Managerial Remuneration

1. Managerial Remuneration Thoughts shared by: P C Agrawal B.Com., LL.B., CAIIB, FCS cs.pcagrawal@gmail.com

2. Contents at a glance Managerial Remuneration - P C Agrawal

3. Managing Director Section 2(26) defines Managing Director as under: “Managing Director” means a director, who, by virtue of an agreement with the company, or of a resolution passed by the company in general meeting or by its Board of Directors or, by virtue of its memorandum or articles of association, is entrusted with substantial powers of management which would not otherwise be exercisable by him, and includes a director occupying the position of managing director, by whatever name called. Provided that the power to do administrative acts of a routine nature when so authorised by the Board such as the power to affix the common seal of the company to any document or to draw and endorse any cheque on the account of the company in any bank or to draw and endorse any negotiable instrument or to sign any certificate of share or to direct registration of transfer of any share, shall not be deemed to be included within substantial powers of management: Provided further that a managing director of a company shall exercise his powers subject to the superintendence, control and direction of its Board of Directors. Managerial Remuneration - P C Agrawal

4. Whole Time Director As per Explanation to Section 269, a whole-time director includes a director in the whole-time employment of the company. Hence a WTD of a company cannot accept the position of WTD in any other company. Managerial Remuneration - P C Agrawal

5. Manager Section 2(24) defines Manager as under: “Manager” means an individual (not being the managing agent) who, subject to the superintendence, control and direction of the Board of directors, has the management of the whole, or substantially the whole, of the affairs of a company, and includes a director or any other person occupying the position of a manager, by whatever name called, and whether under a contract of service or not. Managerial Remuneration - P C Agrawal

6. Appointment of Managerial Person in a public company Managerial Remuneration - P C Agrawal

7. Appointment of Managerial Person Contd… Managerial Remuneration - P C Agrawal

8. Appointment of Managerial Person Contd… Managerial Remuneration - P C Agrawal

9. Managerial Remuneration - P C Agrawal

10. Remuneration Includes: • Salary, DA, perquisites, commission & other allowances • Any other benefit free of charge or at concessional rate • Any expenditure for personal liability • Life insurance premium for self, spouse or child • Remuneration for services rendered in other capacity (except professional services by qualified persons) Excludes: • Interest on loans taken from directors • Guarantee commission Managerial Remuneration - P C Agrawal

11. Ceiling on remuneration in case of profit Ceiling on remuneration in case of inadequate or no profit (Sch.XIII – Part II) Managerial Remuneration - P C Agrawal

12. Conditions on remuneration in case of inadequate or no profit (Sch.XIII – Part II) Constitution of Remuneration Committee: Listed companies: Minimum 3 non-executive independent directors Unlisted companies: Any two directors min. (need not be independent) Managerial Remuneration - P C Agrawal

13. Ceiling on remuneration Contd… Managerial Remuneration - P C Agrawal

14. Effective Capital Effective capital means aggregate of: • Paid-up share capital (excluding share application money) • Share Premium Account • Reserves & Surplus (excluding revaluation reserve) • Long term loans & deposits repayable after one year (excluding working capital loans, overdrafts, interest due on loans unless funded, bank guarantee etc. and other short term arrangements) as reduced by aggregate of: • Any investments (except in case of investment co. having principal business of acquisition of securities) • Accumulated losses • Preliminary expenses not written off Effective capital shall be calculated as on the last date of the financial year preceding the financial year in which the appointment of the managerial person is made (except in case of appointment in the year of incorporation when effective capital is to be calculated as on the date of such appointment). Managerial Remuneration - P C Agrawal

15. Computation of net profit u/s 349 Managerial Remuneration - P C Agrawal

16. Net profit u/s 349 Managerial Remuneration - P C Agrawal

17. Net profit u/s 349 Besides the above: • Certain extraordinary items as required under Accounting Standard-5 are shown after arriving at profit before tax, such items also need to be considered for arriving at the profit u/s 349 • Bounties and subsidies received from any Government or any public authority constituted or authorised by any Government shall also be added notwithstanding the fact that they may have been directly credited to capital reserve. Managerial Remuneration - P C Agrawal

18. Professional directors in listed companies In case of listed companies approval of CG is not required if the managerial person is not having any interest in the capital of the company or its holding company directly or indirectly or through any other statutory structures and not having any direct or indirect interest or related to the directors or promoters of the company or its holding company at any time during last 2 years before or on the date of appointment and is having a graduate level qualification with expert and specialised knowledge in the field of his profession. (MCA circular dated 14th July 2011) Managerial Remuneration - P C Agrawal

19. Companies in SEZ areas As per Para D, companies in notified SEZ areas can pay remuneration upto Rs.20 lacs p.m. if these companies have not raised any money by public issue of shares/debentures in India and have not defaulted in India in repayment of any of its debts (including public deposits) or debentures or interest payable thereon for continuous period of 30 days in any financial year. Managerial Remuneration - P C Agrawal

20. Checklist for managerial remuneration in profit making public company Calculate net profit u/s 349 Calculate ceiling on remuneration (@ 5% or 10% of NP) Work out proposed remuneration for the year If proposed remuneration is within the ceiling, CG approval not required If proposed remuneration is in excess of ceiling, CG approval is required Managerial Remuneration - P C Agrawal

21. Checklist for managerial remuneration in loss making public company Work out effective capital Work out proposed remuneration for the year Check if Sch. XIII can be complied with If yes, CG approval not required If no, CG approval is required Managerial Remuneration - P C Agrawal

22. Remuneration to ordinary directors Managerial Remuneration - P C Agrawal

23. Sitting fees Managerial Remuneration - P C Agrawal

24. Increase in remuneration Managerial Remuneration - P C Agrawal

25. Provisions applicable to private companies Managerial Remuneration - P C Agrawal

26. Mode of payment of managerial remuneration Managerial Remuneration - P C Agrawal

27. Foreign directors Managerial Remuneration - P C Agrawal

28. Thank You P C Agrawal cs.pcagrawal@gmail.com