managerial remuneration

The Ministry of Corporate Affairs, New Delhi has vide its notification dated 18th March, 2021 amended the Schedule V which pertains to conditions of appointment and remuneration payable to managerial person. This schedule V applies specifically where remuneration needs to be paid to managerial person in companies which does not have profits or has inadequate profits.

The amendment has added “other director or directors” to the category of managerial person under this Schedule. Other directors has been defined to mean non-executive directors or independent directors as an explanation.

The remuneration payable to other director(s) in the case of inadequacy of profits has been fixed on the basis of effective capital of the company. For eg. where the effective capital is negative or less than Rs.50 million then maximum Rs.1.2 million can be paid to the other directors.

Similarly the limits have been placed as under:

Where the effective capital is Rs.50 million and above but less than Rs.1 billion – max Rs.1.7 million can be paid to other directors

Where the effective capital is Rs.1 billion and above but less than Rs.2.5 billion – max Rs.2.4 million can be paid to other directors

Where the effective capital is above Rs.2.5 billion – max Rs.2.4 million + 0.01% of the effective capital in excess of Rs.2.5 billion.

Basically this has been done in order to provide some remuneration to independent directors and attract good talent in companies. Presently independent directors and non executive directors are paid a pittance plus there is onerous responsibility cast on them although they are not in the hot seat of management. This will, hopefully, give a fillip to the position of independent directors in India Inc.

Simultaneously the govt. has also amended sections 149 and 197 of the companies act, 2013 to provide for the same.

Copy of the notification can be found at the MCA site. i.e. http://www.mca.gov.in

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