NEW DELHI, Apr 14: Listed firms with inadequate or no profits that have been allowed to pay higher remuneration to managerial personnel beyond the maximum limit can continue to do so till the exemption period under the previous companies law expires.
The Corporate Affairs Ministry has provided clarity on the matter as Companies Act, 2014, came into force from April 1 last year.
The new law has replaced the Companies Act, 1956 — under which the Ministry had given some exemptions on managerial remuneration norms for firms having inadequate or no profit.
Under the companies law, entities having inadequate or no profits are required to seek the central government’s approval in case they are giving salaries higher than a prescribed limit to their managerial personnel.
In a circular, the Ministry said such companies that have been allowed to pay higher managerial remuneration can continue the same till the end of the exemption period.
Such firms “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,” the circular, dated April 10, said.
Schedule XIII of the previous law pertained to appointment and renumeration of managerial personnel.
In August 2012, the Ministry had allowed listed companies and their subsidiaries — having inadequate or no profits — 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.
Under the earlier companies law, firms having “no profits or inadequate profits” and with an effective capital of Rs 100 crore or more was allowed to pay up to Rs 24 lakh annual remuneration to a managerial person.
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, the earlier law had said.
Under the new Act, such class of companies with effective capital of over Rs 100 crore and less than Rs 250 crore can dole out an yearly remuneration of Rs 42 lakh to a managerial person, without government approval. (PTI)
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