Chapter XIII of Companies Act – Appointment and

Remuneration of Managerial Personnel

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Term Explainer

 Manager means an individual 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.

 Managing director means a director who, by virtue of the articles of a company or an agreement
with the company or a resolution passed in its general meeting, or by its Board of Directors, is
entrusted with substantial powers of management of the affairs of the company and includes a
director occupying the position of managing director, by whatever name called.

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 Companies Act 2013 -> Section 196 – Appointment of Managing Director, Whole Time Director or Manager

Company shall not appoint or

No company shall appoint or
re-appoint any person as its
employ at the same time a
managing director, whole-time
managing director and a
director or manager for a term
manager
exceeding five years at a time.

This provision is not

applicable to government
company.

No re-appointment shall be
made earlier than one year
before the expiry of his term.

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(a) is below the age of
twenty-one years or has
attained the age of seventy
years.
For appointment or continuation of a person aged
more than 70 years, follow either of the steps:-
a. Pass Special Resolution in General Meeting OR
b. Pass Ordinary Resolution + satisfaction of CG
that such appointment is beneficial to the
company

(b) is an undischarged
Company shall not insolvent or has at any time
appoint or continue been adjudged as an
the employment of insolvent
any person as
managing director, (c) has at any time
whole-time director suspended payment to his
or manager who — creditors or has at any time
made a composition with
them
(d) has at any time been
convicted by a court of an
offence and sentenced for a
period of more than six
months

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 The appointment and terms and conditions of such appointment and remuneration payable Not applicable to
shall be Specified IFSC
 approved by the Board of Directors at a meeting Public company
 further approved by a resolution at the next general meeting of the company and by the
Central Government in case such appointment is at variance to the conditions. Application to
CG in Form No. MR 2 within 90 days of appointment.

 A return in the Form No. MR.1 shall be filed within sixty days of such appointment with the
Registrar. These
provisions not
applicable for
 private and
 government
companies
 Where an appointment of a managing director, whole-time director or manager is not
approved by the company at a general meeting, any act done by him before such approval
shall not be deemed to be invalid.

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 Concept Check

Company can do reappointment of a managing director 2 years before the expiry of their term. True or False
(Ans: False. Reappointment can be done only one year prior to expiry of term)
 Concept Check

Minimum age limit of a person for appointment as a MD is………..years.

1. 18
2. 21
3. 25
4. 30

Ans: Option 2

Return of appointment of MD or manager must be filed in……. Days of the appointment.

1. 60
2. 90
3. 180
4. 240

Ans: Option 1
Section 197 – Overall Maximum Managerial Remuneration and Managerial Remuneration in Case of Absence or Inadequacy of Profits

The total managerial remuneration payable by a public company, to all its directors, including managing director and
whole-time director, and its manager in respect of any financial year shall not exceed 11 per cent of the net profits
(before salary deduction) of that company for that financial year

(The company in general meeting may authorise the payment of remuneration exceeding eleven per cent. of the net
profits of the company, subject to the provisions of Schedule V)

A company may pay a sitting fee to a director for attending meetings of the Board or committees which shall not
exceed one lakh rupees per meeting of the Board or committee thereof:

The sitting fee payable to Independent Directors and Women Director shall not be less than the sitting fee payable to
other directors.

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Condition Max Remuneration in any financial year
Company with one Managing director/whole time 5% of the net profits of the company
director/manager
Company with more than one Managing 10% of the net profits of the company
director/whole time director/manager
Overall Limit on Managerial Remuneration (for all 11% of the net profits of the company
directors whether WTD, MD, Manager or simple
directors)

Remuneration payable to directors who are neither managing directors nor whole-time directors

For directors who are neither managing director or 1% of the net profits of the company if there is a
whole-time directors. managing director/whole time director

For directors who are neither managing director or 3% of the net profits of the company if there is no
whole-time directors. managing director/whole time director

The percentages displayed above shall be exclusive of any sitting fees payable to directors.

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 If any director receives This recovery
A company can pay can be waived
remuneration in excess
its managerial only by
of the limit prescribed by
personnel In case a company passing SR
this section or without
remuneration in has defaulted in within 2 years
approval required under
excess of above paying its dues or of amount
this section, he shall
limits without prior failed to pay its becoming due.
refund such sums to the
approval of the dues, approval Also approval
company, within two
Central from the lenders or of lenders
years or such lesser
Government. A banks or required if
period as may be
special resolution debentureholders default made
allowed by the
approved by the will be necessary. in their
company, and until such
shareholders will payment.
sum is refunded, hold it
be sufficient.
in trust for the company.

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When the company has inadequate profits/no profits: In case a company has inadequate profits/no profits in any
financial year, no amount shall be payable by way of remuneration except if these provisions are followed.

Where the effective capital is Limits of yearly remuneration

Negative or less than 5 Crores 60 Lakhs

5 crores and above but less than 100 Crores 84 Lakhs

100 Crores and above but less than 250 Crores 120 Lakhs

250 Crores and above 120 Lakhs plus 0.01% of the effective capital in excess
of 250 Crores

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If any person or the company makes any default in complying with the provisions of this
section,

 Penalty on that person one lakh rupees

 Penalty on the company five lakh rupees.

Sect

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 Companies Act-->Section 198--> Calculation of Profits

Deliberately omitted by faculty since it is not relevant as per faculty’s opinion.

Sect

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 Concept Check

Does the company need approval of CG for paying remuneration more than the limits specifies?
(Ans: The company can pay remuneration more than the limits specified by passing a SR at general meeting. No
requirement of CG approval is there.)
 Concept Check

In case the effective capital of the company is negative what can be the maximum remuneration to all the directors?
1. 20 lakhs
2. 50 lakhs
3. 60 lakhs
4. 75 lakhs

Ans: Option 3

What can be the maximum percentage of profits which can be given as remuneration to directors who are neither managing
director or whole-time directors, if there is no managing director or WTD?
1. 1
2. 3
3. 5
4. 10

Ans: Option 2
 Thanks

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