SECTION 197: OVERALL MAXIMUM MANAGERIAL REMUNERATION AND MANAGERIAL REMUNERATION IN CASE OF ABSENCE
Updated: May 9, 2022
INTRODUCTION:
This provision talks about the remuneration of the management of the company. This Section applies to every public company but not to private companies.
MAXIMUM MANAGERIAL REMUNERATION:
The Company which is acquiring the profits in the financial year may have to pay the remuneration to managerial personnel or person, not exceeding the limits prescribed in this provision.
According to Section 197(1) of the Companies Act, 2013, the total managerial remuneration payable by a public company to its directors, including the managing director and whole-time director, and its manager in respect of any fiscal year period not exceeding 11% of the company's net profits for that fiscal year.
If there is a requirement to exceed the overall limit of eleven percent, as per Schedule V, the company needs to call the general meeting and should obtain the authorization for exceeding the limit.
Moreover, the company needs to obtain the approval of the shareholders and pass the special resolution.
It is stated under this provision that if there is one managing director/Whole-time director manager, then that individual will entertain the 5% of the net profits of the company for that financial year.
If there is a requirement for exceeding the limit of 5%, then there is a need to pass or approve a special resolution.
However, if there is more than one managing director/Whole-time director manager, then the remuneration will be 10% of the net profits of the company for that fiscal year.
If there is a requirement for exceeding the limit of 10%, then there is a need to pass or approve the special resolution.
Remuneration payable to the directors who are neither Managing Directors nor whole-time directors is the 1% of the net profits of the company if there is a managing director.
Remuneration payable to the directors who are neither Managing Directors nor whole-time directors is the 3% of the net profits of the company but there is no managing director or Whole-time director in the company
If there is a need to exceed the limit of 3%, then there is a requirement for special resolution approval.
When the company has defaulted in the payment of dues to any bank or public financial institution or non-convertible debenture holders or any other secured creditor, there is a need to obtain the prior approval of such person (as applicable) shall have to be obtained by the company before obtaining the approval in the general meeting.
DETERMINATION OF REMUNERATION:
To determine the remuneration, there are certainly three ways, which are been stated under the Section 194(4), they are as follows:
By the articles of the company, or
By a resolution or,
If the article so require, by a special resolution, passed by the company in a general meeting.
MODES OF PAYMENT OF REMUNERATION:
The certain modes of payment of remuneration, which are been prescribed under the Section 197(6), are:
By way of a monthly payment, or;
At a specified percentage of the net profits of the company, or;
Partly in one way and partly in another.
PENALTY FOR NON-COMPLIANCE:
For a Defaulting Person: The Defaulting individual is liable to a penalty of rupees one lakh.
For a Company: The Company or an organization is liable to a penalty of rupees five lakhs.