Ad-Free CAclubindia and Daily Updates on your mobile. Subscribe Now!

Remuneration to Manging Director

JAYAKUMAR (MANAGEMENT TRAINEE) (57 Points)

15 July 2010

HI Friends,

Thanks for your support.

The scenario is ,

A private company appoints Managing Director and fixs his remuneration for a period of 5 years.

Subsequent to its conversion into a public company, it is found that the remuneration fixed earlier exceeds the ceiling limit fixed under Schedule XIII.

In this case is central governments approval is required.

Kindly reply with reliable proof.

Thanks in advance.

Reply
Follow
Share

3 Replies

palak (cs) (385 Points)
Replied 15 July 2010

For payment of Managerial Remuneration of Public Ltd.Co. and Private Ltd. Co. subsidiary of Public Limited Companies (whose paid up capital is morethan five crores), we need to check provsions of Section 198, 269 (r/w Schedule XIII), 309 and 304.

Here, Managerial Remuneration means any sum paid in the capacity of Directors or Manager except the sitting fee.

Thus,

1. Remuneration includes Commission payable to Directors and Manager (Section 198 and 309(3) and (4))

2. In terms of Section 198(3) read with Section II of Part II of Schedule XIII (i.e. Section 269), if either the company do not has profits or its profits are inadequate, the remuneration shall be as per the limits specified under Schedule XIII.

3.Which means, Section 198 is restricted by Section 269 to the extent, no profit or inadequate profit of the Company and in such cases, the remuneration is strictly limited by the Schedule XIII subject to the approval of Central Government.

4. Once the company's profits are inadequate, then each managerial person's remuneration is governed by the limits of Schedule XIII and not under Section 198.

5. Thus, the total remuneration is either governed under 198 or Schedule XIII (Part II) in toto and not partly by one mode and partly by other.

6.Once the remuneration is governed under Schedule XIII, if the company wants to pay more than the normal limits, it can do so with the approval of Central Government.

Upgrade to CAclubindia Pro. Subscribe Now!

Yogesh Bhatt (Company Secretary) (475 Points)
Replied 16 July 2010

The DCA has clearly clarified that appointment of managing and wholetime director made prior to the pvt company becoming public limited company shall remain unaffected for a period for which the appointment was made or five years from the date of the company becoming a public company which ever is less in case the existing appointment is for an undefinate period. However please remember the same shall not hold good if there is any variation in the remuneration payable to the MD after the conversion into a public limited company.

Regards.

Yogesh Bhatt (Company Secretary) (475 Points)
Replied 16 July 2010

Provision of the Act relationg to MD and Remuneration shall apply from the date a private company becomes public company.

So. Take propery step from date of conversion.

and Also

it is advisable to pass resolutions on the date of conversion on various matters applicable to public companies, such as:

a) Payment of remuneration to directors
b) Creation of mortgage etc. u/s 293(1)(a)
c) Borrowing u/s 293(1)(d)
d) Donations etc u/s 293(1)(e)
e) Further issue of shares, if any, u/s 81
f) Loans & investments u/s 372A

Regards.