Remuneration to md - schedule xiii - urgent

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

15 March 2012 A Ltd, unlisted company wants to pay remuneration of Rs. 3.5 lacs (salary 2lac+ commission 1 lac) to MD. However their effective capital is less than 15 crores.
Is central govt approval is required for payment of remuneration?

Kindly consider the latest notification and suggest me regarding the same.

Ajay Mishra

Ajay Mishra (Expert)
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16 March 2012 Hi

In your case you are covered in Clause (B) of Section II of Schedule XIII of the Companies Act, 1956.

If you are paying commission of 1% of net profit, then there is no need to obtain CG approval if the company has MD or WTD as per latest Circular No. 4/2011.

Regards

Querist : Anonymous

Querist : Anonymous (Querist)

16 March 2012 Thanks for the reply sir.

That circular is applicable for payment of commission to non whole time director.

As I said earlier we are paying commission of fixed amount and remuneration is calculated as per Sch XIII on effective capital basis not on net profit.

And as per latest notification, GSR 70(E)dated 8.02.2011, the CG approval is not required for unlisted company for payment of remuneration in excess of scale covered under clause (c) of Section II.

Is this means the payment of remuneration in excess of scale covered under clause (B) of Section II requires CG approval?

Kindly explain in detail

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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21 July 2025 Hi! Let me clarify your query regarding remuneration to the Managing Director (MD) of an unlisted company under Schedule XIII of the Companies Act, 1956, especially in light of the notifications and circulars you mentioned.

Scenario:
Company: A Ltd (Unlisted)

Effective Capital: Less than ₹15 crores

Remuneration: ₹3.5 lakhs per month (Salary ₹2 lakhs + Commission ₹1 lakh fixed)

Query: Is Central Government (CG) approval required for this remuneration?

Relevant Provisions:
1. Schedule XIII, Clause (B) of Section II (Companies Act, 1956):
Applies to unlisted companies with effective capital less than ₹5 crores (earlier ₹5 crores; there was a notification raising this limit to ₹15 crores)

Provides limits on remuneration payable to MD/WTD without CG approval.

If remuneration exceeds the prescribed limits based on effective capital, CG approval is needed unless exemptions apply.

2. Circular No. 4/2011 (MCA):
Clarified that commission paid to non-whole-time directors up to 1% of net profit does not require CG approval.

This circular does NOT apply to remuneration payable to whole-time directors or MD if it exceeds Schedule XIII limits.

3. GSR 70(E) Notification dated 8.02.2011:
Amended limits and simplified approval for unlisted companies with effective capital less than ₹15 crores.

CG approval is NOT required for remuneration exceeding limits under clause (c) of Section II (which applies to companies with capital above ₹5 crores but less than ₹25 crores).

However, for companies with capital less than ₹15 crores falling under clause (B) of Section II, CG approval is still required if remuneration exceeds limits specified there.

Your question:
"Does this mean payment of remuneration in excess of scale covered under clause (B) of Section II requires CG approval?"

Yes, exactly.

If the remuneration (salary + fixed commission) exceeds the limits prescribed under clause (B) of Section II for companies with effective capital less than ₹15 crores, Central Government approval is mandatory.

The exemption from CG approval as per GSR 70(E) applies only for companies falling under clause (c) of Section II (capital between ₹5 crores and ₹25 crores approx).

Since your company falls under clause (B) (effective capital < ₹15 crores), CG approval is still required if remuneration exceeds limits.

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