The Companies Act, 2013 has cast a tremendous responsibility on the Directors and Key Managerial Personnel.
Now, The Companies Act, 2013 specifically provides the applicability of the provisions related to appointment and remuneration of Managerial Personnel on Private Companies also. Earlier Private Companies were out of this ambit.
| Broad Areas | The Companies Act, 2013 | The Companies Act, 1956 |
| Remuneration to Executive Director | · Private Companies are also within the ambit of these provisions.
· As per Section 197(1) total managerial remuneration payable by public company shall not exceed 11% of net profits for a financial year. The company can pay remuneration more than 11% if approved by shareholders and Central Government subject to applicability of Schedule V. · Schedule V provides additional conditions under which remuneration can be paid beyond the prescribed limits without Central Government approval · Additional disclosures are to be made in explanatory statement, where remuneration to be paid in Schedule V. · As per Section 197(15) defaulting officer will be liable to fine up to Rs. 5,00,000. · Schedule V provides 1 slab of remuneration based on effective capital. |
· Earlier Schedule XIII was not applicable to Private Company.
· No Central Government approval was required if the managerial personnel is not holding any interest in the capital of the Company · No such provisions for additional disclosures in explanatory statement was there · Schedule XIII provided 3 slabs of remuneration based on effective capital.
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| Remuneration to Directors for professional services | As per Section 197(4) the following payments are not included in the remuneration paid to Director:
· For services rendered in professional capacity and · Nomination and Remuneration Committee shall be of opinion that Director possess the requisite qualification for rendering such services |
Earlier as per Section 309 Central Government opinion was taken in order to pay the remuneration for any other professional capacity to any Director |
| Remuneration to non-executive Directors | As per the Section 197(6), Director (excluding WTD and MD) shall get monthly payment or at a specified percentage of the net profits. | Under section 309, payment was made by way of monthly, quarterly and annual payment with the approval of Central Government or by way of commission |
| Sitting Fees | · As per Section 197(5) and Rule 4 maximum amount of sitting fees is Rs. 1,00,000 per meeting.
· The sitting fees paid to Women and Independent Director shall not be less than sitting fees paid to other Directors |
· The maximum amount of sitting fees was Rs. 20,000 per meeting.
· Earlier there was no such classification. |
| Commission | As per section 197(14) Director including Managing Director and Whole time Director may also receive any remuneration or commission from any Holding or Subsidiary Company. | As per section 309(6), there was prohibition on Directors including Managing Director and Whole time Director to receive commission from any subsidiary company. |
| Disclosure in Board Report | As per Section 197(12) read with Rule 5 every listed company shall disclose ratio of remuneration of each Director to the median employee’s remuneration | No such disclosure required but details in respect of employee who are receiving remuneration of Rs 60 Lacs per year or more or Rs 5 Lacs per month or more were disclosed under Employee Statements in Board Report under section 217(2A) |
| Recovery of Remuneration in certain cases | As per Section 199 a company can recover excess remuneration paid to any Directors if found after restatement of its financial statements | Earlier there was no such provision |
| Central government or company to fix a limit with regard to remuneration | As per Section 200 and Rule 6 provides certain additional factors which shall be considered by the Central Government. | Earlier as per Section 637A power was vested only with the Central Government to fix the remuneration. |
You may get back to us for any more details on above provisions or any other matter related to Companies Act, 2013 at below mentioned contact details-
Malavika Bhatia | <malavika.bhatia@bluelotusstrategy.com> | M +91 98733 18440
Monika Bhardwaj | <monika.bhardwaj@bluelotusstrategy.com> |M +91 98915 60525
We will do our best to assist you with the compliances and removal of doubts / queries. However, please note that since the Act is new, certain clarifications are needed as there are lot many areas where operational issues are to be sorted out.
In case of queries that require clarification from Ministry of Corporate Affairs, we will come back to you after seeking necessary clarifications from the Ministry
