Ministry of Corporate Affairs (MCA) issued a notification on 18th March 2021, for carving out remuneration to be paid to the non-executive or Independent Directors of companies that are either loss-making or have inadequate profits. This notification amended Schedule V of the Companies Act, 2013.
The remuneration has now been linked to ‘effective capital’.
| 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 another director |
| Negative or less than 5 crores. | 60 lakhs | 12 Lakhs |
| 5 crores and above but less than 100 crores. | 84 lakhs | 1 Lakhs |
| 100 crores and above but less than 250 crores. | 120 lakhs | 24 Lakhs |
| 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 |
Earlier only an Executive Director was entitled to draw remuneration in the event of a loss. An additional provision allows the Board of Directors to pass a special resolution in case they want to increase the remuneration beyond the upper limit.
This would allow the Independent Directors to draw more than the sitting fees of Rs.1.00 lakh per meeting.
Earlier SEBI’s paper on Independent Directors proposes ESOP’s with a long vesting period of five years. This might not have worked for most companies.
This a positive step as it is very difficult to get an Independent Director for a loss-making company. This will also eliminate the need for consultancy and advisory agreements with directors or related parties.
