Ruchie Khanna (Company Secretary) (123 Points)
26 November 2011Dear Members,
Section XIII of the Companies Act requires formation of remuneration committee for approving payment of remuneration to Whole-time and Managing Directors.
Mine is a closely held public limited company with a paid-up capital of less than Rs. 1 Cr with three directors of whom two are relatives.
My query is can all three directors be members of the remuneration committee??
Thanks & Regards,
Ruchie Khanna
Smriti Dhawan
(Company Secretary )
(347 Points)
Replied 26 November 2011
According to Schedule XIII of the Companies Act, 1956 as amended by Notification No. GSR 36(E), dated 16th January, 2002 provides that payment of remuneration of a managerial person shall be approved by a resolution passed by the Remuneration Committee. Therefore, it shall be compulsory for a public company or a private company, which is a subsidiary of a public company to constitute and appoint a remuneration committee of the directors.
Explanation IV of Schedule XIII, inserted by Notification No. GSR 36(E), dated 16th January, 2002 provides that for the purposes of this section, 'Remuneration Committee' means that a committee which consists of at least three non-executive independent directors including nominee director or nominee directors, if any.
So a company if not capable to appoint remuneration committee consisting of three non executive director independent director it shall not be eligible to appoint or reappoint a managerial person under Schedule XIII of the Companies Act and it shall be required to obtain approval of Central Government under Section 269 of the Companies Act.
Ruchie Khanna
(Company Secretary)
(123 Points)
Replied 26 November 2011
Thanks Ma'am,
But will approval of shareholders not suffice?? since the company had inadequate profits for payment of remuneration and remuneration payable p.m. is below the limit of 1.50 lacs p.m.
Thanks & Regards,
Ruchie
CS Ankur Srivastava
(Company Secretary & Compliance Officer)
(17853 Points)
Replied 26 November 2011
Dear Ruchie,
You are not required to appoint MD or WTD under section 269. As such the paidup capital of your company is less than Rs. 5 Cr. Section 269 does not apply on the company.
However, if the company has appointed WTD / MD, it is not required to comply the provisions of section 269 or schedule XIII.
RG - A Helping Hand
(Company Secretary)
(13867 Points)
Replied 26 November 2011
Friend,
Constitution of RC in your case is must bcoz it is about a public company with inadequate profits.
In the present situation formation of RC is not possible bcoz you dont have independent directors. So if you wanna be 100% compliant you have to increase the strength of board to form RC.
RG
Ruchie Khanna
(Company Secretary)
(123 Points)
Replied 26 November 2011
Ankur Sir, Thanks a lot. I too was of the same view as of your but has some doubts which are noe claered.
Hence in this case, approval of the Board and shareholders should be sufficient to appoint/re-appoint/inc. remuneration of WTD/MD.
Thanks & Regards,
Ruchie
Smriti Dhawan
(Company Secretary )
(347 Points)
Replied 26 November 2011
I, totally agree with Mr. Richank , there are only two option, either to take cenrtal Government approval or appoint 3 non executive independent director for the purposr of constitution of remmuneration committe.
Smriti Dhawan
(Company Secretary )
(347 Points)
Replied 26 November 2011
Ruchie Khanna
(Company Secretary)
(123 Points)
Replied 26 November 2011
For FY 2009-10 the company has suffered losses however, these losses were adjusted against the reserves. In FY 2010-11 the company earned a profit.
Re-appointment of the WTD with remuneration is effective 01/06/2011.
In the prevoius year the director did not receive any remuneration.
Pl. advice.
RG - A Helping Hand
(Company Secretary)
(13867 Points)
Replied 26 November 2011
Availability of profit in the balance sheet cannot beat the situation of inadequate profit. If the desired remuneration to managerial remuneration is in excess of the limits mentioned in section 198 and 309 --- this is the actual situation of inadequate profit.
Now decide yourself whether you are facing the problem of inadequate profit?
CS Ankur Srivastava
(Company Secretary & Compliance Officer)
(17853 Points)
Replied 26 November 2011
Dear Ruchie,
Herein below is the detailed descripttion of your problem:
1. Under section 269, every public company or private company which is subsidiary of public company having a paid up capital of Rs. 5 cr or above, shall have a managing or whole time director.
It is not apply in you case.
2. No appointment of a person as a managing director or whole time director in a public company or a private company which is a subsidiary of public company shall be made except with the approval of the central government unless such appointment is made in accordance iwth the comditions specified in part I and II of Schedle XIII and a return in the prescribed form (form 25C) is filed within ninety days from the date of such appointment.
This clause is applicable in your case.
3. You have to comply section 198, 309, 310 along with Schedule XIII.
4. Check whether you want to re-appoint him under Section A of part II or Section B of part II.
5. Inadequacy of profit does not mean that you have no profit or inadequate profit. It means that the profits is less in order to serve the contract with the realted managerial personnal.
6. In case you have appinted him under part B, no need to form Remuneration Committee and you have to give remuneation under the limits as specified under section 198 and 309.
7. In case, you have to appoint him under Section B, you have to constitute a Remuneration Committee.
8. Remuneation Committee is the committee which comprise of atleast 3 non execute director.
Ruchie Khanna
(Company Secretary)
(123 Points)
Replied 26 November 2011
Dear Sir,
Thanks a lot for the detailed analyisis and response.
It is very clear now on how to proceed with the appointment/re-appointment.
Thanks & Regards,
Ruchie
CS Ankur Srivastava
(Company Secretary & Compliance Officer)
(17853 Points)
Replied 26 November 2011
Its my pleasure Ms. Ruchie....
simpy
(tax)
(22 Points)
Replied 15 December 2011
what is the rates of minimum remuneration under schdule xlll of companies act
CS MOHIT SALUJA
(PRACTICING CS Jalandhar 9914558709)
(5155 Points)
Replied 26 March 2012
One of my client comapny having capital more than 5 crore and 5 directors but all those are relative to each other and the company is a closely held company. One of them is Managing Director, other is Whole time director and three other are ordinary directors. Now is there any requirement to have remuneration committee to pay the remuneration to all the directors or can be paid just through an agreement and filing Form 25 C
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