10 June 2010
As per part II of Schedule XIII of the companies Act a managerial person is paid remuneration as per limits laid down in the schedule in case of inadequate profit or no profit. My Query is what should be the period for which profit should be calculated? Should it be only for the period during which the managerial person worked (say six months) or for the whole financial year? Please clarify Further what shoudl be the procedure if there is no remuneration committee? Thanks in Advance.
10 June 2010
First understand remuneration committee is must to take the benefit of sch XIII.
Profit must be as per the last audited balance sheet.
The total managerial remuneration payable by a public company or a private company which is a subsidiary of a public company, to its directors and its manager in respect of any financial year shall not exceed 11% of the net profits of the company for that financial year. Such net profits shall be computed in a manner laid down under sections 349 and 350, except that the remuneration of the directors shall not be deducted from the gross profits.
Requirement for appointment of a Remuneration Committee of the Board
Schedule XIII of the Companies Act, 1956 as amended by Notification No. GSR 36(E), dated 16th January, 2002 provides that payment of remuneration of a managerial person shall be approved by a resolution passed by the Remuneration Committee. Therefore, it shall be compulsory for a public company or a private company, which is a subsidiary of a public company to constitute and appoint a remuneration committee of the directors.
Explanation IV of Schedule XIII, inserted by Notification No. GSR 36(E), dated 16th January, 2002 provides that for the purposes of this section, 'Remuneration Committee' means that a committee which consists of at least three non-executive independent directors including nominee director or nominee directors, if any. Therefore, if a company is not capable to appoint a remuneration committee consisting of three non-executive independent directors it shall not be eligible to appoint or re-appoint a managerial person under the provisions of Schedule XIII of the Companies Act and it shall be required to obtain approval of the Central Government for that purpose in terms of the provisions of section 269 of the Act.
Company should have at least three non-executive independent directors To fulfill the requirements for approval of remuneration payable to a managerial person by a remuneration committee, it shall be compulsory for a company to have at least three non-executive independent directors in the Board of directors at the time of appointment of a managerial person. However, a nominee director of a financial institution shall be considered as an independent director and may be appointed as a member of the remuneration committee.
10 June 2010
Thanks for the reply. Please clarify as to whether there is any limit based on the share capital of the company to constitute remuneraration committee or each of the public company is required to constitute the committee. Further as you mentioned that profit for calculation of managerial remuneration should be as per last audited balance sheet, what would be the answer in case books of accounts were reviewed by the auditors for the period ending Sep 09 and later on the books were audited for the year ended mar 10 for the Financial year 2009-2010 and the MD retitred on 30th september 2009. Should the profit be taken for the six months period during which the MD was employed or it would be for the whole year?
10 June 2010
Constitution of remuneration committee is not dependent on share capital. If you want to give remuneration as per part II of Sch XIII, you have to constitute remuneration committee irrespective of your share capital.
As per my opinion profit should be the profit for whole year. Further if you are using sch XIII then pay remuneration as per Sch XIII tables and effective capital of the company. In that case there is no need to base remuneration on net profit.
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