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Schedule XIII

Sangeet Hunjan (Company Secretary) (92 Points)

14 July 2009

Hello All

One of the employee of a Company was appointed as a Director and then a Managing Director in June 2009. He is receiving good remuneration from the Company. Sch XIII is to checked to find out whether for the remuneration paid to himCentral Government approval is to be obtained.

Sch XIII sates that remuneration for a profit earning Company should not be more than 5% of net profits. The new MD is going to be made monthly like an employee. So which year's profit should be considered for calculating remuneration? Profit as on March 2009 or estimated profit for March 2010?

Please advise. Thanks

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9 Replies

U.M. NAGARAJ (SECRETARIAL OFFICER) (53 Points)
Replied 15 July 2009

Hai Mam.

This is U.M.Nagaraj. Firstly I assume that your company would be Public Company for the purpose applicability of Schedule XIII . Schedule XIII is applicable to only those situation where the Net profit of the company is Nil or inadequate to meet the remuneration of MD. I hereby enclose Effective Capital Calculation for your understanding and also see further attachment for full understanding of Schedule XIII. Because B/sheet is required to calculate effective capital and also C.Govt.' approval depends upon the remuneration that is not mentioned in your query. Hence It is advisble to see my attachment.

Attached File : 49 effective capital.doc downloaded: 689 times

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Sangeet Hunjan (Company Secretary) (92 Points)
Replied 15 July 2009

Thank you for your reply, but I think that I posed my question in a complicated manner. Yes. the Company is a public Company. Sch XIII has 2 sections Section 1 is applicable to Companies having profits.

Thank you for the attached file. But my question is that if the MD is appointed in the middle of 2009, which years figures do I take for calculation the remuneration limit. Whether, March 2009 or estimated profit for March 2010?

Malav Shah (Company Secretary and AVP Legal) (171 Points)
Replied 15 July 2009

Mr. Sangeet, you will have to consider the last audited Balance Sheet for calculating the figures. But however you will have to ensure that the remuneration donot cross the 5% limit of the Current years profit. This you will have to estimate. Calcualtion of profits has to be as per section 349 & 350. Normally companies pass a comprehensive resolution for paying remuneration and also for minimum remuneration incase profits are inadequate as per Part II of Schedule XIII. You can see Notice of some other listed companies for resolution.

A note on managerial remuneration is attached for reference.

Regards

CS Malav Shah

Attached File : 55 note on managerial remuneration.doc downloaded: 705 times

CS Ekta (Company Secretary) (309 Points)
Replied 15 July 2009

Hi,

Suppose, at the time of approval of the remuneration of the MD in the AGM, no resolution was passed in respect of minimum remuneration to be paid where in any financial year, the company has no profits or the profits are inadequate.

Now, what are the legalities to be followed in case the company has no profit or inadequate profit in any financial year and the remuneration already paid to the MD is in excess of the ceiling limit? Do we need the approval of both Remuneration Committee and the Board to revise the remuneration? All this have to be done before the approval of the audited balance sheet by the Board?

Someone please guide.

kamaljeet (C.S) (51 Points)
Replied 15 July 2009

Firstly there is no requirement to pass a seperate Board/Shareholder resolution for payment of minimum remuneration to the Managing Director, the minimum payment can be authorised with the same resolution appointing the Managerial Personnel but the Company can pay that only after satisfying the conditions of Section II of Part II of Schedule XIII of the Companies Act which require approval of remuneration by Remuneration Commiittee.

Further if the Company has already paid the remuneration to the Managerial Personnel in excess of the specified limit then the Managerial Personnel has to return the excess amount or the Company can waive the recovery with the approval of Central Government.

Yes the Company need the approval of Remuneration Committee and also the Board resolution revising payment.

And at last this all has to be done before the Audit of Accounts otherwise your Auditor can put a remark in its report..

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Sangeet Hunjan (Company Secretary) (92 Points)
Replied 15 July 2009

Thanks Mr. Manav for the information. Also the note is very useful.

U.M. NAGARAJ (SECRETARIAL OFFICER) (53 Points)
Replied 14 September 2009

Pl. clarify my doubt

In a private company, one director is getting remuneration Rs.80000 p.m. At the same time the same person is appointed as MD in a company outside india. That is, fund is going out of indian company for the director who is available outside india. pl give the reply in all aspect.

Pl. clarify further is whole time director not applicable to private company ? is there any restriction in companies act for his remuneration. (consider that company being closely held company, members objection will not arise & Articles has given power to board to fix the remuneration)