MCA has vide its notification dated 12th September, 2016 amended the Schedule V to the Companies Act, 2013. The salient features of the amendment are as follows:
1) In Part II, Section II, the limits have been doubled for each slab i.e.
a) where the effective capital is negative or less than Rs.5 crores - Rs.60 lakhs
b) effective capital between Rs.5 crores & above to less than Rs.100 crores - Rs.84 lakhs
c) effective capital between Rs.100 crores & above to less than Rs.250 crores - Rs.120 lakhs
d) effective capital of more than Rs.250 crores - Rs.120 lakhs plus 0.01% of the effective capital in excess of Rs.250 crores.
This is given in section A
2) Section B has been completely changed as follows:
Section B says that in case of a managerial person who is functioning in a professional capacity, no approval of Central Government is required is he is not having any shareholding interest in the company or its holding or subsidiary company directly or indirectly or through any structures and not having any interest or related to directors or promoters of the company or its holding or subsidiary company at any time within two years before his date of appointment. He should also be a graduate with specialisation and expertise in the field in which the company operates. There is a proviso however which states that he does not become disqualified merely because he is allotted shares under ESOP or directors' qualification shares and which is not more than 0.5% of the share capital of the company.
The Section II begins with "where in any financial year during the currency of tenure of a managerial person, a company has no profits or its profits are inadequate, it may, without Central Government approval, pay remuneration to the managerial person not exceeding the limits given in (A) and (B) given below:"
The existing wording below section II says "not exceeding the higher of the limits under (A) and (B) given below"
While (A) does specify some limits like enumerated above depending upon effective capital, (B) does not mention any limits whatsoever.
The existing (B) in Schedule V did have limits which was 2.5% of the effective capital.
So in absence of any limits mentioned in (B) does it mean that the company is free to give any remuneration even above those enumerated in (A) to a managerial person who is professionally qualified and technically competent for the job. This aspect is not clear.
3) There are other conditions such as Nomination cum Remuneration Committee which is retained as it is.
4) Further the company should not have committed any defaults in repayment of debts (including public deposit), debentures or interest thereon for a continuous period of 30 days during the preceding financial year. However where the company has committed a default, the company has to obtain prior approval from the secured creditors for the proposed remuneration and such fact should be mentioned in the explanatory statement. This is a change from the existing provisions.
5) Further the resolution can be an ordinary resolution or special resolution (in case of doubling of limits) in (A) or special resolution in case of (B), in both cases tenure should not be more than 3 years.
6) Then the explanatory statement should contain details which are more or less same as existing provisions.
1) In Part II, Section II, the limits have been doubled for each slab i.e.
a) where the effective capital is negative or less than Rs.5 crores - Rs.60 lakhs
b) effective capital between Rs.5 crores & above to less than Rs.100 crores - Rs.84 lakhs
c) effective capital between Rs.100 crores & above to less than Rs.250 crores - Rs.120 lakhs
d) effective capital of more than Rs.250 crores - Rs.120 lakhs plus 0.01% of the effective capital in excess of Rs.250 crores.
This is given in section A
2) Section B has been completely changed as follows:
Section B says that in case of a managerial person who is functioning in a professional capacity, no approval of Central Government is required is he is not having any shareholding interest in the company or its holding or subsidiary company directly or indirectly or through any structures and not having any interest or related to directors or promoters of the company or its holding or subsidiary company at any time within two years before his date of appointment. He should also be a graduate with specialisation and expertise in the field in which the company operates. There is a proviso however which states that he does not become disqualified merely because he is allotted shares under ESOP or directors' qualification shares and which is not more than 0.5% of the share capital of the company.
The Section II begins with "where in any financial year during the currency of tenure of a managerial person, a company has no profits or its profits are inadequate, it may, without Central Government approval, pay remuneration to the managerial person not exceeding the limits given in (A) and (B) given below:"
The existing wording below section II says "not exceeding the higher of the limits under (A) and (B) given below"
While (A) does specify some limits like enumerated above depending upon effective capital, (B) does not mention any limits whatsoever.
The existing (B) in Schedule V did have limits which was 2.5% of the effective capital.
So in absence of any limits mentioned in (B) does it mean that the company is free to give any remuneration even above those enumerated in (A) to a managerial person who is professionally qualified and technically competent for the job. This aspect is not clear.
3) There are other conditions such as Nomination cum Remuneration Committee which is retained as it is.
4) Further the company should not have committed any defaults in repayment of debts (including public deposit), debentures or interest thereon for a continuous period of 30 days during the preceding financial year. However where the company has committed a default, the company has to obtain prior approval from the secured creditors for the proposed remuneration and such fact should be mentioned in the explanatory statement. This is a change from the existing provisions.
5) Further the resolution can be an ordinary resolution or special resolution (in case of doubling of limits) in (A) or special resolution in case of (B), in both cases tenure should not be more than 3 years.
6) Then the explanatory statement should contain details which are more or less same as existing provisions.
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