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Payment of Managerial Remuneration Vis-a-vis Defaulter Companies

Pragya Bhandari

The Companies (Amendment) Act, 2017, now requires the lenders assent to defaulter companies for payment of managerial remuneration, if exceeds the threshold limit, before obtaining the approval in the general meeting. Efforts have been made in this article to bring out the relevant provisions in this regard in the light of the Companies (Amendment) Act, 2017 and bring out major deviation therein from the provisions of Companies Act, 2013.

1. Prologue

Managerial remuneration is one of the most important aspects of the Companies Act. Section 197 relates to overall maximum managerial remuneration, sub-limits and specific situations like absence or inadequacy of profits, requirement of Central Governments approval etc.

The Government has amended several provisions of the Companies Act, 2013 vide the Companies (Amendment) Act, 2017 to improve ease of doing business, to strengthen corporate governance, further, to initiate strict action against defaulting companies. The Companies (Amendment) Act, 2017 provides the relief to the companies as the requirement to obtain approval of the Central Government for managerial remuneration, above the prescribed limits or for waiver of recovery of excess remuneration. Since, obtaining approval of the Central Government was a time consuming process.

Moreover, the Companies (Amendment) Act, 2017 made it mandatory for companies which have not cleared their dues with banks or public financial institution or non-convertible debenture holders or any other secured creditor, to obtain approval from lenders in case managerial remuneration exceeds from prescribed threshold limits.

2. Overall maximum managerial remunerationin absence or inadequacy of profits

The overall limit of managerial remuneration payable by public company to its directors including managing director, whole time director and manager has been kept the at 11%. However, the Companies Act, 2013 further provides that this limit can be increased with the approval of the Central Government subject to the provisions of schedule V.

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