1. MCA allows companies to pay higher remuneration than limit

MCA allows companies to pay higher remuneration than limit

The ministry issued a circular on Saturday to clarify the matter as the Companies Act, 2013, came into force fully from April 1, 2014

By: | New Delhi | Published: April 15, 2015 1:04 AM

The ministry of corporate affairs has allowed listed companies or their subsidiaries, with inadequate or no profits, to pay higher remuneration to its managerial persons beyond the maximum limit till such persons’ terms end. The ministry issued a circular on Saturday to clarify the matter as the Companies Act, 2013, came into force fully from April 1, 2014. According to the new Act, business entities having inadequate or no profits were required to seek the central government’s approval in case salaries were higher than the prescribed limit to their managerial personnel. In the circular, the ministry notified that companies which have been allowed to pay higher managerial remuneration can continue the same till the end of the exemption period.

Such managerial persons “may continue to receive remuneration for his remaining term in accordance with terms and conditions approved by company as per relevant provisions of Schedule XIII of earlier Act even if the part of his/her tenure falls after April 1, 2014,” it said. Schedule XIII of the old law covered issues of appointment and remuneration of personnel.

In August 2012, the ministry allowed the said companies and their subsidiaries to pay higher managerial remuneration without approval of the central government. The exemption was also subject to certain conditions as per the Companies Act, 1956.

Since the new companies law does not have similar provisions, stakeholders had sought clarity on whether such exemptions can be continued. In the Companies Act, 1956, listed companies with an effective capital of Rs 100 crore or more, incurring no or inadequate profits, were allowed to pay up to Rs 24 lakh annual remuneration to a managerial person. According to the Act, the limit could have been enhanced to Rs 48 lakh per annum if a special resolution has been passed by shareholders with regard to remuneration payment for a maximum period of three years. In the new Act, although the limit for compensation for companies, with effective capital of over Rs 100 crore but less than Rs 250 crore, has been set at Rs 42 lakh per annum without the government’s approval, it does not provide for exemptions similar to the previous Act.

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