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No person shall be eligible for
appointment as a managing or whole-time
director or a manager (hereinafter
referred to as managerial person) of a
company unless he satisfies the
following conditions, namely:—
(a) he had not been sentenced to
imprisonment for any period, or to a
fine exceeding one thousand rupees, for
the conviction of an offence under any
of the following Acts, namely:—
(i) the Indian Stamp Act, 1899 (2 of
1899);
(ii) the Central Excise Act, 1944 (1 of
1944);
(iii) the Industries (Development and
Regulation) Act, 1951 (65 of 1951);
(iv) the Prevention of Food
Adulteration Act, 1954 (37 of 1954);
(v) the Essential Commodities Act, 1955
(10 of 1955);
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[(vi)“ the Companies Act,2013 (18 of
2013) or any previous company law”]
(vii) the Securities Contracts
(Regulation) Act, 1956 (42 of 1956);
(viii) the Wealth-tax Act, 1957 (27 of
1957);
(ix) the Income-tax Act, 1961 (43 of
1961);
(x) the Customs Act, 1962 (52 of 1962);
(xi) the Competition Act, 2002 (12 of
2003);
(xii) the Foreign Exchange Management
Act, 1999 (42 of 1999);
(xiii) the Sick Industrial Companies
(Special Provisions) Act, 1985 (1 of
1986);
(xiv) the Securities and Exchange Board
of India Act, 1992 (15 of 1992);
(xv) the Foreign Trade (Development and
Regulation) Act, 1922 (22 of 1922);
(xvi) the Prevention of
Money-Laundering Act, 2002 (15 of
2003);
4[(xvii) the Insolvency and Bankruptcy
Code, 201.6 (31 of 2016)
(xviii) the Goods and Services Tax
Act,20t7 (12 of 2017)
(xix) the Fugitive Economic Offenders
Act, 2018 (17 of 2018)]
(b) he had not been detained for any
period under the Conservation of
Foreign
Exchange and Prevention of Smuggling
Activities Act, 1974 (52 of 1974):
Provided that where the Central
Government has given its approval to
the appointment of a person convicted
or detained under sub-paragraph (a) or
sub-paragraph (b), as the case may be,
no further approval of the Central
Government shall be necessary for the
subsequent appointment of that person
if he had not been so convicted or
detained subsequent to such approval.
(c) he has completed the age of
twenty-one years and has not attained
the age of seventy years:
Provided that where he has attained the
age of seventy years; and where his
appointment is approved by a special
resolution passed by the company in
general meeting, no further approval of
the Central Government shall be
necessary for such appointment;
(d) 5[Omitted]
(e) He is resident of India.
Explanation I.—For the purpose of this
Schedule, resident in India includes a
person who has been staying in India
for a continuous period of not less
than twelve months immediately
preceding the date of his appointment
as a managerial person and who has come
to stay in India,—
(i) for taking up employment in India;
or
(ii) for carrying on a business or
vacation in India.
Explanation II.—This condition shall
not apply to the companies in Special
Economic Zones as notified by
Department of Commerce from time to
time:
Provided that a person, being a
non-resident in India shall enter India
only after obtaining a proper
Employment Visa from the concerned
Indian mission abroad. For this
purpose, such person shall be required
to furnish, along with the visa
application form, profile of the
company, the principal employer and
terms and conditions of such person’s
appointment.
PART II
REMUNERATION
Section I.— Remuneration payable by
companies having profits: Subject to
the provisions of section 197, a
company having profits in a financial
year may pay remuneration to a
managerial person or persons not
exceeding the limits specified in such
section.
[Section II
Remuneration payable by companies
having no profit or inadequate
profit 6[Omitted]
Where in any financial year during the
currency of tenure of a managerial
person, a company has no profits or its
profits are inadequate, it may,
6[Omitted], pay remuneration to the
managerial person not exceeding, the
limits under (A) and (B) given below:-
(A):
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(1)
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(2)
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Where the effective
capital is
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Limit of yearly
remuneration payable
shall not exceed
(Rupees)
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(i) Negative or less
than 5 crores
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60 Lakhs
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(ii) 5 crores and above
but less than 100
crores
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84 Lakhs
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(iii) 100 crores and
above but less than 250
crores
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120 Lakhs
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(iv) 250 crores and
above
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120 lakhs plus 0.01% of
the effective capital
in excess of Rs. 250
crores:
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7[Provided that the remuneration in
excess of above Iimits may be paid] if
the resolution passed by the
shareholders is a special resolution.
Explanation.- It is hereby clarified
that for a period less than one year,
the limits shall be pro-rated.
(B) In case of a managerial person who
is functioning in a professional
capacity, 8[remuneration as per item
(A) may be paid], if such managerial
person is not having any interest in
the capital of the company or its
holding company or any of its
subsidiaries 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 or any of its subsidiaries at
any time during the last two years
before or on or after the date of
appointment and possesses graduate
level qualification with expertise and
specialised knowledge in the field in
which the company operates:
Provided that any employee of a company
holding shares of the company not
exceeding 0.5% of its paid up share
capital under any scheme formulated for
allotment of shares to such employees
including Employees Stock Option Plan
or by way of qualification shall be
deemed to be a person not having any
interest in the capital of the company;
Provided further that the limits
specified under items (A) and (B) of
this section shall apply, if-
(i) 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;
(ii);12[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.]
(iii) an ordinary resolution or a
special resolution, as the case may be,
has been passed for payment of
remuneration as per 13[Omitted] item
(A) or a special resolution has been
passed for payment of remuneration as
per item (B), at the general meeting of
the company for a period not exceeding
three years.
(iv) a statement along with a notice
calling the general meeting referred to
in clause (iii) is given to the
shareholders containing the following
information, namely:-
I. General information:
(1) Nature of industry
(2) Date or expected date of
commencement of commercial production
(3) In case of new companies, expected
date of commencement of activities as
per project approved by financial
institutions appearing in the
prospectus
(4) Financial performance based on
given indicators
(5) Foreign investments or
collaborations, if any.
II. Information about the appointee:
(1) Background details
(2) Past remuneration
(3) Recognition or awards
(4) Job profile and his suitability
(5) Remuneration proposed
(6) Comparative remuneration profile
with respect to industry, size of the
company, profile of the position and
person (in case of expatriates the
relevant details would be with respect
to the country of his origin)
(7) Pecuniary relationship directly or
indirectly with the company, or
relationship with the managerial
personnel, if any.
III. Other information:
(1) Reasons of loss or inadequate
profits
(2) Steps taken or proposed to be taken
for improvement
(3) Expected increase in productivity
and profits in measurable terms
IV. Disclosures
The following disclosures shall be
mentioned in the Board of Director’s
report under the heading “Corporate
Governance”, if any, attached to the
Financial statement:
(i) all elements of remuneration
package such as salary, benefits,
bonuses, stock options, pension, etc.,
of all the directors;
(ii) details of fixed component. and
performance linked incentives along
with the performance criteria;
(iii) service contracts, notice period,
severance fees; and
(iv) stock option details, if any, and
whether the same has been issued at a
discount as well as the period over
which accrued and over which
exercisable.
Explanation
: For the purposes of Section II of
this part, “Statutory Structure” means
any entity which is entitled to hold
shares in any company formed wider any
statute. “]
Section III.— Remuneration payable by
companies having no profit or
inadequate profit 6[Omitted] in certain
special circumstances:
In the following circumstances a
company may, 6[Omitted], pay
remuneration to a managerial person in
excess of the amounts provided in
Section II above:—
(a) where the remuneration in excess of
the limits specified in Section I or II
is paid by any other company and that
other company is either a foreign
company or has got the approval of its
shareholders in general meeting to make
such payment, and treats this amount as
managerial remuneration for the purpose
of section 197 and the total managerial
remuneration payable by such other
company to its managerial persons
including such amount or amounts is
within permissible limits under section
197.
3["(b) where the company—
(i) is a newly incorporated
company, for a period of seven years
from the date of its incorporation, or
(ii) is a sick company, for
whom a scheme of revival or
rehabilitation has been ordered by the
Board for Industrial and Financial
Reconstruction for a period of five
years from the date of sanction of
scheme of revival, or
(iii) is a company in relation
to which a resolution plan has been
approved by the National Company Law
Tribunal under the Insolvency and
Bankruptcy Code, 2016 for a period of
five years from the date of such
approval, it may pay 11[ "any
remuneration to its managerial
persons".]
(c) where remuneration of a managerial
person exceeds the limits in Section II
but the remuneration has been fixed by
the Board for Industrial and Financial
Reconstruction or the National Company
Law Tribunal:
Provided that the limits under this
Section shall be applicable subject to
meeting all the conditions specified
under Section II and the following
additional conditions:—
(i) except as provided in para (a) of
this Section, the managerial person is
not receiving remuneration from any
other company;
(ii) the auditor or Company Secretary
of the company or where the company has
not appointed a Secretary, a Secretary
in whole-time practice, certifies that
all secured creditors and term lenders
have stated in writing that they have
no objection for the appointment of the
managerial person as well as the
quantum of remuneration and such
certificate is filed along with the
return as prescribed under sub-section
(4) of section 196.
(iii) the auditor or Company Secretary
or where the company has not appointed
a secretary, a secretary in whole-time
practice certifies that there is no
default on payments to any creditors,
and all dues to deposit holders are
being settled on time.
(d)9[Omitted]
Section IV.— Perquisites not included
in managerial remuneration:
1. A managerial person shall be
eligible for the following perquisites
which shall not be included in the
computation of the ceiling on
remuneration specified in Section II
and Section III:—
(a) contribution to provident fund,
superannuation fund or annuity fund to
the extent these either singly or put
together are not taxable under the
Income-tax Act, 1961 (43 of 1961);
(b) gratuity payable at a rate not
exceeding half a month’s salary for
each completed year of service; and
(c) encashment of leave at the end of
the tenure.
2. In addition to the perquisites
specified in paragraph 1 of this
section, an expatriate managerial
person (including a non-resident
Indian) shall be eligible to the
following perquisites which shall not
be included in the computation of the
ceiling on remuneration specified in
Section II or Section III—
(a) Children’s education allowance: In
case of children studying in or outside
India, an allowance limited to a
maximum of Rs. 12,000 per month per
child or actual expenses incurred,
whichever is less. Such allowance is
admissible up to a maximum of two
children.
(b) Holiday passage for children
studying outside India or family
staying abroad: Return holiday passage
once in a year by economy class or once
in two years by first class to children
and to the members of the family from
the place of their study or stay abroad
to India if they are not residing in
India, with the managerial person.
(c) Leave travel concession: Return
passage for self and family in
accordance with the rules specified by
the company where it is proposed that
the leave be spent in home country
instead of anywhere in India.
Explanation I.—For the purposes of
Section II of this Part, “effective
capital” means the aggregate of the
paid-up share capital (excluding share
application money or advances against
shares); amount, if any, for the time
being standing to the credit of share
premium account; reserves and surplus
(excluding revaluation reserve);
long-term loans and deposits repayable
after one year (excluding working
capital loans, over drafts, interest
due on loans unless funded, bank
guarantee, etc., and other short-term
arrangements) as reduced by the
aggregate of any investments (except in
case of investment by an investment
company whose principal business is
acquisition of shares, stock,
debentures or other securities),
accumulated losses and preliminary
expenses not written off.
Explanation II.— (a) Where the
appointment of the managerial person is
made in the year in which company has
been incorporated, the effective
capital shall be calculated as on the
date of such appointment;
(b) In any other case the 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.
Explanation III.— For the purposes of
this Schedule, ‘‘family’’ means the
spouse, dependent children and
dependent parents of the managerial
person.
Explanation IV.— The Nomination and
Remuneration Committee while approving
the remuneration under Section II or
Section III, shall—
(a) take into account, financial
position of the company, trend in the
industry, appointee’s qualification,
experience, past performance, past
remuneration, etc.;
(b) be in a position to bring about
objectivity in determining the
remuneration package while striking a
balance between the interest of the
company and the shareholders.
Explanation V.— For the purposes of
this Schedule, “negative effective
capital” means the effective capital
which is calculated in accordance with
the provisions contained in Explanation
I of this Part is less than zero.
Explanation VI.— For the purposes of
this Schedule:—
(A) 11[Omitted]
(B) “Remuneration” means remuneration
as defined in clause (78) of section 2
and includes reimbursement of any
direct taxes to the managerial person.
Section V. —Remuneration payable to a
managerial person in two companies:
Subject to the provisions of sections I
to IV, a managerial person shall draw
remuneration from one or both
companies, provided that the total
remuneration drawn from the companies
does not exceed the higher maximum
limit admissible from any one of the
companies of which he is a managerial
person.
PART III
Provisions applicable to Parts I and II
of this Schedule
1. The appointment and remuneration
referred to in Part I and Part II of
this Schedule shall be subject to
approval by a resolution of the
shareholders in general meeting.
2. 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) of section 196.
PART IV
The Central Government may, by
notification, exempt any class or
classes of companies from any of the
requirements contained in this
Schedule.
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