Section 149 Number of Directors Woman Director Resident Director

(Company to At least 1 woman director in every

have Board of Minimum - Every company must
Directors) 3 Public Public company having have 1 resident
2 Private Listed company or P ≥ 100 crore director
1 OPC T ≥ 300 crore
Intermittent vacancy filled by Board - Meaning – who has
Maximum – 15
stayed in India for ≥
(can be increased by SR) - Immediate next BM, or
- 3 months } whichever
later
is
182 days during the
Note – Maximum limit is N.A. FY
to Sec. 8 & Govt. company
Note – Newly incorporated company needs to comply with - For new Co.,
this provision within 6 months of its incorporation requirement to apply
proportionately for
first FY
Independent director (ID)
149(4) 149(6)

Public company having Director other than MD, WTD or Nominee director
Listed Public P ≥ 10 crore
company L > 50 crore a. Person of integrity, expertise & experience
T ≥ 100 crore
≥ 1/3rd of total b. - Not a promoter of CASH
≥ 2 ID - Not related to P or D of CASH
directors
c. No pecuniary relation with CASH  Remuneration allowed
 Intermittent vacancy filled by Board or their P or D - 2 years
 Transactions up to 10% of
- Immediate next his total income allowed
BM, or } whichever
is later d. His relative is not
- 3 months
1. holding Security in CASH – 2 1. May hold upto FV 50 lakh
 If above limits breached once, will have years or 2% of paid-up capital
to appoint ID for next 3 years 2. Indebted to CASH or P or D– 2 2. Exception - 50 lakh
years
 JV, WOS, Dormant company is NOT 3. Guarantee or Security to CASH 3. Exception - 50 lakh
covered or P or D – 2 years
4. Any other pecuniary relation 4. Exception – 2% of turnover
 Other points with CASH or income in combination
- Comply with Schedule IV of above
- Not entitled to ESOP
- Not liable to retire by rotation e. He or his relative is not
- ID not required in case of Sec. 8 & 1. KMP or employee of CASH – 3 years – However, relative can
specified IFSC Public Co. be employee
2. Not an Employee/ Proprietor/ Partner – 3 years
Term - Auditor/ CS/ Cost auditor of CASH
- Consulting firm of CASH deriving ≥ 10% of income
 First term of maximum 5 years (1st
term by OR) 3. Holds with his relatives ≥ 2% voting power in company
 And maximum 2 terms permitted (2nd 4. CEO/ Director of NPO that
term by SR) - receives ≥ 25% from CASH or P or D of company
- holds ≥ 2% voting power in Company
 Cooling-off period of 3 years (not to
be associated with the company in f. Possesses other prescribed qualification – appropriate skills in
any capacity) specified fields

Note – ID shall at his first BM; then first BM every FY & whenever there is
any change in his status as ID, give a declaration of independence
Note - ID and a NED (other than promoter or KMP), are only liable for the acts incurred with their knowledge attributable
through Board process

Section 150  CG may notify an institute (Indian Institute of Corporate Affairs, Manesar), which will maintain a data bank of
(Data Bank) persons eligible and willing to become independent director
 However, the company is responsible to exercise due diligence before selecting a person from the data bank
Inclusion of Name in Data-Bank
Every individual Application for renewal shall be given for
 appointed as ID on 1 Dec 2019, shall within 13 months; or  1 year; or
 who intends to be appointed as ID, shall before such  5 years; or
appointment  Life-time
shall get his name included in Data Bank for within 30 days from the expiry
 1 year; or
 5 years; or Note – Renewal is not required if name was included
on life-time basis
 Life-time
till he continues to be ID Note – ID shall submit a declaration of compliance
of inclusion of name in Data-bank each time
Note – Even an individual not having DIN, may apply voluntarily to declaration is given u/s 149
be included in Data-Bank

Appointment & Qualification of Directors t.me/CA_Law_HarshGupta

 Online Proficiency Self-Assessment Test
Individual needs to Exception – No need to pass test if he has served for ≥ 3 years as
pass
1. Director or KMP in one or more; or 2. In the pay scale of 3. In the pay scale of
 an Online Director or above in Chief General
Proficiency Self-  Listed Public Co.; or
 MCA or Manager or above
assessment test  Unlisted Public Co. having PSC ≥ in
 within 2 years 10 crore; or  Ministry of
Finance or  SEBI or
from the date of  Body corporate listed on any
inclusion of his recognised stock exchange or in a  Ministry of  RBI or
name in data- country which is FATF Member + Commerce &  IRDA or
bank its securities market regulator is a industry or  PFRDA
 by securing ≥ member of International  Ministry of
Organisation of Securities Having experience
50% marks in Heavy Industries in matters of
aggregate Commission; or & Public corporate laws or
 (No limit on no.  Bodies corporate outside India Enterprises securities laws or
of attempts) having PSC ≥ US$ 2 million economic laws
 Statutory corporations
Section 151 Applicability Procedure to appoint
(Small  Every listed company Application to appoint SSD by  These small shareholders shall
Shareholders’ give a notice for appointing
Director, SSD)  It may appoint 1 director ≥ 1,000 small shareholders,
elected by small shareholders or whichever is SSD at least 14 days before
 Meaning of small shareholder ≥ 1/10th of total small } lower meeting
– one who holds shares of shareholders  SSD need not be a shareholder
NOMINAL VALUE ≤ INR 20,000  If satisfies section 149(6) &
(7) will be ID

 SSD is not liable to retire by rotation  A person can be SSD of maximum 2

 1 tenure of maximum 3 years companies provided these companies are
not in competing business
 No association with company for next 3 years
Section 152 First Directors Other provisions
(Appointment  Written in AOA  DIN is compulsory for a director
of Directors)
 If not written, individual subscribers become the first directors  Appointed director to give his consent in
 In case of OPC – the member becomes the first director DIR-2
 Company to file such consent with RoC in
These directors to hold office until director(s) are duly appointed in GM DIR-12

Retirement by Rotation – Applicable only to PUBLIC company

i AOA may provide that When to At AGM
ALL directors to retire retire
How many 1/3rd of those 2/3rd shall retire
ii Else, ≥ 2/3rd of TNOD directors to
shall retire by rotation retire Note – In this case, nearest rounding off is done
+ should have been
appointed in GM Which
director to
retire first
Note – TNOD to exclude
Independent director
Note – For 2/3rd higher Who will fill Retiring director himself or some other person may fill. Further meeting may
rounding off is done such resolve NOT to fill the vacancy
vacancy
TNOD means Total Number
of Directors

Automatic re-appointment of retiring director

 If the vacancy is not so filled or it is not resolved not to fill the vacancy, meeting stands adjourned to the next week
(same day, time & place  if that day is a national holiday, then to the next succeeding day which is not a holiday)
 If vacancy is not filled or it is not resolved not to fill the vacancy at adjourned meeting  retiring director stands
automatically reappointed UNLESS
Resolution for his appointment was lost He is unwilling He is disqualified
Section 162 is applicable OR/ SR is required for his appointment as per provision of the Act

Section 153 Every person intending to become director must Section 154 CG to allot DIN within 1 month
apply for DIN in DIR-3

Section 155 No person shall obtain more than 1 DIN Section 156 Director must intimate his DIN to the company within
1 month

Section 157 Company to intimate details of DIN to RoC Section 158 DIN must be mentioned in every return, information
within 15 days etc.

Section 159 For contravention of section 152, 155 & 156; - Penalty upto INR 50,000
(Punishment)
- If continuing one, further penalty of INR 500/ day

Appointment & Qualification of Directors t.me/CA_Law_HarshGupta

Steps to Obtain
DIN

Note – Any change in the particulars of DIN shall be intimated to CG in form DIR-6 within 30 days

Cancellation or Grounds of cancellation or deactivation of DIN

Surrender or
Deactivation  DIN is found to be duplicated
 DIN was obtained in a wrongful or fraudulent manner CG may also deactivate DIN, if individual doesn’t intimate
 Death of concerned individual his particulars in e-form DIR 3-KYC or DIR-3 KYC Web
 Individual declared as unsound mind by competent court DIN may be re-activated only after DIR-3 KYC or DIR-3
 Adjudicated insolvent KYC Web is filed
 Application for surrender of DIN in form DIR -5
(CG shall verify e-records before deactivation)

Directors KYC Every individual holding DIN as on 31st March, shall submit e- Where DIR-3 KYC is filed, for subsequent years individual
form DIR-3 KYC for said FY to CG on or before 30th September can submit web form DIR-3 KYC Web

Section 160 - Any person himself may apply for Conditions Deposit refunded if
(Candidature directorship, or  Gets elected, or
for - 14 days’ notice before the meeting
- A member may propose him as director - Deposit of INR 1 lakh  Gets > 25%
directorship)
votes
No need of deposit is candidate
Note - Section N.A. to a Private company & also 1. In case of independent director
not applicable in case of director retiring by 2. Director proposed by NRC
rotation 3. If no NRC, director proposed by Board

Section 161 (1) – Additional Director (2) – Alternate Director

 Authorised by AOA  Authorised by
 Appointed by Board - AOA or
 Holds office upto AGM - OR
 Appointed by Board
(3) – Nominee Director  Appointed to act as an alternate for a director outside India for ≥
 Authorised by AOA 3 months
 Appointed by Board  Existing director can’t act as alternate director for any director
 Appointed pursuant to some agreement or  Person shall be alternate director for only 1 director in the
law company
(4) – Casual Vacancy  Alternate director for an Independent director must be
independent as well
 Casual vacancy of a director appointed in
GM may be filled by Board at a MEETING  Automatic re-appointment N.A. to alternate director
 It is subsequently approved in immediate  Hold office


next GM
Hold office upto the date the director whose
- Upto tenure of original director
- Original director returns to India } whichever is
earlier
vacancy is filled would have held office
Section 162  2 or more directors shall not be appointed by a single resolution, unless approved without any vote being cast against
(Single it
Resolution)
 If still appointed, the resolution shall be void
Section 163  AOA may provide for appointment of ≥ 2/3rd directors by proportional representation
(Proportional
Representation)  Appointment made once in every 3 years & casual vacancy filled u/s 161(4)

Appointment & Qualification of Directors t.me/CA_Law_HarshGupta

Section 164 164(1) 164(2)
(Disqualificatio
ns) No person who is or has been a director of a
company, shall be re-appointed in the company
or appointed in any other company as a director
for 5 years, if that company

 has not filed financial statements or

annual return for 3 continuous financial
years
 has failed to repay 3D’s for 1 year
(Deposit, debenture, dividend)

Note – Any person newly appointed as director

of company mentioned above shall not incur the
disqualification for 6 months
164(3)
Private company may, by its articles, provide for
any other ground for disqualification

Section 165  Maximum directorships = 20 But, maximum 10 directorships in

(Number of
Directorships)  Section 8 & Dormant - Public Co. or - Private Co. which is Holding or subsidiary of a Public Co.
company not counted in 20
Section 166
(Duties of a  Act in accordance with AOA  Act in good faith  Exercise duties with due care
director)  Shall not involve in conflicting interest  No undue advantage  Shall not assign his office
Section 167 Grounds for vacation
(Vacation of
office)  Disqualified u/s 164  Absent from BM for 12  Act in  Fails to disclose
But in case of 164(2), director shall vacate in months contravention interest u/s 184
all companies, except in which default incurs of 184
 Disqualified by Court  Convicted for ≥ 6 months  Removed u/s  Ceases to hold
In these 2 cases, shall not vacate office for 169 office in Holding/
subsidiary/
 Initial 30 days; associate
 If appeal is preferred, until the expiry of 7 days from disposal of appeal; pursuant to
 If further appeal is preferred, until such further appeal is disposed of which appointed

Section 168  Director may resign by giving a notice in writing to the Company + MAY forward a copy to RoC in DIR-11
(Resignation)
 Further, company shall also file DIR-12 with RoC + place the fact of resignation in next General Meeting
 Effective date of resignation is
Date on which notice is received by the company whichever is later
}
Date, if any, specified in the notice
 Director to remain liable for past offences
 If ALL directors resign or vacate their office  promoter, else CG, shall appoint required number of directors
Section 169 A SPECIAL NOTICE (u/s 115) is required to Right of representation by Director being removed
(Removal)  Remove a director; or  Director has right to be heard at the meeting
 To appoint somebody else in his place  Further, he also has the right to make
 OR is passed for removal representation
 But to remove re-appointed Independent director, SR is - Fact of representation shall be mentioned in the
required notice
Filing of vacancy - If received timely – also sent to every member
- If not received timely – must be read out at
 A new director may be appointed at the same GM by giving meeting
special notice
- Provided it need not be sent/ read out if NCLT is
 If not so appointed, filled as casual vacancy satisfied that representation is being used to
 Term – date upto which predecessor would have held office secure needless publicity for defamatory matter
Section 170 Every company shall maintain a Register containing particulars of director/ KMP + their
(Register of Register of Director shareholding
Directors, KMP)
Return of Particulars A return shall also be filed with RoC within 30 days of appointment or any change taking place
Section 171 Right to inspect register u/s 170(1) - Member shall have right to inspect during business hours + can take extracts
(Members’ - Also, it should be open for inspection at every AGM
right to - If company refuses  RoC, on application, shall order inspection
inspect)
Section 172 Residuary penalty
(Punishment) for contravention On whom Penalty
of this Chapter
 liable to a penalty of INR 50,000;
- Company; and  and in case of continuing failure, further penalty of INR 500/ day
- Every officer in during which such failure continues, subject to a maximum of
default - INR 3 lakh in case of a company and
- INR 1 lakh in case of an officer who is in default

Appointment & Qualification of Directors t.me/CA_Law_HarshGupta

Section 173 Frequency of BM Video conferencing
(Board Directors may participate through video conferencing
Meetings) - 1st meeting within 30 days of incorporation except for the following –
- 4 meetings in every calendar year + max. gap of 120 days
b/w 2 meetings
Approval of annual financial Approval of Board's
- Section 8 company - 1 meeting in every 6 calendar months statements report
Audit committee meeting to Approval of
- IFSC Co. to hold first meeting within 60 days of incorporation consider financials prospectus
& then 1 meeting in each half of calendar year Approve merger, demerger, etc.
- Following companies to hold 1 meeting in every 6 calendar
months + min. gap of 90 days Note – If quorum is physically present, remaining
Small Co. Dormant director can participate through video conferencing even
OPC Start-up for these businesses
Note – The above matters may be conducted at video
conferencing from 19th Mar 2020 to 30th June 2021

Notice

Section 174 For section 8 company

(Quorum) 1/3rd of its total
strength, or
2 directors
} whichever
is higher
8 members, or
25% of total strength } whichever is
less BUT ≥ 2 members

If directors fall below quorum
continuing director may continue to act
only for
- Increasing the directors to quorum, or
- Calling GM
If interested directors <
1/3rd of total strength
Non-interested directors
(being ≥ 2) shall be quorum
Meeting adjourned for the want of quorum
- Unless AOA specifies, adjourned to next
week, same day, same time & place
- If national holiday, to next succeeding day
(not being a holiday)

Section 175  Resolution to be circulated in draft to ALL the directors at  Resolution to be moved at MEETING if 1/3rd directors
(Resolution their registered address require the same
by
Circulation,  Approved by MAJORITY of directors ENTITLED to vote  Resolution passed by RBC to be noted at subsequent
RBC) meeting

Section 176 Past acts of directors not to be invalid if it is subsequently notice

(Defects in that appointment was invalid because of
appointment - defect - disqualification - termination - AOA However, once notice, then future acts will not be valid

Section 177 Companies required to appoint Audit Committee Composition of Audit Committee
(Audit  Min. 3 directors  I.D. forming majority
committee &
Vigil Similar to that prescribed for Independent director (I.D.)  Majority members + Chairman  must be able to
Mechanism) read & understand financials
Functions/ Roles of Audit Committee Powers of Audit committee

Appointment & Monitor auditor’s Examine  Call comments of auditor on internal control, scope
remuneration of Auditor independence financials & of audit, financial statement etc.
audit report  Discuss related issues with auditor or management
End use of funds raised Scrutinize inter- Valuation
in Public offer corporate loans  Authority to investigate
 Authority to seek any professional advise
Internal financial Approve RPT*
controls Transactions other than 188 OMNIBUS APPROVAL
may be referred to Board  AC shall specify the criteria for making omnibus
approval
*Note – Where AC disapproves RPT (other than RPT of section
188), it shall make recommendations to the Board  Such approval shall indicate
- Name of party - Max. amount
*Note – Directors can enter RPT ≤ 1 crore and get it subsequently - Nature & duration of - Indicative base
ratified by AC RPT price
*Note – No approval for RPT with WOS (other than RPT of section  Where need of RPT cannot be foreseen, max.
188) approval of ≤ 1 crore per transaction
 It is valid for maximum 1 Financial Year
Note – AC may give OMNIBUS APPROVAL for RPT  Not allowed for the selling or disposing of the
undertaking
Vigil mechanism – Formed by following companies Objectives
 Listed; or  Mechanism for directors/ employees to report
 Accepting Public deposits; or concerns
 Borrowings from Banks/ FI > INR 50 crore  Safeguard against victimisation
 Direct access to Chairman in exception cases

Meetings of Board & its Powers t.me/CA_Law_HarshGupta

Section 178 NRC Composition of NRC Functions of NRC
Companies required to appoint Audit Committee  Min. 3 Non-executive  Identify persons qualified to
directors  ≥ 50% I.D. become director
 Lay down criteria for
NRC Similar to that prescribed for I.D. & Audit  Chairperson of company qualifications & independence
Committee can be member but shall  Formulate remuneration policy
not chair NRC  Policy disclosed in Board’s report

Constituted by companies Headed by Chairperson being Non-executive Objective

SRC having >1,000 security-holders director and other members as decided by Board Resolving grievances of security-
holders
Section 179  Powers of Board are co- Following powers to be exercised only at Board MEETING
(Powers of extensive with that of the
Board) company (a) Making calls on shareholder
 Power does not exercise (b) Authorising Buy-back
powers reserved for GM (c) Issue securities
(d) Borrow monies
Exemption to Banking (e) Invest funds Can be delegated
company (f) Grant LGS
- Accepting deposits (g) Approve financials & Board report
repayable on demand (h) Diversify business Note – For O/D & C/C,
- Placing deposits with other (i) Approve amalgamation, merger etc. borrowing means availing
banks (j) Approve takeover such facility & not their
- Taking loans from other (k) - political contribution – Appoint/ remove KMP day-to-day operation
banks - appoint internal or secretarial auditor
Section 180 Special Resolution is required for Safeguard
(Restriction
on Powers of  Buyer who acquired
Board) undertaking in good faith
 Sale or lease of
Not undertaking in normal
applicable to course of business
Private  Debt incurred in excess of
company prescribed limit will be
valid  if lender gave the
loan in good faith

Section 181  Donation ≤ 5% of Average Net profits of past 3 years – Board resolution
(Charitable
donantions)  > 5% Average Net Profits of past 3 years - Ordinary Resolution
Section 182 Cases covered Companies excluded Limit
(Political Donation to Political party  Any purpose No limit, amount can be contributed
contribution)  Government company
after passing resolution at Board
 Company been in existence < 3 years
Donation to Any person  Political purpose Meeting

Section 183
(NDF) Board can contribute ANY amount to National Défense Fund or any other fund approved by CG for national defence

Section 184 (1) – Disclosure of interest by Director (2) – No Participation by director if interest in
(Disclosure of Sub- Applicability Every director shall disclose his concern a contract/ arrangement
interest by section or interest in any body corporate or
Director) (1) Public +  With a Body corporate in which such director
association in holds > 2% or is a Promoter, manager, CEO
Private Co.  First BM
(2) Public Co.  With other entity in which such director is
 First BM every in FY
partner, owner or member
 Change in disclosures
If contract still entered  voidable at the option
of the company
Section 185 Excpetions to sub-section (1) & (2)
(LGS to 185(1) 185(2)
Directors LGS - NOT ALLOWED LGS – ALLOWED if Loans to MD/  Condition of service; or
etc.)  SR passed + WTD  Scheme approved by SR
 used for principal business
1. DIRECTOR of Co. 1. PRIVATE COMPANY of which such LGS in Minimum interest charged
Director of Holding Co. director is Director or member ordinary as per 1/ 3/ 5/ 10 years
Partner or Relative of course of government security
such director 2. BODY CORPORATE – director business
together with other holds ≥ 25% of LGS to WOS Used for principal business
voting power activities
GS to  Against loan taken from
2. FIRM in which such 3. BODY CORPORATE – directors of subsidiary bank or financial
director or relative is which accustomed to act institution
partner
 Used for principal
business activities

Meetings of Board & its Powers t.me/CA_Law_HarshGupta

 Section 185 is not applicable to a Private company Note – Sale of flat on instalment basis to a
a. in whose share capital no other body corporate has invested director is NOT a loan
b. borrowings from Banks or FI or any body corporate is less than lower (Fredie Ardshire Mehta)
of (2 X PSC) or 50 crore; and
c. there is no default in such borrowings
Section 186 Maximum 2 layers of Investment Co. is allowed
(LGSI)
Exception –
 Acquiring any company outside India where laws of
such country allows more layers

 Subsidiary can have investment subsidiary if any

law requires

Conditions to make LGSI

1. Unanimous Resolution
2. If exceeds below limit – SR
- 60% of its (PSC + FR + SP)
or
- 100% of its (FR + SP)
Exemption from ALL the above conditions
3. PFI approval if term loan subsisting
(No approval if within limit + no default)
4. ROI ≥ 1/ 3/ 5/ 10 year GOI securities’ yield
} whichever is
MORE
5. No default of deposits
6. Register should be maintained
Exemption from passing SR

 LGSI by banking, insurance, Housing finance company  LGS to WOS or JV

 LGSI by company engaged in industrial financing or providing  Investment in securities of WOS
infrastructure facilities
 Investment by NBFC (principal business being investment)
 Investment by investment company
 Rights issue
Section 187  All investments made by company shall be in its own name Exceptions
(Investment  Securities given to bank to collect dividend/
in own  However, to meet statutory limit, shares in subsidiary can be
held in the name of nominee interest
name)
 Securities given to bank to facilitate transfer
 Depositing securities as a security against loan
 Holding investments in Demat form
Section 188
(RPT) Related Party Transactions covered

Director/ KMP or his Relative a Sale, purchase, supply of GOODS

Firm Where Director/ Manager/ Relative is Partner b Sale, purchase of PROPERTY of any kind
Private Co. Where Director/ Manager/ Relative is c Leasing of PROPERTY of any kind
Director/ Member d Availing or rendering any service
Public Co. Where Diirector/ Manager e Appointing AGENT for a, b or d
 is a director; AND f Office or Place of Profit (OPP)
 Holds with relative > 2% PSC
g Underwriting of securities
Body Corporate Whose Board or MD or Manager is
accustomed to act according to Director/ CONDITIONS
Manager
 Board resolution at MEETING required
Any Person On whose advise our Director / Manager is  If RPT exceeds below limits, OR also required
accustomed to act  Interested member shall not participate except in
Body corporate Holding/ Subsidiary/ Associate/ Co- Private Co.
which is subsidiary/ Investing/ Venturer company  Interested member may participate if ≥ 90%
Note – This point is exempt for Pvt Co. members are relatives of promoters or related
Director (other  of Holding company, or parties
than ID) + KMP  his relative a+e 10% turnover
b+e 10% NW, or
Exception 10% turnover, or
c
 Section not applicable on transactions entered at ALP
d+e 10% turnover
 OR is not required in case of RPT with WOS whose accounts are
consolidated f INR 2,50,000 per month
g 1% NW
Consequences of violation

 Contract is voidable at the option of the Board

 If contract entered with a director or employee  he shall make
good the loss

Meetings of Board & its Powers t.me/CA_Law_HarshGupta

Section 189  Every company shall maintain a register for contracts to which  Register is open to inspection by any MEMBER
(Register of 184(2) & 188 applies
contracts in  Also, register is produced at every AGM
which  Register shall be placed in next BM & signed by ALL directors Exceptions
director Nothing applies to –
interested)  Every director/ KMP shall within 30 days of his appointment or
relinquishment disclose particulars u/s 184(1)  Sale/ purchase of goods & services ≤ INR 5 lakh in
a FY
 Banking company for collection of bills

Section 190 Every company to keep at registered office –  The contract is open to inspection by any member
(Employment  Contract of service with MD/WTD  if it is in writing,
contract with  Section is not applicable to a Private company
MD or WTD)  Else, a written memorandum setting out the terms

Section 191 No director is entitled to any compensation for loss of office

resulting from Disclosed to members & their approval has been
 Transfer of undertaking or property, or unless obtained in GM
 Transfer of shares Note – Nothing affects payment to MD/ WTD/
Manager within the limits of sec. 202

Section 192 A company AND director of the company/ holding/ subsidiary/ associate/ Consequences of contravention
(Non-cash a person connected shall not enter into non-cash transactions unless – Contract is VOIDABLE at the option of the
transactions company unless –
involving  Prior approval in GM is obtained, &
directors)  Restitution not possible + Co. is
 If director of Holding Co. – approval in GM of Holding Co. also required indemnified; or
 Rights acquired bona-fide for value

Section 193  Where OPC enters into contract with sole member who is also a director & it is not in writing then  Ensure terms
(Contract by contained in memorandum or recorded in first BM
OPC)
 Nothing applies to transactions entered in the ordinary course of business

Section 194 ---- Omitted ----

Section 195
---- Omitted ----

Meetings of Board & its Powers t.me/CA_Law_HarshGupta

Section 196  No company shall appoint MD as Disqualifications
(Appointment well as Manager
of MD/ WTD/  Min. age  21 years; Max. age  70 years
Manager)  Tenure – 1 term of 5 years (no re- (can appoint if > 70 years by passing SR  if SR failed, but votes in favour
appointment earlier than 1 year) > votes against, he may still be appointed with CG approval)
 Undischarged insolvent + adjudged insolvent
Procedure for Appointment  Suspended payment to creditors or made compromise with them
 Convicted for > 6 months for any offence
1 Resolution at BM
2 Approval by OR at next GM Schedule V
3; or CG approval; or  Not subject to imprisonment or fine > INR 1,000 under the prescribed 16 Acts
4 Follow Schedule V  Not detained under COFEPOSA Act
 Min. age 21 years; Max. age – 70 years (can appoint if > 70 years by SR)
Note - File MR-1 within 60 days
 Resident in India (staying in India for continuously 12 months preceding the
Note – Where appointment is not date of appointment)
approved in GM, acts done before such
approval shall be valid
Section 197 Limit to director’s salary Note - Salary is exclusive of Mode of paying remuneration
(Director’s any sitting fees  Monthly remuneration; or
remuneration) Condit
% of Sitting fees  % of Net profits; or
Conditions Net ion to
exceed  Max. which Board can  Mix of both
Profits prescribe is INR 1 lakh per
limits
Overall 11% OR + meeting Other points
Sch. V  Director is liable to refund any
1 MD/ WTD/ Manager 5%  Sitting fees to I.D. and excess salary within 2 years (Co.
> 1 MD/ WTD/ Manager 10% Woman director can’t be can waive it by SR + approval of
Non-executive director(s) less than others financial institutions, if default is
SR
there)
 If MD/ WTD there 1% Note – Salary includes  Listed Co. to disclose ratio with
 If MD/ WTD not there 3% remuneration payable in any median salary in Board’s report
other capacity, other than
Note – Where company defaulted in payment of  Insurance premium paid for
Bank, PFI, NCD or other secured creditor, their - Services of professional indemnity insurance included in
prior approval also required before obtaining nature + requisite
approval in GM salary  only if director is proved
qualification is there guilty
Net Profit – Computed u/s 198 w/o deducting - Guarantee commission
director’s remuneration

Options to pay salary in case of NO or Inadequate profits

Section II of Part II of Schedule V
Part A Part B
Effective capital # Yearly remuneration Yearly remuneration
in case of Managerial in case of other Remuneration as per Part A may be paid if
Person director  Functioning in professional capacity
< 5 cr 60 lakhs 12 Lakhs  No direct or indirect interest in share
≥ 5 cr but < 100 cr 84 lakhs 17 Lakhs capital of Co./ Holding/ Subsidiary
≥ 100 cr but < 250 cr 120 lakhs 24 Lakhs (can hold upto 0.5% pursuant to
≥ 250 cr 120 lakhs+ 0.01% of 24 Lakhs + 0.01% of ESOP etc.)
capital above 250 cr capital above 250 cr  No direct or indirect interest in
Director or Promoter of Co./ Holding/
Note – Remuneration in excess of above may be paid by passing SR Subsidiary in last 2 years
 Possess graduate level experience with
expertise & specialised knowledge

i. Payment approved by Board and also by NRC, if covered u/s 178

ii. No default in payment of bank, PFI, NCD or other secured creditor  if defaulted, obtained their prior approval
iii. Part A – OR/ SR is passed, as the case may be
Part B – SR is passed for a period ≤ 3 years
iv. Requisite disclosures made in a Statement along with the notice of GM
Effective capital of which date to
# Meaning of Effective Capital be checked?
Paid-up share capital xxx
(excluding share application pending allotment) Where In any other
+ Share premium account xxx appointment case
is made during
+ Reserves & Surplus xxx the year of
(excluding revaluation reserve) incorporation
+ Long term loans & deposits payable after 1 year xxx
(excluding working capital loans, O/D etc.)
(-) Investments (except in case of Investment company) (xxx) Effective Effective
(-) Accumulated losses (xxx) capital to be capital to be
calculated as calculated as
(-) Preliminary expenses not written-off (xxx) on the date of on the last
Effective Capital xxx appointment date of
preceding FY

Appointment & Remuneration of Managerial Personnel t.me/CA_Law_HarshGupta

Section 198 In computing Net Profits 1 – Added 2 – Not added
(Calculation of 1 Added  Bounties &  Premium on issue or sale of shares or debentures
Profits) 2 Not added subsidies  Profit on sale of forfeited shares
3 Deducted  Profit on sale of undertaking
4 Not deducted  Profit on sale of fixed assets of capital nature (unless in
ordinary course of business)
 Change in carrying amount of asset/ liability
3- Deducted 4 – Not deducted
 Working charges, director’s remuneration  Income-tax
 Bonus or commission  Compensation or damages paid
 Tax on abnormal profits, voluntarily
 Tax on business profits for special reasons  Loss of capital nature
 Interest on debentures, mortgages, loans & advances  Change in carrying amount of asset or
liability
 Repairs, donation to charitable funds
 Depreciation, compensation for legal liability
 Past losses, insurance & bad debts
Section 199 Company shall recover excess
(Recovery of If company is required to re-state its financial statements due to fraud or
remuneration) non-compliance remuneration from MD/ WTD/
Manager/ CEO
Section 200 Company may, while Certain factors to be considered while fixing limits, which inter-alia includes -
(Company may giving approval, fix limits
fix limit on on remuneration in cases Financial position of company Remuneration drawn in any other
remuneration) of inadequate or no capacity
profits. Remuneration drawn from other company Professional qualifications & experience
Financial & operating performance in 3 FYs Relationship b/w remuneration &
performance

Section 201 Every application to CG under Before giving application, general notice to members shall be given + it shall also be
(Filing with this chapter shall be in Form published and their copies are attached with the application
CG) MR-2

Section 202 A company may pay Non-eligibility Limits on compensation

(Compensation compensation for loss of  Director resigns in case of reconstruction & gets
for loss of office to MD/ WTD/ employed with reconstructed company Lower of average remuneration* for
office of MD/ Manager, but NOT to any - Remainder of his term; or
WTD/ Manager) other director  Director resigns in any other case
- 3 years
 Vacation of office u/s 167(1)
 Company wound up due to default of director *Average remuneration means
average salary during the lesser of
 Director guilty of fraud or breach of trust
 Period of office; or
 He instigated in termination of his office
 3 years
Section 203 Following whole-time KMPs
(Appointment mandatory in
of KMP)  Listed company; or  Any Private
 MD or CEO or Manager or Whole-time CS company
WTD  Public company having mandatory in having PSC ≥
 CS PSC ≥ INR 10 crore INR 10 crore
 CFO
Chairperson + MD/ CEO Conditions for appointment Casual
Vacancy
Same person shall not be Chairperson & MD/ CEO, unless  Every whole time KMP appointed by
 AOA provides; or resolution at BM Vacancy of
whole-time
 Company carries on single business  He shall not hold office in more than one KMP shall
company  except subsidiary company be filled up
by Board
Further above restriction N.A. for following companies, if within 6
into multiple businesses & has CEOs for each business  A person may be appointed as MD, if he is
MD/ Manager of one other company  months
Public companies having with UNANIMOUS resolution with consent
- PSC ≥ INR 100 cr; and of ALL the directors present
- Turnover ≥ INR 1,000 cr
Section 204 Following companies shall get  Listed company Duty of Company
(Secretarial Secretarial audit done and annex  Company shall
Audit) secretarial audit report to Board’s  Public Co. having
- PSC ≥ INR 50 cr give assistance
report. to CS in practice
- Turnover ≥ INR 250 cr
Note – Secretarial audit can be  Every company having loans from banks & PFIs ≥  Explain any
done by only CS in practice. INR 100 cr qualifications or
observation in
Note – The limits need to be seen on the last day of Board’s report
preceding FY
Section 205
(Functions of  Report to Board about compliance  Provide needed guidance to Board  Obtain requisite approvals
CS) with Act, rules etc.
 Ensure compliance with Secretarial  Convene meetings & make minutes  Represent company before
Standards various authorities
 Assist Board in conduct of affairs  Ensure good corporate governance  Do such other duties
assigned

Appointment & Remuneration of Managerial Personnel t.me/CA_Law_HarshGupta