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Managerial remuneration (MD, WTD, Directors) Section 197, Schedule V :As per Section 197 The total managerial remuneration payable by a public company, to its directors, including managing director and whole-time director, and its manager in respect of any financial year shall not exceed eleven per cent. of the net profits of that company for that financial year computed in the manner laid down insection 198except that the remuneration of the directors shall not be deducted from the gross profits

Managerial remuneration (MD, WTD, Directors) Section 197, Schedule V

Notified on 12^thSeptember, 2018
Click here to read the Notification
Legislature Background:

Section 197(1)

The total managerial remuneration payable by aPublic Company, to its:

1. Directors, and
2. Managing Director and
3. Whole-Time Director, and
4. Manager

in respect of anyfinancial yearshallnot exceed eleven per cent. of the net profitsof that company for that financial year computed in the manner laid down insection 198except that the remuneration of the directors shall not be deducted from the gross profits.
NOTE:
As per above mentioned provisions:

• It is clear in first line that section 197 applicable only on Public Limited Companies.

• Limit of 11% of net profit for a financial year.

• Limit of 11% includes all 4 above mentioned categories. However limit of 11% divided in 4 categories as following:

i. (A) the remuneration payable to any one managing director; or whole-time director or manager shall not exceed five per cent. of the net profits of the company and

(B) if there is more than one such director remuneration shall not exceed ten per cent. of the net profits to all such directors and manager taken together;

ii. the remuneration payable to directors who are neither managing directors nor whole-time directors shall not exceed,

(A) one per cent. of the net profits of the company, if there is a managing or whole-time director or manager;

(B) three per cent. of the net profits in any other case.

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Schedule V

HOWEVER,
The company in general meetingmay,authorise the payment of remuneration exceeding eleven per cent. of the net profitsof the company, subject to the provisions ofSchedule V:
PART II, SECTION II of SCHEDULE V
Remuneration payable by companies having no profit or inadequate profit
Above mentioned section of part II States about remuneration to Directors including MD/WTD / Manager.
No Profit:This is situation when Company is in loss, it doesnt have any profit in its financials.
Inadequate Profit:This is situation when Company is having sufficient profit in its financials for payment of remuneration. However, profit is not sufficient to cover in limit of 11% of net profit. Exp.

As per Schedule V, Part II, Section II company can pay remuneration more than 11% by following the below mentioned:
Company by passing of Ordinary Resolution in General Meeting can pay remuneration upto below mentioned limit:

Company by passing of Special Resolution in General Meeting can pay remunerationANY AMOUNTwithout any limit:
For payment of remuneration as per above mention Limit of Section II Company have to comply with following conditions:
1 . Board Resolution:payment of remuneration is approved by a resolution passed by the Board and, in the case of a company covered under sub-section (1) of suction 178 also by the Nomination and Remuneration Committee
2. No Default:the company has not committed any default in payment of dues to any bank or public financial institution or non-convertible debenture holders or any other secured creditor, and in case of default, the prior approval of the bank or public financial institution concerned or the non-convertible debenture holders or other secured creditor, as the case may be, shall be obtained by the company before obtaining the approval in the general meeting.
3. General Meeting:an ordinary resolution or a special resolution, as the case may be, has been passed for payment of remuneration as peritem (A) or (B), at the general meeting of the company for a period not exceeding three years.
4. Notice of General Meeting:a statement along with a notice calling the general meeting referred to in clause (iii) is given to the shareholders containing the following information as mention in schedule:-
5. Company Secretary Certificate: The auditor or the Secretary of the company or where the company is not required to appointed a Secretary, a Secretary in whole-time practice shall certify that the requirement of this Schedule have been complied with and such certificate shall be incorporated in the return filed with the Registrar under sub-section (4) ofsection 196.
(Author CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted [email protected]).
Disclaimer:The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, I assume no responsibility therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not a professional advice and is subject to change without notice. I assume no responsibility for the consequences of use of such information. IN NO EVENT SHALL I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION WITH THE USE OF THE INFORMATION