classes of companies and fees in respect of independent directors. Sitting fees can differ based on qualification and experience but sitting fees cannot differ based on category of directors i.e. non-executive directors and independent directors will get the same fees if they have the same or similar qualification.
Q4. Can we fix remuneration to independent directors in perpetuity i.e. by passing resolution once and then paying remuneration in form of commission to all (present and future) independent directors every year without again going to shareholders?
As per Section 149(10) of the Companies Act, 2013, an independent director shall hold office for term upto 5 consecutive years on board of company, an independent director shall be eligible to reappoint on passing special resolution by company. Further, remuneration payable to directors other than MD or WTD is 1% or 3% (as the case may be) of net profit of the company. (I.e. to non executive director or independent director). If a company has approved remuneration to be paid to an independent director by passing a special resolution, then no separate resolution is required to all independent directors. Therefore, it is clear that we can fix remuneration to independent directors in perpetuity i.e. without again going to shareholders every year. So even if the law does not restrict passing of resolution to pay remuneration in perpetuity but there have been governance concerns regarding this. Last year in the AGM for FY 2021-22 Paradeep Phospates has proposed a similar resolution whereby the remuneration payable to all NED is fixed for three financial years commencing from March 31, 2023 at a fixed rate of Rs 10,00,000 per annum which can be paid monthly also.
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