Corporate Law & Secretarial practice

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A.Deepa (Querist)
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06 May 2008 How to determine whether the profits are Inadequate as per Schedule XIII of companies Act 1956. what is the Yardstick to determine that the profits are Inadequate.

CA. Yayati Tyagi

CA. Yayati Tyagi (Expert)
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07 May 2008 In my opinion, inadequate profits means, when after deducting managerial remuneration, there is loss in the P&L.

In other words, where company does not have enough profits to pay remuneration, it can pay remuneration as per section II of part II of schedule XIII.

A.Deepa

A.Deepa (Querist)
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07 May 2008 sir Yayati Tyagi, thanks for your Reply. but i got the answer for my query. let me explain about that.Let us say a company has effective capital of less than Rs 1 crore and does not want to pass a special resolution for paying managerial remuneration. The maximum it can pay per month is Rs 75,000 as per Schedule XIII. If the profits earned by the company are not sufficient to give Rs 75,000 per month to them if the normal provisions of the law are applied —i.e 5 per cent per one and 10 per cent for all of them put together. For e.g Company earning Profit Rs.1 crore By applying 5% rate it comes to 5lac but schedule XIII remuneration is 9lac (i.e 75000*12). so the company's profits is said to be inadequate.

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CA. Yayati Tyagi

CA. Yayati Tyagi (Expert)
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07 May 2008 yes, this is correct and similar to what i mentioned earlier. as per section II of para II of schedule XIII a company can pay managerial remuneration of at least Rs. 75000/-p.m. to each person even if it incures loss in that year.