Can a Listed Company Approve MD Remuneration for Loss Year After AGM?

Can a Listed Company Approve Managing Director’s Remuneration for a Loss Year After the AGM is Already Over?

Summary: The article explains that a listed company can still obtain shareholder approval for a Managing Director’s remuneration in a loss year even after the AGM has concluded. It distinguishes the Companies Act, 2013 framework under Section 197 and Schedule V, under which remuneration in a no-profit or inadequate-profit year must comply with Schedule V and the applicable shareholder-approval requirement. It states that an EGM under Section 100 or a postal ballot under Section 110 can be used instead of waiting for the next AGM. For a listed company, Regulation 44 of the SEBI LODR Regulations requires remote e-voting for shareholder resolutions. The article also addresses the need to examine the original appointment resolution, obtain the Nomination and Remuneration Committee recommendation and the Schedule V no-default certificate, cover remuneration already paid and future remuneration expressly, and separately consider Regulation 17(6)(e) where the Managing Director is a promoter or belongs to the promoter group. It further discusses refund consequences under Section 197(9), waiver under Section 197(10), and penalty exposure under Section 197(15).

Short Answer

Yes, the company can still approve the remuneration — the missed AGM is not fatal. Section 197 of the Companies Act, 2013, read with Schedule V, requires shareholder approval “in general meeting” for remuneration paid in a loss year; it does not say this has to be the AGM specifically. An EGM or a postal ballot serves the purpose equally well, and for a listed company remote e-voting is mandatory either way, so shareholders do not need to physically assemble. Before doing so, the company should first check whether the Managing Director’s original appointment resolution already carries a standard Schedule V minimum-remuneration clause; if it does, and the amount paid stays within the Schedule V slabs, no fresh approval is needed at all. If it does not, the fresh resolution should be worded to cover the remuneration already drawn during the year as well as remuneration going forward, and should be preceded by the Nomination and Remuneration Committee’s recommendation and the mandatory no-default certificate.

Applicable Legal Provisions

Section 197(1), first and second provisos, Companies Act, 2013 — caps overall managerial remuneration at 11% of net profits (computed under Section 198), and requires shareholder approval, by special resolution where the statutory percentage caps for an individual managing/whole-time director or manager are to be exceeded. Section 197(3) — where a company has no profits or inadequate profits in a financial year, remuneration to a managing director, whole-time director or manager can be paid only in accordance with Schedule V; the general 11% ceiling under Section 197(1) does not apply in a loss year and Schedule V takes over as the governing framework. Schedule V, Part II, Section II, Companies Act, 2013 — fixes the actual slabs for remuneration payable in a year of no profit or inadequate profit, tied to the company’s effective capital. Remuneration within the applicable slab needs an ordinary resolution of the shareholders (and, for a listed company that is not a private company, no Central Government approval is separately needed); remuneration above the slab needs a special resolution. Section 197(9) and Section 197(10) — if remuneration is drawn in excess of what is permitted, or without the approval this section requires, the director must refund it within two years (or a shorter period the company allows) and holds it in trust for the company until refunded; the company cannot waive recovery except by special resolution passed within two years of the sum becoming refundable. Section 197(15) — the penalty provision for contravention of Section 197, as it stands after the Companies (Amendment) Act, 2020 re-cast it from a fine/imprisonment offence into a civil penalty: up to ₹5 lakh for the company and up to ₹1 lakh for every officer in default. Section 100 (calling of EGM) and Section 110 read with the Companies (Management and Administration) Rules, 2014 (postal ballot) — the two statutory routes for shareholder approval outside an AGM; Schedule V’s requirement of approval “in general meeting” is satisfied by either. Regulation 44, SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 — mandates remote e-voting for listed companies on every shareholder resolution, whether passed at a general meeting or by postal ballot. Regulation 17(6)(e), SEBI LODR Regulations, 2015 — a separate, listed-company-specific check: fees or compensation to an executive director who is a promoter or belongs to the promoter group needs shareholder approval by special resolution if the annual remuneration exceeds ₹5 crore or 2.5% of the company’s net profit (computed under Section 198), whichever is higher, or, where there is more than one such director, if their aggregate remuneration exceeds 5% of net profit. Schedule V, Part II, Section IV — as a condition to any approval taken under Schedule V for payment of remuneration in a loss year, a certificate from the company’s Auditor, or from a Company Secretary in practice where no auditor’s certificate is required, confirming that there is no default in payments to any bank, financial institution, debenture holders or other secured creditor.

Relevant Extracts

Section 197(3): where a company has no profits or its profits are inadequate, remuneration to a managing director, whole-time director or manager “shall be paid in accordance with the provisions of Schedule V.” Section 197(9): a director who draws remuneration in excess of what is permitted, or without the approval Section 197 requires, “shall refund such sums to the company, within two years… and until such sum is refunded, hold it in trust for the company.” Section 197(10): the company “shall not waive the recovery of any sum refundable” under Section 197(9) unless shareholders approve the waiver by special resolution within two years of the sum becoming refundable. Regulation 17(6)(e), SEBI LODR: remuneration to a promoter-group executive director needs a shareholders’ special resolution once it crosses “rupees five crore or 2.5 per cent of the net profits of the listed entity, whichever is higher.”

Legal Position

Profit Year and Loss Year: Different Remuneration Rules

The starting point is that Section 197 treats a profit year and a loss year very differently. In a profit year, remuneration is worked out as a slice of net profit within limits the company can largely apply on its own, subject only to the outer 11% ceiling. In a loss year, that entire mechanism is set aside and Schedule V takes over: remuneration can only be paid within fixed slabs pegged to the company’s effective capital, and even staying within those slabs is conditional on the shareholders saying yes first, by ordinary resolution, in a general meeting. A Board resolution alone, however unanimous, is not shareholder approval and does not satisfy this requirement. Two categories therefore sit on very different footing and should not be blended together. Remuneration within the Schedule V slab starts from a position of “permitted, subject to an ordinary resolution being passed” — the company is not asking for anything exceptional, it is simply completing a statutory precondition. Remuneration above the Schedule V slab starts from a stricter position of “permitted only with a special resolution” — a materially higher shareholder threshold, reflecting that the company is paying beyond what the default slabs contemplate for a loss-making entity.

Why a Missed AGM Does Not End the Approval Requirement

None of this is switched off by the AGM having already been held. Schedule V’s requirement is for approval “in general meeting” — it does not say the approval has to happen at the AGM specifically, and the law does not treat a missed AGM opportunity as forfeiting the requirement altogether. What the missed AGM does mean is that the company has to reach the same outcome through a different meeting: either an Extraordinary General Meeting called specifically for this purpose, or a postal ballot, which the Act treats as equivalent in legal effect to a resolution passed at a general meeting. For a listed company, remote e-voting is mandatory under Regulation 44 of the SEBI LODR Regulations for both routes, so the practical burden of assembling shareholders physically does not arise either way; the choice between an EGM and a postal ballot is one of convenience and existing practice, not of legal availability. Because a company only discovers whether a year turned out to be a loss year after its accounts are audited and finalised — almost always after some or all of that year’s remuneration has already been paid in the ordinary course — the law does not treat remuneration paid before the resolution as automatically tainted merely because of that sequencing. It is accepted and normal for the shareholders’ resolution, once passed, to also ratify and cover remuneration already drawn during the year, in addition to remuneration payable going forward, provided the resolution is worded to say so explicitly. What the law does not tolerate is the approval being left unaddressed indefinitely: if no resolution is ever passed, Section 197(9) deems the amount drawn to be held by the Managing Director in trust for the company, refundable within two years or such shorter period as the company allows, and the company cannot let him keep it or write it off except by a special resolution of shareholders passed within that two-year window under Section 197(10).

Additional SEBI LODR Check for Promoter-Group Directors

Because the company here is listed, one further and independent check applies if the Managing Director is a promoter or belongs to the promoter group. Regulation 17(6)(e) of the SEBI LODR Regulations requires its own shareholders’ special resolution once his annual remuneration crosses ₹5 crore or 2.5% of the company’s net profit, whichever is higher. In a loss year the net profit figure is nil, so the 2.5% component works out to nil and the operative threshold collapses to the flat ₹5 crore figure. This SEBI requirement sits alongside the Companies Act requirement, not in place of it — a promoter Managing Director’s remuneration above this SEBI threshold needs its own special resolution under Regulation 17(6)(e), independently of whatever resolution (ordinary or special) is required under Schedule V for the same remuneration. This should be checked and factored into the resolution being finalised, since it can change whether an ordinary or a special resolution is the correct one to place before shareholders.

Practical Interpretation

Step-by-Step Compliance Sequence

The compliance playbook for a company in this position runs in a fixed sequence: Pull out the resolution passed at the time the Managing Director was appointed, or last reappointed, and read it in full. Many appointment resolutions already carry a standard clause providing that if the company has no profits or inadequate profits in any year, remuneration will still be paid as minimum remuneration under Schedule V. If that clause exists, and the amount actually paid stays within what Schedule V allows for a company of this effective capital, the shareholder approval for this situation is already on record and nothing further needs to be done. If that clause is missing or does not cover the amount actually paid, obtain the Nomination and Remuneration Committee’s recommendation afresh for the remuneration, since Schedule V approval is conditional on this recommendation preceding the shareholders’ resolution. Obtain the certificate from the company’s Auditor (or a practising Company Secretary, where permitted) confirming there is no default in payment to banks, financial institutions, debenture holders or other secured creditors — this certificate is a fixed condition to Schedule V approval under Part II, Section IV, and is required regardless of whether the EGM or postal ballot route is chosen. Convene either an EGM or a postal ballot, whichever fits the company’s usual practice; remote e-voting will apply either way as this is a listed company. Word the resolution explicitly to cover remuneration already paid during the financial year in addition to remuneration payable from the date of the resolution onward, so there is no ambiguity that the ratification is retrospective as well as prospective. If the Managing Director is a promoter or part of the promoter group, check the SEBI LODR Regulation 17(6)(e) threshold in the same exercise and build a separate special resolution for it if the remuneration crosses ₹5 crore. Track the two-year clock under Section 197(9)/(10) from the date the amount is treated as refundable — if the resolution process looks like it may run past that window, flag it early, since a waiver of recovery after that point is no longer available even by special resolution. The consequence of doing nothing is not merely theoretical. Both the company and the individuals responsible for the delay — typically the Managing Director himself and the officers responsible for placing the matter before shareholders — face a penalty under Section 197(15): up to ₹5 lakh for the company and up to ₹1 lakh for each officer in default. This is a civil penalty regime following the Companies (Amendment) Act, 2020 decriminalisation, not a criminal fine, but it is still a real and avoidable exposure that a timely EGM or postal ballot removes entirely. There is also a tax angle worth flagging briefly, though it does not change the Companies Act analysis: tax has almost certainly already been deducted at source on the remuneration paid this year, and it would already be reflected in the Managing Director’s Form 16 and, if filed, his personal income-tax return. If the approval is delayed to the point that a refund is ever actually triggered, this creates a separate personal tax reconciliation exercise for him — his return may need to be revised and credit for tax already deducted worked through — which is best avoided by completing the shareholder approval promptly rather than after the fact.

Example

A listed company’s audited accounts for FY 2025-26, finalised in June 2026, show a loss for the year. Its AGM for FY 2025-26 was held in the last week of September 2025 — before the loss was known — and naturally did not carry any resolution on the Managing Director’s remuneration for a loss year. The Managing Director’s original appointment resolution, passed three years earlier, is silent on what happens if the company makes no profit or inadequate profit. The Managing Director is not a promoter. In this fact pattern, the company cannot rely on the appointment resolution and must convene either an EGM or a postal ballot, backed by the Nomination and Remuneration Committee’s fresh recommendation and the no-default certificate, with a resolution worded to cover both the remuneration already paid between April 2026 and the date of the resolution, and remuneration payable for the remainder of the year. Because he is not a promoter, Regulation 17(6)(e) of the SEBI LODR Regulations does not add a separate requirement here.

Conclusion

A missed AGM is an inconvenience in this situation, not a dead end. The Companies Act’s requirement of shareholder approval for a Managing Director’s remuneration in a loss year survives the AGM having already been held, and an EGM or postal ballot — either backed by the Nomination and Remuneration Committee’s recommendation and the mandatory no-default certificate — satisfies it equally well, with remote e-voting removing any practical difficulty for a listed company. The one step that should never be skipped first is checking the original appointment resolution; where it already carries a Schedule V minimum-remuneration clause and the amount paid fits within the applicable slab, the company may already be compliant without any fresh meeting at all. Where it does not, the safer and more conservative course is to treat this as time-sensitive rather than a routine formality, both because of the company’s own penalty exposure under Section 197(15) and because, until the resolution is passed, the remuneration the Managing Director has drawn remains, in the eyes of the law, held in trust for the company rather than finally his.

FAQs

Does the company have to wait for next year’s AGM to get this approval? No. Schedule V requires approval “in general meeting,” which an EGM or a postal ballot satisfies just as well as an AGM would. Can one resolution cover both the remuneration already paid and remuneration payable for the rest of the year? Yes, provided the resolution is worded to say so expressly; this is normal practice precisely because a loss year is only known after the year has partly or wholly run its course. What happens to the Managing Director personally if the resolution is never passed? He is treated as holding the remuneration drawn in trust for the company and becomes personally liable to refund it under Section 197(9); the company cannot let him keep it except by a special resolution passed within two years of the amount becoming refundable.

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Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at [email protected]).