AMENDMENT OF SCHEDULE V “REMUNERATION” UNDER THE COMPANIES ACT, 2013
The Ministry of Corporate Affairs (“MCA”) has issued a notification dated March 18, 2021, thereby amending the provisions of Schedule V of The Companies Act, 2013 (“Principal Act”), pursuant to the changes made by Companies (Amendment) Act, 2020 (“Amendment Act 2020”) in the provisions of Section 149(9) and Section 197 (3) of the Act.
The aforesaid amendment related to remuneration of Non-Executive Directors (including Independent Directors) in case of absence or adequate profits have to be made in accordance to Schedule V of the Principal Act i.e. the Companies Act, 2013
The extract of the Amendment Act 2020 is as below:
In section 149 of the principal Act, in sub-section (9), the following proviso shall be inserted, namely:—
“Provided that if a company has no profits or its profits are inadequate, an independent director may receive remuneration, exclusive of any fees payable under sub-section (5) of section 197, in accordance with the provisions of Schedule V of the Act.
In section 197 of the principal Act, in sub-section (3), after the words “whole-time director or manager,”, the words “or any other non-executive director, including an independent director” shall be inserted.”
Accordingly following changes have been made in Part II (Remuneration) of Schedule V of the Principal Act by the aforesaid notification of MCA dated March 18, 2021:
| Sr.
No. |
Part – II of the Schedule V | Pre-Amendment | Post Amendment | Impact |
| 1. | Section I
Remuneration payable by companies having profits |
Subject to the provisions of section 197, a company having profits in a financial year may pay remuneration to a managerial person or persons not exceeding the limits specified in such section. | Subject to the provisions of section 197, a company having profits in a financial year may pay remuneration to a managerial person or persons or other director or directors] not exceeding the limits specified in such section. | Now remuneration to managerial persons and all directors to be considered for limit. |
| 2. | Section II
Remuneration payable by companies having no profit or inadequate profit |
Provisions were specific to Managerial Persons only. | The Table has been substituted and now also includes Limit of yearly remuneration payable shall not exceed (in Rupees) in case of a managerial person as well as other director* | Provisions are now also extended to other directors (along with Managerial Persons)
|
| 3. | Section III
Remuneration payable by companies having no profit or inadequate profit |
Provisions were specific to Managerial Persons only. | “other directors” are now included.
|
Provisions are now also extended to other directors (along with Managerial Persons)
However, clause (i) of the proviso is still only applicable to “managerial person” |
| 4. | Section III | The explanation for the term “or other director” was not provided | The following explanation has been added:
Explanation.– For the purposes of Section I, Section II and Section III, the term “or other director” shall mean a non-executive director or an independent director |
Term “other director” has been defined, which shall mean a non-executive director or an independent director |
| 5. | Section IV
Perquisites not included in managerial remuneration |
The explanation for the term “or other director” was not provided | Explanation added For the purposes of Section I, Section II and Section III, the term “or other director” shall mean a non-executive director or an independent director | Now there is no exclusion for any type of directors for calculating remuneration payable to them. |
* In section – II – Remuneration payable by companies having no profit or inadequate profit :
Where in any financial year during the tenure of a managerial person, a company has no profits or its profits are inadequate, it may, pay remuneration to the managerial person or other director (i.e. a non-executive director or an independent director) not exceeding, the limits given below:-
| Where the effective capital is | Limit of yearly remuneration payable shall not exceed (Rupees) in case of managerial person | Limit of yearly remuneration payable shall not exceed (Rupees) in case of other director (i.e. a non-executive director or an independent director) |
| (i) Negative or less than 5 crores | 60 Lakhs | 12 Lakhs |
| (ii) 5 crores and above but less than 100 crores | 84 Lakhs | 17 Lakhs |
| (iii) 100 crores and above but less than 250 crores | 120 Lakhs | 24 Lakhs |
| (iv) 250 crores and above | 120 lakhs plus 0.01% of the effective capital in excess of Rs.250 crores | 24 Lakhs plus 0.01% of the effective capital in excess of Rs.250 crores |
You may post your queries on rajnikant@rmpsco.com
