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The remuneration
payable to the directors of a company, including any managing or
whole-time director, shall be determined, in accordance the provisions
given below either by the articles of the company, or by a resolution (
special resolution if the articles so require ), passed by the company in
general meeting and the remuneration payable to any such director
determined as per the said provisions shall be inclusive of the
remuneration payable to such director for services rendered by him in any
other capacity. However, any remuneration for services will not be so
included if the services are of a professional nature and in the opinion
of the Central Government, the director possesses the requisite
qualifications.
A director may
receive remuneration by way of fees for attending each meeting of the
Board or of any committee thereof ( Sitting Fees ).
A director who is
in whole time employment of the company or a managing director may be paid
remuneration either by way of a monthly payment or at a specified
percentage of net profits of the company or partly by one and partly by
the other. Such remuneration cannot exceed 5 % of the net profits of the
company, except with the approval of the Central Government in case of one
director and 10 % for all such directors.
The total
managerial remuneration payable by a public company or a private company
which is a subsidiary of a public company to its directors and its manager
in any financial year must not exceed 11 % of the net profits of the
company calculated in accordance with the provisions of section 349, 350
and 351.
In the case of a
director who is neither in the whole-time employment of the company nor a
managing director may be paid remuneration either by way of a monthly,
quarterly or annual payment with the approval of the Central Government or
by way of commission if the company by special resolution authorises such
payment. Such special resolution to in sub-section (4) shall not remain in
force for a period of more than five years; but may be renewed, from time
to time, by special resolution for further periods of not more than five
years at a time. Remuneration payable to such directors cannot exceed :-
- if the company has a managing or
whole-time director or a manager, one per cent, of the net profits of
the company;
- in any other case, three percent
of the net profits of the company.
If any director
earns remuneration from a company in excess of the above limits without
prior approval of the Central Government, he shall refund the excess to
the company and until such repayment, hold the money in trust with him.
The Company cannot
waive recovery of such sum due from the director unless approved by the
Central Government.
No approval of the
Central Government is required in case the remuneration is within the
limits mentioned in Schedule XIII to the Companies Act, 1956.
No director of a
company who is in receipt of any commission from the company and who is
either in the whole-time employment of the company or a managing director
shall be entitled to receive any commission or other remuneration from any
subsidiary of such company.
The above
provisions pertaining to remuneration do not apply to a private company
unless it is a subsidiary of a public company.
Provision for increase in remuneration to require Government sanction
In the case of a
public company, or a private company which is a subsidiary of a public
company, any provision relating to the remuneration of any director or any
amendment thereof, which purports to increase or has the effect of
increasing, whether directly or indirectly, the amount of remuneration
shall not have any effect unless :-
- is within the limits specified
in Schedule XIII, where Schedule XIII is applicable ; or
- approved by the Central
Government
and the amendment
shall become void if, and in so far as, it is disapproved by the
Government.
Increase in remuneration of managing director on reappointment or
appointment after Act to require government sanction
In the case of a
public company, or a private company, which is a subsidiary of a public
company, if the terms of any re-appointment or appointment of a managing
or whole-time director, purport to increase or have the effect of
increasing, whether directly or indirectly, the remuneration which the
managing or whole-time director or the previous managing or whole-time
director, as the case may be, was receiving immediately before such
appointment, the or appointment shall not have any effect unless :-
- is within the limits specified
in Schedule XIII, where Schedule XIII is applicable ; or
- approved by the Central
Government
and the amendment
shall become void if, and in so far as, it is disapproved by the
Government.
Director cannot to hold office or place of profit
Except with the
previous consent of the company accorded by a special resolution :-
- No director of a company can
hold any office or place of profit in that company
- No partner or relative of such a
director ( i.e. a director holding an office or place of profit in the
company ), no firm in which such a director or relative is a partner, no
private company of which such a director is a director or member, and no
director, or manger of such a private company can hold any office or
place of profit carrying monthly remuneration in excess of the
prescribed amount ( Rs. 10000/-).
However, the above
restrictions are not applicable to the office of managing director,
manager, banker, or trustee for the holders of debentures of the company
either :-
- in the company ; or
- in any subsidiary of the
company, unless the remuneration received from such subsidiary in
respect of such office or place is paid over to the company or its
holding company.
The special
resolution required for the above purpose may be passed at the first
general meeting after the appointment. Such special resolutions will
required at subsequent re-appointments also on a higher remuneration not
covered by the earlier special resolution.
However, if the
monthly remuneration is not less than Rs. 20000/- per month, the special
resolution mentioned above has to be obtained prior to the appointment and
in addition to the special resolution, approval of the Central Government
will also be required for the appointment.
If any office or
place of profit under the company or a subsidiary thereof is held in
contravention of the above provisions, the director, partner, relative,
firm, private company or, manager shall be deemed to have vacated his
office, with effect from the day following the date of general meeting
mentioned above. Such person will also be liable to refund to the company
any remuneration received, or the monetary equivalent of any perquisites
or advantage enjoyed by him, in respect of such office or place of profit.
The company will not be able to waive recovery of such amounts, except
with the approval of the Central Government.
Any office or place
in a company shall be deemed to be an office or place or profit under the
company for these provisions :-
- in case the office or place is
held by a director, if the director holding it obtains from the company
anything by way of remuneration over and above the remuneration to which
he is entitled as such director, whether as salary, fees, commission,
perquisites, the right to occupy free of rent any premises as a place of
residence, or otherwise;
- in case the office or place is
held by an individual other than a director or by any firm, private
company or other body corporate, if the individual, firm private company
or body corporate holding it obtains from the company anything by way of
remuneration whether as salary, fees, commission, perquisites, the right
to occupy free of rent any premises as a place of residence, or
otherwise.
None of the above
provisions apply to a director appointed by the Central Government u/s 408
of the Companies Act, 1956
Compensation for loss of office
Payment may be made
by a company, except in the cases specified below and subject to the limit
specified, to a managing director or a director holding the office of
manager or in the whole time employment of the company, by way of
compensation for loss of office, or as consideration for retirement from
office, or in connection with such loss or retirement.
However, such
payment cannot be made by the company to any other director.
No payment shall be
made to a managing or other director in the following cases :-
- where the director resigns his
office in view of the reconstruction of the company, or of its
amalgamation with any other body corporate or bodies corporate, and is
appointed as the managing director, manager or other officer of the
reconstructed company or of the body corporate resulting from the
amalgamation;
- where the director resigns his
office otherwise than on the reconstruction of the company or its
amalgamation as aforesaid;
- where the office of the director
is vacated
- where the company is being wound
up, whether by or subject to the supervision of the Court or
voluntarily, provided the winding up was due to the negligence or
default of the director;
- where the director has been
guilty of fraud or breach of trust in relation to, or gross negligence
in or gross mismanagement or, the conduct of the affairs of the company
or any subsidiary or holding company thereof;
- whether the director has
instigated, or has taken part directly or indirectly in bringing about,
the termination of his office.
Any such payment
made to a managing or other director shall not exceed the remuneration
which he would have earned if he had been in office for the unexpired
residue of his term or for three years, whichever is shorter, calculated
on the basis of the average remuneration actually earned by him during a
period of three years immediately proceeding the date on which he ceased
to hold the office, or where he held the office for a lesser period than
three years, during such period.
No such payment
shall be made to the director in the event of the commencement of the
winding up of the company, whether before, or at any time within twelve
months after, the date on which he ceased to hold office, if the assets of
the company on the winding up, after deducting the expenses thereof , are
not sufficient to repay to the share-holders the share capital (including
the premiums, if any) contributed by them.
These provisions do
not prohibit the payment to a managing director or a director holding the
office of manager, of any remuneration for services rendered by him to the
company in any other capacity.
Payment to director for loss of office in connection with transfer of
undertaking or property
No director of a
company shall, in connection with the transfer of the whole or any part of
any undertaking of property of the company, receive any payment, by way of
compensation for loss of office, or as consideration for retirement from
office, or in connection with such loss or retirement
- from such company; or
- from the transferee of such
undertaking or property or from any other person, unless particulars
with respect to the payment proposed to be made by such transferee or
person (including the amount thereof) have been disclosed to the members
of the company and the proposal has been approved by the company in
general meeting.
Where a director of
a company receives payment of any amount in contravention of the above
provisions, the amount shall be deemed to have been received by him in
trust for the company.
Payment to director for loss of office, etc., in connection with transfer
of shares
No director of a
company shall, in connection with the transfer to any persons of all or
any of the shares in a company, being a transfer resulting from-
- an offer made to the general
body of shareholders;
- an offer made by or on behalf of
some other body corporate with a view to the company becoming a
subsidiary of such body corporate or a subsidiary of its holding
company;
- an offer made by or on behalf of
an individual with a view to his obtaining the right to exercise, or
control the exercise of, not less than one-third of the total voting
power at any general meetings of the company; or
- any other offer which is
conditional on acceptance to a given extent;
receive any payment
by way of compensation for loss of office, or as consideration for
retirement from office, or in connection with such loss or retirement,-
-
from such
company; or
-
from the
transferees of the shares or from any other person except as provided
below.
It shall be the
duty of the director concerned to take all reasonable steps to secure that
details with respect to the payment proposed to be made by the transferees
or other person (including the amount thereof) are sent with, any notice
of the offer made for their shares which is given to any shareholders.
If :-
- any such director fails to take
reasonable steps as aforesaid; or
- any person who has been properly
required by any such director to include the said details in the
aforesaid notice fails so to do;
he shall be
punishable with fine which may extend to two hundred and fifty rupees.
If-
- the above provisions are not
complied with ; or
- the making of the proposed
payment is not, before the transfer of any shares in pursuance of the
offer, approved by a meeting, called for the purpose ,of the concerned
shareholders
any sum received by
the director on account of the payment shall be deemed to have been
received by him in trust for any persons who have sold their shares as a
result of the offer made, and the expenses incurred by him in distributing
that sum amongst those persons shall be borne by him and not retained out
of that sum.
If at a meeting
called for the purpose of approving any payment, a quorum is not present
and, after the meeting has been adjourned to a later date, a quorum is
again not present, the payment shall, be deemed to have been approved.
Directors with unlimited liability in limited company
In a limited
company, the liability of the directors or of any director or of the
manager may ie generally limited to the amount of investment in shares of
that company. However, if so provided by the memorandum, it may become
unlimited.
In a limited
company in which the liability of a director or manager is unlimited, the
directors, and the manager of the company, and the member who proposes a
person for appointment, to the office of director or manager, shall add to
that proposal a statement that the liability of the person holding that
office will be unlimited and before the person accepts the office or acts
therein, notice in writing that his liability will be unlimited, shall be
given to him.
If any director,
manager or proposer makes default in adding such a statement, or if any
promoter, director, manager or officer of the company makes default in
giving such a notice, he shall be punishable with fine which may extend to
one thousand rupees and shall also be liable for any damage which the
person so appointed may sustain from the default; but the liability of the
person appointed shall continue to remain unlimited.
Special resolution of limited company making liability of directors
unlimited
A limited company
may, if so authorised by its articles, by special resolution, alter its
memorandum so as to render unlimited the liability of its directors or of
any director or of its manager.
However no
alteration of the memorandum making the liability of any of the officers
unlimited shall apply to such officer, if he was holding the office from
before the date of the alteration, until the expiry of his then term,
unless he has accorded his consent to his liability becoming unlimited.
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Prevention of Oppression and Mismanagement
Application to the Company Law Board for relief in cases of oppression
Any members of a
company who complain that the affairs of the company are being conducted
in a manner prejudical to public interest or in a manner oppressive to any
member or members may apply to the Company Law Board for an order for
relief, provided such members have a right so to apply as given below.
If, on any
application, the Company Law Board is of the opinion :-
- that the company's affairs are
being conducted in a manner oppressive to any member or members; and
- that to wind up the company
would unfairly prejudice such member or members and would be a very
serious step, but that otherwise the facts would justify the making of a
winding-up order on the ground that it was just and equitable that the
company should be would up;
the Company Law
Board may, with a view to bringing to an end the matters complained of,
make such order as it thinks fit.
Application to Court for relief in cases of mismanagement
Any members of a
company who complain :-
- that the affairs of the company
are being conducted in a manner prejudicial to public interest or in a
manner prejudicial to the interests of the company; or
- that a material change has taken
place in the management or control of the company, whether by an
alteration in its Board of directors, or manager or in the ownership of
the company's shares, or if it has no share capital, in its membership,
or in any other manner whatsoever, and that by reason of such change, it
is likely that the affairs of the company will be conducted in a manner
prejudicial to public interest or in a manner prejudicial to the
interests of the company;
may apply to the
Company Law Board for an order of relief provided such members have a
right so to apply as given below.
If, on any such
application, the Company Law Board is of opinion that the affairs of the
company are being conducted as aforesaid or that by reason of any material
change as aforesaid in the management or control of the company, it is
likely that the affairs of the company will be conducted as aforesaid, the
court may, with a view to bringing to an end or preventing the matters
complained of or apprehended, make such order as it thinks fit.
Right to apply
The following
members of a company shall have the right to apply as above:-
- in the case of a company having
a share capital, not less than one hundred members of the company or not
less than one tenth of the total number of its members, whichever is
less, or any member or members holding not less than one-tenth of the
issued share capital of the company, provided that the applicant or
applicants have paid all calls and other sums due on their shares;
- in the case of a company not
having a share capital, not less than one-fifth of the total number of
its members.
Where any share or
shares are held by two or more persons jointly, they shall be counted only
as one number.
Where any members
of a company, are entitled to make an application, any one or more of them
having obtained the consent in writing of the rest, may make the
application on behalf and for the benefit of all of them.
The Central
Government may, if in its opinion circumstances exist which make it just
and equitable so to do, authorise any member or members of the company to
apply to the Company Law Board, notwithstanding that the above
requirements for application are not fulfilled.
The Central
Government may, before authorising any member or members as aforesaid,
require such member or members to give security for such amount as the
Central Government may deem reasonable, for the payment of any costs which
the Court dealing with the application may order such member or members to
pay to any other person or persons who are parties to the application.
If the managing
director or any other director, or the manager, of a company or any other
person, who has not been impleaded as a respondent to any application
applies to be added as a respondent thereto, the Company Law Board may, if
it is satisfied that there is sufficient cause for doing so, direct that
he may be added as a respondent accordingly.
Notice to be given to Central Government of application
The Company Law
Board must give notice of every application made to it as above to the
Central government, and shall take into consideration the representations,
if any, made to it by that Government before passing a final order.
Right of Central Government to apply
The Central
Government may itself apply to the Company law Board for an order, or
cause an application to be made to the Company Law Board for such an order
by any person authorised be it in this behalf.
Powers of Company Law Board on application
Without prejudice
to the generality of the powers of the Company Law Board, any under either
section may provide for :-
- the regulation of the conduct of
the company's affairs in future;
- the purchase of the shares or
interests of any members of the company by other members thereof or by
the company;
- in the case of a purchase of its
shares by the company as aforesaid, the consequent reduction of its
share capital;
- the termination, setting aside
or modification of any agreement, howsoever arrived at, between the
company on the one hand, and any of the following persons, on the other
namely:-
- the managing director,
- any other director,
- the manager,
upon such terms
and conditions as may, in the opinion of the Company Law Board, be
just and equitable in all the circumstances of the case;
- the termination, setting aside
or modification of any agreement between the company and any person not
referred to in clause (d), provided that no such agreement shall be
terminated, set aside or modified except after due notice to the party
concerned and provided further that no such agreement shall be modified
except after obtaining the consent of the party concerned;
- the setting aside of any
transfer, delivery of goods, payment, execution or other act relating to
property made or done by or against the company within three months
before the date of the application, which would, if made or done by or
against an individual, be deemed in his insolvency to be a fraudulent
preference;
- any other matter for which in
the opinion of the Company Law Board it is just and equitable that
provision should be made.
Interim order by the Company Law Board
Pending the making
by it of a final order, the Company Law Board may, on the application of
any party to the proceedings, make any interim order which it thinks fit
for regulating the conduct of the company's affairs, upon such terms and
conditions as appear to it to be just and equitable.
Effect of alteration of memorandum or articles of company by order
Where an order
makes any alteration in the memorandum or articles of a company, then,
notwithstanding any other provision of this Act, the company shall not
have power, except to the extent, if any permitted in the order, to make
without the leave of the Company Law Board, any alteration whatsoever
which is inconsistent with the order, either in the memorandum or in the
articles.
The alterations
made by the order shall, in all respects, have the same effect as if they
had been duly made by the company in accordance with the provisions of
this Act.
A certified copy of
every order altering or giving leave to alter, a company's memorandum or
articles, must within thirty days after the making thereof, be filed by
the company with the Registrar who shall registrar the same.
If default is made
in complying with the above provisions, the company, and every officer of
the company who is in default, shall be punishable with fine which may
extend to five thousand rupees.
Consequences of termination or modification of certain agreements
Where an order
terminates, sets aside or modifies an agreement :-
- the order shall not give rise to
any claim whatever against the company by any person for damages or for
compensation for loss of office or in any respect, either in pursuance
of the agreement or otherwise;
- no managing or other director or
manager whose agreement is so terminated or set aside, shall for a
period of five years from the date of the order terminating the
agreement, without the leave of the Company Law Board, be appointed, or
act, as the managing or other director or manager of the company.
Any person who
knowingly acts as a managing or other director or manager of a company in
contravention of the above provision, every director of the company, who
is knowingly a party to such contravention shall be punishable with
imprisonment for a term which may extend to one year, or with fine which
may extend to five thousand rupees, or with both.
The Company Law
Board will not grant leave for appointment as managing director or
director or manager of the company unless notice of the intention to apply
for leave has been served on the Central Government and that Government
has been given an opportunity of being heard in the matter.
Powers of Central Government to prevent oppression or mismanagement
The Central
Government may appoint such number of persons as the Company Law Board
may, by order in writing, specify as being necessary to effectively
safeguard the interests of the Company or its shareholders or public
interests, to act as directors thereof for such period not exceeding 3
years on any one occasion as it deems fit if the Company Law Board :-
- on a reference being made to it
by the Central Government ; or
- on an application of not less
than one hundred members of the company or of members of the company
holding not less than one-tenth of the total voting power therein,
is satisfied, after
such inquiry as it deems fit to make, that it is necessary to make the
appointment or appointments in order to prevent the affairs of the company
being conducted either in a manner which is oppressive to any members of
the company or in a manner which is prejudicial to the interests of the
company or to public interest.
However, in lieu of
passing order as aforesaid, the Company Law Board may, if the company has
not availed itself of the option given to it of proportional
representation to minority shareholders on the Board of the company,
direct the company to amend its articles in the manner provided section
265 and make fresh appointments of directors in pursuance of the articles
as so amended within such time as may be specified in that behalf by the
Company Law Board.
In case the Central
Government passes such an order it may, if thinks fit, direct that until
new directors are appointed in pursuance of the order aforesaid, not more
than two members of the company specified by the Company law Board shall
hold office as additional directors of the company. The Central Government
shall appoint such additional directors on such directions.
The person
appointed as a director by the Central Government in accordance with the
above provisions, need not hold any qualification shares nor need to
retire by rotation. However, his office as director may be terminated at
any time by the Central Government and another person appointed in his
place.
No change in the
constitution of the Board of Directors can take place after an additional
director is appointed by the Central Government in accordance with these
provisions unless approved by the Company Law Board.
The Central
Government in such cases may also issue such directions to the company as
it may consider necessary or appropriate in regard to its affairs.
Power of the Company Law Board to prevent change in Board of directors
likely to affect company prejudicially
Where a complaint
is made to the Company Law Board by the managing director or any other
director or the manager of a company that, as a result of a change which
has taken place or is likely to take place in ownership or any shares held
in the company, a change in the Board of directors is likely to take place
which (if allowed) would affect prejudicially the affairs of the company,
the Company Law Board may, if satisfied, after such inquiry as it thinks
fit to make that it is just and proper to do so, by order direct that no
resolution passed or that may be passed or no action taken or may be taken
to effect a change in the Board of directors after the date of the
complaint shall have effect unless confirmed by the Company Law Board.
Any such order
shall have effect notwithstanding anything to the contrary contained in
any other provision of this Act or in the memorandum or articles of the
company, or in any agreement with, or any resolution passed in general
meeting by, or by the Board of directors or, the company.
The Company Law
Board shall have power when any such complaint is received by it, to make
an interim order to the effect set out above, before making or completing
the inquiry aforesaid.
Nothing contained
above shall apply to a private company, unless it is a subsidiary of a
public company
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Remuneration
of Directors - Prevention of Oppression and Mismanagement
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