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Professional fees to independent or non executive director

aasita (ACA) (387 Points)

17 March 2010

can comapany pay professional fees to independent or non executive director?in case of listed company

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13 Replies

Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 17 March 2010

Yes Aasita.

Payment of professional fee to NED and independent director is very much possible. But the same would be considered for the purposes of managerial remuneration limits u/s 198 and 309. As categorisation of fee by the company does not make any difference.

However if you pay the professional fee with the prior CG approval read with proviso to section 309(1) the same would not be considered as managerial remuneration or payment. Satisfaction of CG is very important regarding professional qualification as mentioned in the proviso.

We are doing the same thing with CG approval.

Revert if there is any doubt. Read the above section carefully.

Regards

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aasita (ACA) (387 Points)
Replied 17 March 2010

Ya I agree with you sir but then clause 49 of the listing agreement lays down that independent director is director who doesnot have any material pecuniary relationship or transaction with the company ,its management or its subsidiaries which in the judgement of the board may affect their independence of the judgement.

So paying professional fees to indepedent director would affect independece of director.

aasita (ACA) (387 Points)
Replied 17 March 2010

Sir can you clarify one thing? I read in one case law that central government's permission is not required for the payment of professional fees to non executive director or independent director?

Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 17 March 2010

Originally posted by : aasita
	Ya I agree with you sir but then clause 49 of the listing agreement lays down that independent director is director who doesnot have any material pecuniary relationship or transaction with the company ,its management or its subsidiaries which in the judgement of the board may affect their independence of the judgement. So paying professional fees to indepedent director would affect independece of director.

Kindly check the extract form clause 49.

i. For the purpose of the sub-clause (ii), the expression ‘independent director’ shall mean a non-executive director of the company who:

a. apart from receiving director’s remuneration, does not have any material pecuniary relationships or transactions with the company, its promoters, its directors, its senior management or its holding company, its subsidiaries and associates which may affect independence of the director;

According to me you are mis-interpretating the clause. Simply receiving the professional fee with CG approval can not be the example of position affecting his independence.

We can not say that paying professional fees to indepedent director would 100% affect his independece. However this is my personal opinion.

Regards

Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 17 March 2010

Originally posted by : aasita
	Sir can you clarify one thing? I read in one case law that central government's permission is not required for the payment of professional fees to non executive director or independent director?

Yes it is possible and as per the true interpretation of section 309(1) CG approval is not mandatory to pay professional fee to NED or Independent Director. You can pay but the same would be a part of overall % limit of section 198.

As per my understanding of section 309(1)--This sub-section doesn't make any difference between ED or NED or Independent Director. So if you collect the CG approval for NED or Independent Director the same would be outside the overall limits of remuneration and you can pay more to the other managerial personnel.

However it would be wrong for me to cross the interpretation of case law without analysing the circumatances. You might be correct. It would be great for my knowledge and collection if you could provide me the details of case law.

Best Regards

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aasita (ACA) (387 Points)
Replied 18 March 2010

Thanks sir.For paying remuneration to a director for services of professional nature ,the previous sanction of CG under sec 310 is not nescessary since such remuneration is excluded from total remuneration under sec 309(1) (R gac elec trodes ltd v union bank of india (1982)

Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 18 March 2010

Originally posted by : aasita
	Thanks sir.For paying remuneration to a director for services of professional nature ,the previous sanction of CG under sec 310 is not nescessary since such remuneration is excluded from total remuneration under sec 309(1) (R gac elec trodes ltd v union bank of india (1982)

You are misinterpreting section 310. Section 310 has nothing to do with your query. As section 310 is about CG approval for increase in remuneration. Section 310 is totally an independent section and operates only when there is an increase in the remuneration of a director.

Let me tell you a

aasita (ACA) (387 Points)
Replied 18 March 2010

so CG permission is mandatory for paying monthly professional fees to non executive director or independent director.

Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 18 March 2010

Originally posted by : aasita
	so CG permission is mandatory for paying monthly professional fees to non executive director or independent director.

No No my friend. It is not so. Kindly read my below reply again.

aasita (ACA) (387 Points)
Replied 18 March 2010

ok thank u very much.

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Puneet (Chartered Accountant) (25 Points)
Replied 15 April 2010

In a Pvt. Company where the director is a doctor can remuneration as well as consultancy fee be padi to him?

CS Mayur Buha (Company Secretary) (238 Points)
Replied 16 April 2010

Can any one tell me what is "material" as mentioned in clause 49 i.e. 'material pecuniary relationship'?

SANTHOSH KUMAR G (2 Points)
Replied 19 June 2020

A company made payment to ID in the professional capacity in excess of 10% of his total income. In that case will he be disqualified sir? or else shall we exclude fee in the professional capacity under 10% transaction or pecuniary relationship mentioned under 149(6).