Maximum Remuneration to Director

Ceiling on remuneration of ordinary or non-executive directors

Sections 309(4) and 309(7) deals with remuneration payable to the part time directors, that is to say the directors who are neither in the whole-time employment of the company nor a managing director, within the overall limit stipulated in section 198(1) and further in section 309(4) itself.

Section 309(4) authorises payment of remuneration to part time directors in two alternative ways:—

(i) by way of monthly, quarterly or annual payment with the approval of the Central Government; and/or

(ii) by way of commission without the approval of the Central Government, subject to the approval of the members by way of special resolution.

Therefore, if the commission payable exceeds the limit, payment can be made only with the approval of the Central Government.

Quantum of commission that may be paid to non-executive directors

Section 309(4) provides that a director or directors who is/are not managing or whole-time directors may be paid remuneration periodically with the approval of the Central Government or may be paid commission, provided the said remuneration shall not exceed 1% of the net profits if the company has a managing or whole-time director and 3% in other cases. The net profits shall be computed in terms of sections 198, 349 and 350 of the Act.

Commission may be paid to all non-executive directors

At the time of initiating the payment of commission to non-executive directors, subject to necessary approvals, the Board may decide that the same shall be shared equally by and amongst all such directors or in any other way as may be approved by the Board or as prescribed in the Articles.