2 Managerial remuneration in unlisted companies having no profits / inadequate profits

Ministry of Corporate Affairs, Government of India (MCA), has on 8 February 2011 issued a Press Note No. 4/2011 of its intention to amend Schedule XIII of the Companies Act 1956 (the Act) relating to managerial remuneration. The amendment will be applicable to managerial remuneration payable by unlisted companies having no profits/ inadequate profits.

Public limited companies (listed and unlisted) with no profits/ inadequate profits are currently required to approach MCA for approval in those cases where the remuneration of managerial personnel exceeds specified limits.

Having regard to evolving economic and regulatory environment, MCA has taken a view that unlisted companies are in several aspect similar to private limited companies and in case of such unlisted companies so long as the conditions specified in Schedule XIII, including special resolution of shareholders and absence of default on payment to creditors, are duly fulfilled, approval of MCA will not be needed.

Accordingly, MCA has proposed to amend Schedule XIII of the Act to provide that unlisted companies (which are not subsidiaries of listed companies) shall not require Government approval for payment of managerial remuneration in cases where they have no profits/ inadequate profits, provided they meet the other conditions stipulated in the Schedule. The notification amending Schedule XIII is expected.

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