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APPOINTMENT AND REMUNERATION OF MANAGERIAL PERSONNEL - Proposed Amendments in the Companies Act 2013

News and Press Release - Dated:- 2-2-2016 - Disclosure of remuneration of directors 13.1 The J.J. Irani Committee had recommended comprehensive revision of the provisions of the Companies Act, 1956, relating to the payment of managerial remuneration, emphasising more on disclosures (both on quality and quantity), rather than providing limits or ceilings on managerial remuneration. SEBI, in its Consultative Paper on Corporate Governance Norms in India , noted that the remuneration paid to manager .....

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neration. In the process of public consultation, stakeholders termed this requirement to be tedious, and an incorrect comparison, especially in companies having a large workforce. Accordingly, it was suggested that this requirement be changed to either one of weighted average, or a comparison limited to the top three layers of the employees. However, it was felt that any change to an alternative will go against the rationale behind the disclosure requirement. There was no difficulty in reporting .....

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such limits may be exceeded with the approval of the shareholders and the Central Government. Section 197(3) provides that if a company has no profit or inadequate profits, the company shall not pay remuneration (excluding any sitting fees or other fees decided by the Board, to a prescribed limit) to its directors except in accordance with Schedule V, and in case it is not able to comply with the requirements, prior approval of the Central Government is required. 13.4 The Committee noted that th .....

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apart from causing delays, also result in talented professionals moving away from such companies in search of higher assured compensation. 13.5 Currently, the law in countries like the US, the UK and Switzerland, does not require the company to approach government authorities for approving remuneration payable to their managerial personnel, even in a scenario where they have losses or inadequate profits and empowers the Board of the companies to decide the remuneration payable to Directors. The .....

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equirement for special resolution of the shareholders should be retained. The Committee further recommended that the limits of yearly remuneration prescribed in the Schedule be enhanced. Further, the Committee also recommended that the requirement for government approval may be omitted altogether, and necessary safeguards in the form of additional disclosures, audit, higher penalties, etc. may be prescribed instead. 13.6 The Committee did not agree with the suggestion for changing the provision .....

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any, and the possibility of using the net profit before tax as presented in the financial statements, for basing the determination of managerial remuneration. Alternative formulations were considered, but found to be more complex, and further the present formulation is well accepted. Therefore, no change, other than on account of requirement of IndAS, was recommended. 13.8 Section 198(4)(l) mandates the deduction of brought forward losses of the company while calculating the net profit, for the .....

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profits for managerial remuneration, the profits on sale of investments be deducted. The Committee agreed to the argument that Investment Companies, whose principal business was sale and purchase of investments, would not be using the correct profit figures, and may need to comply with the requirements of Schedule V to pay remuneration to its managerial personnel. It was recommended, that specific provisions for such companies be incorporated in the Act. Key Managerial Personnel 13.10 The J.J. I .....

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er, Chief Financial Officer and Company Secretary (companies having a share capital of Rupees Five Crore or more), who all have been named as key managerial personnel . The Committee opined that while the current provisions limit the officers who can be designated as key managerial personnel, flexibility would be desirable for companies to designate other whole time officers of the company as key managerial personnel. The Committee further recommended that the Board can be empowered to designate .....

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