Schedule XIII of the Companies ACT

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

24 July 2010 Sir, Im in chaos on scedule xiii of the companies act.our company(closely held public company) has appointed managing director for 5 years in 2005 with a remuneration of Rs.40000/-p.m by members by special resolution without the approval of remuneration committee as most of the independent director were resigned and there was nno remuneration committee.However there is no such law which state that appointment must be approved by remuneration committee except schedule xiii. During 2008-09 there was inadequate profit and salary paid was within the limit i.t Rs.400000/- to managing directors. Now auditors have laid down their remarks that the salary paid was excess of schedule xiii of the companies act.When we sought clarification and raised question that salray is within limit of schedule xiii.But their reply is that we have not followed conditions laid down in schedule xiii as remuneration committee not recommended appointment of managing diectors in 2005 and company has made default in payment of debts in the year 2008-09.Hence salary paid is in excess of schedule xiiI it is auditors remarks. Now the question is whether fixation of remuneration at the time of appointment of managing director should be only for the period of three years? what if managing directors have been appointed by shareholders in 2007 when there is a profit and in the year 2010 there is inadquacy of profit whether salary of rs.400000/- paid to shareholders is deemed to be in excess of limits laid down in schedule xiii only by the reason that remuneration committee has not recommended the appointment of MD in 2007 only shareholders have appointed the MDS? company will appoint as usual with the approval of shareholders when there is a profit and how far it is justice that remuneration committee has not recommended the apointment of MDS hence salary is in excess of schedule xiii enenthough it is in limit? Does it mean that it is compulsory to appoint MD with the recommendation

Jagruti (CS)

Jagruti (CS) (Expert)
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24 July 2010 First as per Section 317, MD can be appointed by Members for maximum of 5 years.

Again, all managerial Persons are appointed by the Shareholders by passing the Ordinary Resolution as per Schedule XIII.

Generally, in case of apppointment of the MD, in resolution we include clause that in case of inadequacy of profits or no profits COmpany will pay remuneration as per Schedule XIII. So check the resolution for appointment of MD.

In year 2008-09, when Company defaulted in payment of debts first check whether the profits of Company was sufficient to make pay of remuneration of 4 lakhs to MD

That is in ur case if, Company has 1 Managerial Person than 5% of profits should not be less than 4 lakhs and if more than 1 managerial person than 10 % of profit should not be less than 4 lakhs.

Jagruti (CS)

Jagruti (CS) (Expert)
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24 July 2010 If profit is less than 400000 than Company before making payment of remuneration need to be approved by Remuneration Committe and confirm that there is no default in repayment of any debts for continuous period of 30 days in preceding financial year.

Appoinment is not required to be approved by Remuneration Committee.

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Querist : Anonymous

Querist : Anonymous (Querist)

24 July 2010 Thanks madam,

But I have already clearly mentione that profit is inadequate in 2008-09 to pay managerial remuneration to 3 three directors.At that time schedule xiii is applicable not section 198 or 309.This is not the case of appointment .We had appointed MDS in 2005 but my question is only because remuneration committee not recommended the appoinment of managerial personnel in 2005 can we say that remunearation paid is in excess of limit mentioned in schedule xiii.Kindly go through my question ones again for more clarification

Urgetnt and proper reply is awaited