Transcript Schedule XIII to the Companies Act,1956

Schedule XIII to the Companies Act,1956
•Section 198
• Overall maximum managerial remuneration.
•Managerial remuneration in case of absence or inadequacy of profits.
•Section 269
•Appointment of Managing Director or whole –time director or manager to
require Government approval only in certain cases.
•Section 310
•Provision for increase in remuneration to require Government Sanction.
•Section 311
•Increase in remuneration of Managing Director on re-appointment or
appointment after Act to require Government sanction.
Overall Managerial Remuneration- Section 198 & Section 309
Situation 1:
11% ( Over all Maximum u/s 198)
Where the Board has at least One Whole -Time Director &
At least one Non-Executive Director
Plus
A Managing Director
10%
u/s 309
Situation 2:
{ Where one whole –time director
Or a Managing Director }
and
at least Two Non-Executive director s
1%
u/s 309
10% (Over all Maximum u/s 309)
Where the Board does not have any Non-Executive
Director and has at least Two whole-time directors
Plus
A Managing Director
10%
Situation 3:
Plus
Plus
0%
6%( Over all Maximum u/s 309)
5%
Plus
1%
Overall Managerial Remuneration –Section 198 & Section 309
•Situation IV
No whole Time Director
3%( Overall maximum U/S 309)
At least Three Non –Executive
Directors
0%
Plus
3%
“There does not exist any other possible combination of Whole-Time and Non –
Executive directorship on the Board of a Public Company that may yield a different
%age of Overall Managerial Remuneration .”
Can a Company breach the above ‘Overall Managerial Remuneration” % age
Why Not ?
Form 25A !!
???
Situation where there is no or inadequate Profits or adequate profits
•What is Schedule XIII to the Companies Act ,1956 ?
•Which are the companies to which Schedule XIII is applicable ?
• When has a company to refer to schedule XIII ? :
Is it at the Time of Appointment of a director ,or,
Is it at the time of fixing of remuneration of a director, or,
Is it when the company incurs losses or has inadequate profit ,or,
Is it at the time of appointment of directors upon incorporation of a Company ,or,
Is it applicable to even companies making profits ?
•
What happens if the appointment is made in violation of Schedule XIII ?
•
What happens if the appointment is made in accordance with Schedule XIII and an approval is sought from the
Central Government on managerial remuneration in excess of the limits prescribed in the aforesaid schedule, if :
The approval is granted
The approval is denied.
•
Recent amendments to Schedule XIII – An audacious step by MCA
Schedule XIII
Anatomy of Schedule XIII:
Schedule XIII is divided into three
Parts
is not further divided into sections
Appointment
Part - I
Remuneration
Section I – Companies having Profits
is further divided into three sections
Section II- Companies with no or inadequate
Section I , Section II & Section III
profits
Section III - Remuneration from
Part-II
Two companies
Part III Secretarial compliance
Part I to Schedule XIII to the Companies Act,1956
Part I prescribes host of Acts under which the appointee as a Managing or Whole –Time director or as a
manager should not be convicted of an offence and sentenced to imprisonment for any period or with a
fine exceeding Rupees One Thousand :
i) The Indian Stamp Act, 1899,
ii) The Central Excise and Salt Act,1944,
iii) The Industries (development & Regulation )Act,1951,
iv) The Prevention of Food Adulteration Act,1954,
v) The Essential Commodities Act ,1955,
vi) The Companies Act,1956,
vii) The Securities contracts (Regulation Act) ,1956,
viii) The wealth Tax Act,1957,
ix) The Income Tax Act,1961,
x) The Customs Act,1962,
xi) The MRTP Act,1969,
xii) The FERA,1973,
xiii) The Sick Industrial Companies ( Special Provisions ) Act, 1985,
xiv) The SEBI Act, 1992,
xv) The Foreign Trade (development and regulation ) Act,1992
•
He should not be detained for any period under the COFEPOSA ACT , 1974
At the time of appointment or re-appointment :
Age
should not
be 70 or
more
AND
Age
should
be 25 or
more
or a Younger or an Older appointee acceptable ??
Section 280 –Age limit
Section 281- Age limit not to apply if company so resolves
Section 282- director to disclose age
Already a managerial personnel in one or more companies at the time of appointment or reappointment – he draws remuneration from one or more companies subject to the ceiling provided in
Section III or Part II.
He is resident in India…
What if the appointee is an Expat ??
( A foreigner visiting India on an E-Visa – Can his appointment be covered in Schedule XIII as a
Valid appointment for a whole-time director or a Managing Director)
Does appointment of Non-Executive foreign directors get covered in Schedule XIII ???
Does appointment of Non-Executive directors who are resident in India get covered in Schedule XIII ??
Some interesting facts on eligibility for appointment
Section 267Certain persons not to
be appointed
Managing Directors !
Section 274Disqualification of
directors- A person shall
not be capable of being
appointed director of a
Company !
Provisions of sub-section (2) of Section 269
which refers to Schedule XIII and
conditions imposed under Part I of that
Schedule….Are these additional conditions
for eligibility for appointment ??
Part II
Section I
Remuneration Payable by Companies
having profits
Net Profit
As per Section 349
As per section 350
Maximum 5% of its Net Profit for one such Managerial Personnel
Maximum 10% of its Net Profit for all of them where there is more
than one Managerial Personnel
Section II
Remuneration Payable by Companies
having no profits or inadequate profits
Section III
Remuneration Payable to a managerial Personnel in Two
Companies.------The total remuneration shall not exceed
the higher maximum limit admissible from any one of the
of which he is a managerial personnel.
Effective Capital of the Company
Ceiling Limit Under Sub-Paragraph (A) – “Conditions Apply”
Ceiling Limit Under Sub-Paragraph (B) - “ Conditions Apply”
Effective Capital of the Company
Exceeding the Ceiling Limit Under Sub-Paragraph ( C ) –”Conditions Apply”
Definition of “Effective Capital”
Definition of “ Managerial remuneration”
A. Managerial Remuneration :
It includes :
1. Base Salary + Dearness Allowance + Other Allowances + Perquisites + Commission
It excludes { For both Indian nationals and Foreign nationals}
1. Employer’s contribution to PF + Superannuation Fund Or Annuity Fund which in total should not
exceed 27% of Base salary.
2. Gratuity payable at a rate not exceeding ½ month’s Base Salary for each completed year of
service.
3. Encashment of Leave at the end of the tenure.
It excludes { Only for Foreign nationals }
1. Children’s Education Allowance- Maximum INR 5K per child up to a maximum of two children.
2. Holiday passage for children studying outside India / Family staying abroad.
3. Leave Travel Concession –return passage for self and family .
B. Effective Capital :
It includes :
1.{ Paid up Share Capital + Share Premium Account + Reserves and Surplus+ Long Term Loans +
Deposits repayable after One year} – { Investments + Preliminary Expenses + Accumulated Losses }
It excludes:
1. Working Capital Loans + Over-Drafts + Interest due on loans unless funded+ Bank Guarantee +
Other Short Term arrangement }
Note: Reserves & Surplus should not include “Capital reserve’.
1. Scale under Sub-Paragraph (A):
Where the effective capital of Company is :
Monthly Remuneration Payable
(INR)
Shall not Exceed ( INR)
Not exceeding the Ceiling Limit of Rs. 2.4MM p.a. or Rs. 200K p.m. as per the following scale:
1. < INR 1 crore
75K
2. > or = 1 Crore < 5 Crore
100K
3. > or = 5 Crore < 25 Crore
125K
4. > or = 25 Crore < 50 Crore
150K
5. > Or = 50 Crore < 100 Crore
175K
6. > Or = 100 Crore
200K
2. Scale under Sub-Paragraph (B) :
Where the effective capital of Company is :
Monthly Remuneration Payable
(INR)
Shall not Exceed ( INR)
Not exceeding the Ceiling Limit of Rs. 4.8 MM p.a. or Rs. 400K p.m. as per the following scale:
1. < INR 1 crore
150K
Exceeding
2. > or = 1 Crore < 5 Crore
200K
the Scale as
3. > or = 5 Crore < 25 Crore
250K
4. > or = 25 Crore < 50 Crore
300K
per Sub –
5. > Or = 50 Crore < 100 Crore
350K
Paragraph
6. > Or = 100 Crore
400K
(C)
“Conditions Apply “
Sub-Paragraph ( A) :
1. Remuneration Committee
2. Has not made default in
repayment of any of its
debts ( including Public
deposits ) or debentures of
interest payable thereon for
a continuous period of
thirty days in the preceding
financial year before the
DOA.
Sub-Paragraph ( B): Apart from
the first two conditions of SubParagraph (A)
3. Special Resolution for
payment of remuneration for a
period not exceeding three
years.
4.Notice to contain a detailed
statement of particulars of the
Appointee / Industry /
Disclosure of remuneration
Sub-Paragraph ( C) :
5. Effective Capital Negative
6. Prior approval of Central Government is obtained.