Taxmann's Company Law Manual

PAGE

CONTENTS PAGE u Amendments made by Companies (Amendment) Act, 2020

At a Glance

I-9

u Guide to Companies (Amendment) Act, 2020

I-13

u Exemptions to Private Companies

I-41

u Exemptions to Section 8 Companies

I-47

u Exemptions to Nidhis

I-50

u Exemptions to Government Companies

I-53

u Exemptions to private company which is licensed to operate

by RBI or SEBI or IRDA from the International Financial Services Centre located in an approved multi services SEZ set-up under the SEZ Act

I-59

u Exemptions to an unlisted public company which is licensed

to operate by RBI or SEBI or IRDA from the International Financial Services Centre located in an approved multi services SEZ set-up under SEZ Act

I-66

u Table of Fees

I-74

u Table of Fees Payable to National Company Law Tribunal

I-85

u List of documents to be attached with a petition or application

made before National Company Law Tribunal

I-87

u Table of Fees Payable to National Company Law Appellate

Tribunal

I-92

u Fees payable under Companies (Compromises, Arrangements

and Amalgamations) Rules, 2016

I-93

u Table showing sections of Companies Act, 2013 &

Corresponding Provisions of Companies Act, 1956

I-94

u Table showing sections of Companies Act, 1956 &

Corresponding Provisions of Companies Act, 2013

I-106

u Table showing sections of Companies Act, 1956 not

covered in Companies Act, 2013

I-120

u List of Circulars & Notifications

I-123

I-5

CONTENTS

I-6 PAGE

DIVISION ONE COMPANIES ACT, 2013 WITH RULES n Arrangement of Sections of Companies Act, 2013 n Arrangement of Rules framed under Companies Act, 2013

iii-xxxii xxxiii-lxiv

u Companies (Specification of Definitions Details) Rules,

2014 (see also Division Two)

1.11-1.22

u Companies (Restriction on Number of Layers)

Rules, 2017 u Companies (Incorporation) Rules, 2014

1.24 1.27-1.96

u Companies (Prospectus and Allotment of Securities)

Rules, 2014

1.104-1.128

u Companies (Issue of Global Depository Receipts)

Rules, 2014 u Companies (Share Capital and Debentures) Rules, 2014

1.122-1.124 1.133-1.191

u National Company Law Tribunal (Procedure for reduc-

tion of share capital of Company) Rules, 2016

1.170-1.172

u Companies (Acceptance of Deposits) Rules, 2014

1.194-1.208

u Companies (Registration of Charges) Rules, 2014

1.213-1.221

u Companies (Management and Administration) Rules,

2014

1.223-1.282

u Companies (Significant Beneficial Owners) Rules,

2018

1.232-1.237

u Companies (Declaration and Payment of Dividend)

Rules, 2014

1.285

u Investor Education and Protection Fund Authority

(Accounting, Audit, Transfer and Refund) Rules, 2016

1.290-1.313A

u Investor Education and Protection Fund Authority (Form

of Annual Statement of Accounts) Rules, 2018

1.313B-1.314

u Investor Education and Protection Fund Authority (Form

and Time of Preparation of Annual Report) Rules, 2018

1.314

u Companies (Accounts) Rules, 2014

1.317-1.367

u Companies (Accounting Standards) Rules, 2021

1.329-1.330

u Companies (Indian Accounting Standards) Rules, 2015

1.331-1.336

u Companies (Audit and Auditors) Rules, 2014

1.372-1.398

u Companies (Auditor’s Report) Order, 2020

1.389-1.394

I-6A

CONTENTS PAGE

u Companies (Corporate Social Responsibility Policy)

Rules, 2014

1.346-1.353

u Companies (Filing of Documents and Forms in Exten-

sible Business Reporting Language) Rules, 2015 u Companies (Cost Records and Audit) Rules, 2014

1.365-1.367 1.399-1.409

u Companies (Appointment and Qualification of Directors)

Rules, 2014

1.415-1.452

u Companies (Creation and Maintenance of Data Bank of

Independent Directors) Rules, 2019 u Condonation of Delay Scheme, 2018

1.421-1.424 1.442-1.444

u Companies (Meetings of Board and its Powers) Rules,

2014

1.455-1.496

u Companies (Appointment and Remuneration of Mana-

gerial Personnel) Rules, 2014

1.500-1.516

u Companies (Inspection, Investigation and Inquiry) Rules,

2014

1.521-1.532

u Companies (Arrests in Connection with Investigation by

Serious Fraud Investigation Office) Rules, 2017

1.525-1.526

u Companies (Compromises, Arrangements and Amalgam-

ations) Rules, 2016

1.556-1.569

u Companies (Registered Valuers and Valuation) Rules,

2017

1.580-1.600

u Companies (Removal of Names of Companies from the

Register of Companies) Rules, 2016

1.603-1.606

u Companies (Winding up) Rules, 2020

1.617-1.652

u Companies (Authorised to Register) Rules, 2014

1.709-1.717

u Producer Companies Rules, 2021

1.751-1.752

u Companies (Registration of Foreign Companies) Rules,

2014 u Companies (Registration Offices and Fees) Rules, 2014

1.754-1.765 1.774-1.782

u Specified Companies (Furnishing of Information about

Payment to Micro and Small Enterprise Suppliers) Order, 2019

1.795

u Nidhi Rules, 2014

1.797-1.808

u Companies (Transfer of Pending Proceedings) Rules, 2016

1.825-1.827

u Companies (Mediation and Conciliation) Rules, 2016

1.834-1.841

u Companies (Adjudication of Penalties) Rules, 2014

1.847-1.851

u Companies (Miscellaneous) Rules, 2014

1.853-1.861

CONTENTS

I-6B PAGE

n Key to Prescribed Forms

lxv-xci

n Annotated text of the Companies Act, 2013 as amended by

Companies (Amendment) Act, 2020 and Tribunals Reforms Act, 2021 with Rules framed thereunder

1.1-1.1024

n Appendix I : Provisions of other Acts referred to in

1.1025-1.1086

Companies Act, 2013 n Appendix II : Words & Phrases Judicially noticed

1.1087-1.1136

n Appendix III : Companies (Amendment) Act, 2020

1.1137-1.1183

SUBJECT INDEX

1.1185-1.1231

DIVISION TWO OTHER RULES n National Company Law Tribunal Rules, 2016 n National Company Law Appellate Tribunal Rules, 2016

2.3 2.52

n National Company Law Tribunal (Salary, Allowances and

Other Terms and Conditions of Service of President and Other Members) Rules, 2015

2.70

n National Company Law Appellate Tribunal (Salaries and

Allowances and Other Terms and Conditions of Service of the Chairperson and Other Members) Rules, 2015 n Depository Receipts Scheme, 2014

2.74 2.78

n Issue of Foreign Currency Convertible Bonds and Ordinary

Shares (Through Depositary Receipt Mechanism) Scheme, 1993

2.83

n Issue of Foreign Currency Exchangeable Bonds Scheme,

2008

2.95

n Investor Education and Protection Fund Authority (Appoint-

ment of Chairperson and Members, Holding of Meetings and Provision for Offices and Officers) Rules, 2016 n Tribunals Reforms Act, 2021

2.98 2.104

n Conditions of Service of Chairperson and Members of Tribu-

nals, Appellate Tribunals and Other Authorities n Tribunal (Conditions of Service) Rules, 2021

2.120 2.124

n National Financial Reporting Authority (Manner of Appoint-

ment and other Terms and Conditions of Service of Chairperson and Members) Rules, 2018 n National Financial Reporting Authority Rules, 2018

2.135 2.141

I-7

CONTENTS PAGE

n National Financial Reporting Authority (Meeting for Transac-

tion of Business) Rules, 2019

2.149

n National Financial Reporting Authority (Recruitment, Salary,

Allowances and Other Terms and Conditions of Service of Secretary, Officers and Other Employees of Authority) Rules, 2019

2.151

n National Company Law Tribunal and National Company

Law Appellate Tribunal (Procedure for Investigation of Misbehaviour or Incapacity of Chairperson, President and Other Members) Rules, 2020

2.153

n Companies (Specification of Definitions Details) Rules, 2014

2.157

DIVISION THREE CIRCULARS & NOTIFICATIONS n Circulars & Notifications issued under the Companies Act,

2013

3.3

1.499

CH. XIII - APPOINTMENT AND REMUNERATION

S. 196

CHAPTER XIII APPOINTMENT AND REMUNERATION OF MANAGERIAL PERSONNEL 54

Appointment of managing director, whole-time director or manager.

55

196. (1) No company shall appoint or employ at the same time a managing director and a manager.

(2) No company shall appoint or re-appoint any person as its managing director, whole-time director or manager for a term exceeding five years at a time: 56

Provided that no re-appointment shall be made earlier than one year before the expiry of his term.

(3) No company shall appoint or continue the employment of any person as managing director, whole-time director or manager who — (a) is below the age of twenty-one years or has attained the age of seventy years: Provided that appointment of a person who has attained the age of seventy years may be made by passing a special resolution in which case the explanatory statement annexed to the notice for such motion shall indicate the justification for appointing such person: 57 [Provided further that where no such special resolution is passed but votes cast in favour of the motion exceed the votes, if any, cast against the motion and the Central Government is satisfied, on an application made by the Board, that such appointment is most beneficial to the company, the appointment of the person who has attained the age of seventy years may be made;]

(b) is an undischarged insolvent or has at any time been adjudged as an insolvent; (c) has at any time suspended payment to his creditors or makes, or has at any time made, a composition with them; or

(Contd. from p. 1.498)

54.

55.

56.

57.

(2) If any person contravenes the provisions of this section, he shall be punishable with imprisonment for a term which may extend to five years or with fine which shall not be less than five lakh rupees but which may extend to twenty-five crore rupees or three times the amount of profits made out of insider trading, whichever is higher, or with both.’

Earlier section 195 was enforced with effect from 12-9-2013.

Corresponds to sections 197A, 267, 317, 384, 385 and 388 of the 1956 Act. Enforced with effect from 1-4-2014.

In case of Government Companies, section 196(2), (4) and (5) shall not apply - Notification No. GSR 463(E), dated 5-6-2015.

Inserted by the Companies (Amendment) Act, 2017, w.e.f. 12-9-2018.

S. 196

COMPANIES ACT, 2013

1.500

(d) has at any time been convicted by a court of an offence and sentenced for a period of more than six months.

(4) Subject to the provisions of section 197 and Schedule V, a managing director, whole-time director or manager shall be appointed and the terms and conditions of such appointment and remuneration payable be approved by the Board of Directors at a meeting which shall be subject to approval by a resolution at the next general meeting of the company and by the Central Government in case such appointment is at variance to the conditions 59[specified in Part I of that Schedule]: 58

Provided that a notice convening Board or general meeting for considering such appointment shall include the terms and conditions of such appointment, remuneration payable and such other matters including interest, of a director or directors in such appointments, if any: Provided further that a return in the prescribed form60 shall be filed within sixty days of such appointment with the Registrar.

(5) Subject to the provisions of this Act, where an appointment of a managing director, whole-time director or manager is not approved by the company at a general meeting, any act done by him before such approval shall not be deemed to be invalid.

58

RELEVANT RULE : RULE 3 OF THE COMPANIES (APPOINTMENT AND REMUNERATION OF MANAGERIAL PERSONNEL) RULES, 2014

Filing of return of appointment.

Rule 3 : A company shall file a return of appointment of a Managing Director, Whole Time Director or Manager, 61[***] within sixty days of the appointment, with the Registrar in Form No. MR.1 along with such fee as may be specified for this purpose.

58. In case of private companies section 196(4)/(5) shall not apply - Notification No. GSR 464(E), dated 5-6-2015.

In case of Government Companies, section 196(2), (4) and (5) shall not apply - Notification No. GSR 463(E), dated 5-6-2015.

In case of an unlisted public company which is licensed to operate by RBI or SEBI or IRDA from the International Financial Services Centre located in an approved multi services SEZ set-up under the SEZ Act, sub-section (4) of section 196 shall not apply. —Notification No. GSR 8(E), dated 4-1-2017.

59. Substituted for “specified in that Schedule” by the Companies (Amendment) Act, 2017, w.e.f.

12-9-2018.

60. See rule 3 and Form No. MR 1 of the Companies (Appointment & Remuneration of Managerial Personnel) Rules, 2014.

61. Words “Chief Executive Officer (CEO), Company Secretary and Chief Financial Officer (CFO)” omitted by the Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2016, w.e.f. 30-6-2016.

1.501

CH. XIII - APPOINTMENT AND REMUNERATION

S. 197

62

Overall maximum managerial remuneration and managerial remuneration in case of absence or inadequacy of profits.63 197.65 (1) The total managerial remuneration payable by a public company, to its directors, including managing director and whole-time director, and its manager in respect of any financial year shall not exceed eleven per cent of the net profits of that company for that financial year computed in the manner laid down in section 198 except that the remuneration of the directors shall not be deducted from the gross profits:

64

Provided that the company in general meeting may, 66[***] authorise the payment of remuneration exceeding eleven per cent of the net profits of the company, subject to the provisions of Schedule V: Provided further that, except with the approval of the company in general meeting, 67[by a special resolution,]— (i) the remuneration payable to any one managing director; or whole-time director or manager shall not exceed five per cent of the net profits of the company and if there is more than one such director remuneration shall not exceed ten per cent of the net profits to all such directors and manager taken together; (ii) the remuneration payable to directors who are neither managing directors nor whole-time directors shall not exceed,— 62. Corresponds to sections 198, 201, 309, 310 and 387 of the 1956 Act. See also Circular No. 7/ 2015, dated 10-4-2015 [Schedule XIII of the 1956 Act vs. Section V of the 2013 Act]. For details, see Division Three.

63. Enforced with effect from 1-4-2014.

64. See also Table F of Schedule I. 65. In case of Government Companies, section 197 shall not apply - Notification No. GSR 463(E), dated 5-6-2015.

In case of Nidhis, second proviso to sub-section (1) of section 197 shall apply with the modification that the remuneration of a director who is neither managing director nor wholetime director or manager for performing special services to the Nidhis specified in the articles of association may be paid by way of monthly payment subject to the approval of the company in general meeting and also to the provisions of section 197 : Provided that no approval of the company in general meeting shall be required where,— (a) a Nidhi does not have a managing director or a whole-time director or a manager; (b) the remuneration payable during a financial year to all the directors of the Nidhi does not exceed ten per cent of the net profits of such Nidhi or fifteen lakh rupees, whichever is less; and (c) a remuneration payable under clause (b) is approved by a special resolution passed in this behalf by the Nidhi - Notification No. GSR 465(E), dated 5-6-2015.

In case of an unlisted public company which is licensed to operate by RBI or SEBI or IRDA from the International Financial Services Centre located in an approved multi services SEZ set-up under the SEZ Act, section 197 shall not apply.—Notification No. GSR 8(E), dated 4-1-2017.

66. Words “with the approval of the Central Government,” omitted by the Companies (Amendment) Act, 2017, w.e.f. 12-9-2018.

67. Inserted, ibid.

S. 197

COMPANIES ACT, 2013

1.502

(A) one per cent of the net profits of the company, if there is a managing or whole-time director or manager; (B) three per cent of the net profits in any other case: [Provided also that, where the company has defaulted in payment of dues to any bank or public financial institution or non-convertible debenture holders or any other secured creditor, the prior approval of the bank or public financial institution concerned or the non-convertible debenture holders or other secured creditor, as the case may be, shall be obtained by the company before obtaining the approval in the general meeting.]

(2) The percentages aforesaid shall be exclusive of any fees payable to directors under sub-section (5).

(3) Notwithstanding anything contained in sub-sections (1) and (2), but subject to the provisions of Schedule V, if, in any financial year, a company has no profits or its profits are inadequate, the company shall not pay to its directors, including any managing or whole-time director or manager, 68a[or any other non-executive director, including an independent director] by way of remuneration any sum exclusive of any fees payable to directors under sub-section (5) hereunder except in accordance with the provisions of Schedule V 69[***].

(4) The remuneration payable to the directors of a company, including any managing or whole-time director or manager, shall be determined, in accordance with and subject to the provisions of this section, either by the articles of the company, or by a resolution or, if the articles so require, by a special resolution, passed by the company in general meeting and the remuneration payable to a director determined aforesaid shall be inclusive of the remuneration payable to him for the services70 rendered by him in any other capacity: Provided that any remuneration for services rendered by any such director in other capacity shall not be so included if— (a) the services rendered are of a professional nature; and (b) in the opinion of the Nomination and Remuneration Committee, if the company is covered under sub-section (1) of section 178, or the Board of Directors in other cases, the director possesses the requisite qualification for the practice of the profession.

68

(5) A director may receive remuneration by way of fee for attending meetings of the Board or Committee thereof or for any other purpose whatsoever as may be decided by the Board: Provided that the amount of such fees shall not exceed the amount as may be prescribed71: 68. Inserted by the Companies (Amendment) Act, 2017, w.e.f. 12-9-2018.

68a. Inserted by the Companies (Amendment) Act, 2020, w.e.f. 18-3-2021.

69. Words “and if it is not able to comply with such provisions, with the previous approval of the Central Government” omitted by the Companies (Amendment) Act, 2017, w.e.f. 12-9-2018.

70. For meaning of the term “services”, see Appendix II. 71. See rule 4 of the Companies (Appointment & Remuneration of Managerial Personnel) Rules, 2014.

1.503

CH. XIII - APPOINTMENT AND REMUNERATION

S. 197

Provided further that different fees for different classes of companies and fees in respect of independent director may be such as may be prescribed.

(6) A director or manager may be paid remuneration either by way of a monthly payment or at a specified percentage of the net profits of the company or partly by one way and partly by the other.

(7) 72[***] (8) The net profits for the purposes of this section shall be computed in the manner referred to in section 198.

73 [(9) If any director draws or receives, directly or indirectly, by way of remuneration any such sums in excess of the limit prescribed by this section or without approval required under this section, he shall refund such sums to the company, within two years or such lesser period as may be allowed by the company, and until such sum is refunded, hold it in trust for the company.]

(10) The company shall not waive the recovery of any sum refundable to it under sub-section (9) unless 74[approved by the company by special resolution within two years from the date the sum becomes refundable]: [Provided that where the company has defaulted in payment of dues to any bank or public financial institution or non-convertible debenture holders or any other secured creditor, the prior approval of the bank or public financial institution concerned or the non-convertible debenture holders or other secured creditor, as the case may be, shall be obtained by the company before obtaining approval of such waiver.]

75

(11) In cases where Schedule V is applicable on grounds of no profits or inadequate profits, any provision relating to the remuneration of any director which purports to increase or has the effect of increasing the amount thereof, whether the provision be contained in the company’s memorandum or articles, or in an agreement entered into by it, or in any resolution passed by the company in general meeting or its Board, shall not have any effect unless such increase is in accordance with the conditions specified in that Schedule 76[***].

72. Omitted by the Companies (Amendment) Act, 2019, w.r.e.f. 2-11-2018. Prior to its omission, sub-section (7) read as under : “(7) Notwithstanding anything contained in any other provision of this Act but subject to the provisions of this section, an independent director shall not be entitled to any stock option and may receive remuneration by way of fees provided under sub-section (5), reimbursement of expenses for participation in the Board and other meetings and profit related commission as may be approved by the members.”

73. Substituted by the Companies (Amendment) Act, 2017, w.e.f. 12-9-2018. Prior to its substitution, sub-section (9) read as under : “(9) If any director draws or receives, directly or indirectly, by way of remuneration any such sums in excess of the limit prescribed by this section or without the prior sanction of the Central Government, where it is required, he shall refund such sums to the company and until such sum is refunded, hold it in trust for the company.”

74. Substituted for “permitted by the Central Government”, ibid.

75. Inserted, ibid.

76. Words “and if such conditions are not being complied, the approval of the Central Government had been obtained” omitted, ibid.

S. 197

COMPANIES ACT, 2013

1.504

(12) Every listed company shall disclose in the Board’s report, the ratio of the remuneration of each director to the median employee’s remuneration and such other details as may be prescribed77.

(13) Where any insurance is taken by a company on behalf of its managing director, whole-time director, manager, Chief Executive Officer, Chief Financial Officer or Company Secretary for indemnifying any of them against any liability in respect of any negligence, default, misfeasance, breach of duty or breach of trust for which they may be guilty in relation to the company, the premium paid on such insurance shall not be treated as part of the remuneration payable to any such personnel: Provided that if such person is proved to be guilty, the premium paid on such insurance shall be treated as part of the remuneration.

(14) Subject to the provisions of this section, any director who is in receipt of any commission from the company and who is a managing or whole-time director of the company shall not be disqualified from receiving any remuneration or commission from any holding company or subsidiary company of such company subject to its disclosure by the company in the Board’s report. [(15) If any person makes any default in complying with the provisions of this section, he shall be liable to a penalty of one lakh rupees and where any default has been made by a company, the company shall be liable to a penalty of five lakh rupees.]

78

[(16) The auditor of the company shall, in his report under section 143, make a statement as to whether the remuneration paid by the company to its directors is in accordance with the provisions of this section, whether remuneration paid to any director is in excess of the limit laid down under this section and give such other details as may be prescribed.

79

(17) On and from the commencement of the Companies (Amendment) Act, 2017, any application made to the Central Government under the provisions of this section [as it stood before such commencement], which is pending with that Government shall abate, and the company shall, within one year of such commencement, obtain the approval in accordance with the provisions of this section, as so amended.]

77. See rule 5 of the Companies (Appointment & Remuneration of Managerial Personnel) Rules, 2014.

78. Substituted by the Companies (Amendment) Act, 2019, w.r.e.f. 2-11-2018. Prior to its substitution, sub-section (15) read as under : “(15) If any person contravenes the provisions of this section, he shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.”

79. Inserted by the Companies (Amendment) Act, 2017, w.e.f. 12-9-2018.

1.505

CH. XIII - APPOINTMENT AND REMUNERATION

S. 197

RELEVANT RULES : RULES 4 AND 5 OF THE COMPANIES (APPOINTMENT & REMUNERATION OF MANAGERIAL PERSONNEL) RULES, 2014

Sitting fees.

Rule 4 : A company may pay a sitting fee to a director for attending meetings of the Board or committees thereof, such sum as may be decided by the Board of directors thereof which shall not exceed one lakh rupees per meeting of the Board or committee thereof: Provided that for Independent Directors and Women Directors, the sitting fee shall not be less than the sitting fee payable to other directors.

Disclosure in Board’s report.

Rule 5 : (1) Every listed company shall disclose in the Board’s report— (i) the ratio of the remuneration of each director to the median remuneration of the employees of the company for the financial year; (ii) the percentage increase in remuneration of each director, Chief Financial Officer, Chief Executive Officer, Company Secretary or Manager, if any, in the financial year; (iii) the percentage increase in the median remuneration of employees in the financial year; (iv) the number of permanent employees on the rolls of company; (v) to (vii)

[***]

80

(viii) average percentile increase already made in the salaries of employees other than the managerial personnel in the last financial year and its comparison with the percentile increase in the managerial remuneration and justification thereof and point out if there are any exceptional circumstances for increase in the managerial remuneration; (ix) to (xi)

[***]

81

80. Omitted by the Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2016, w.e.f. 30-6-2016. Prior to their omission, clauses (v), (vi) and (vii) read as under : “(v) the explanation on the relationship between average increase in remuneration and company performance; (vi) comparison of the remuneration of the Key Managerial Personnel against the performance of the company; (vii) variations in the market capitalisation of the company, price earnings ratio as at the closing date of the current financial year and previous financial year and percentage increase over decrease in the market quotations of the shares of the company in comparison to the rate at which the company came out with the last public offer in case of listed companies, and in case of unlisted companies, the variations in the net worth of the company as at the close of the current financial year and previous financial year;” 81. Omitted by the Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2016, w.e.f. 30-6-2016. Prior to their omission, clauses (ix) to (xi) read as under : “(ix) comparison of the each remuneration of the Key Managerial Personnel against the performance of the company; (x) the key parameters for any variable component of remuneration availed by the directors; (xi) the ratio of the remuneration of the highest paid director to that of the employees who are not directors but receive remuneration in excess of the highest paid director during the year; and”

S. 197

COMPANIES ACT, 2013

1.506

(xii) affirmation that the remuneration is as per the remuneration policy of the company.

Explanation.—For the purposes of this rule.— (i) the expression “median” means the numerical value separating the higher half of a population from the lower half and the median of a finite list of numbers may be found by arranging all the observations from lowest value to highest value and picking the middle one; (ii) if there is an even number of observations, the median shall be the average of the two middle values.

(2) The Board’s report shall include a statement showing 82[the names of the top ten employees in terms of remuneration drawn and the name of every employee, who—] (i) if employed throughout the financial year, was in receipt of remuneration for that year which, in the aggregate, was not less than 83[one crore and two lakh rupees]; (ii) if employed for a part of the financial year, was in receipt of remuneration for any part of that year, at a rate which, in the aggregate, was not less than 84[eight lakh and fifty thousand rupees per month]; (iii) if employed throughout the financial year or part thereof, was in receipt of remuneration in that year which, in the aggregate, or as the case may be, at a rate which, in the aggregate, is in excess of that drawn by the managing director or whole-time director or manager and holds by himself or along with his spouse and dependent children, not less than two per cent of the equity shares of the company.

(3) The statement referred to in sub-rule (2) shall also indicate— (i) designation of the employee; (ii) remuneration received; (iii) nature of employment, whether contractual or otherwise; (iv) qualifications and experience of the employee; (v) date of commencement of employment; (vi) the age of such employee; (vii) the last employment held by such employee before joining the company; (viii) the percentage of equity shares held by the employee in the company within the meaning of clause (iii) of sub-rule (2) above; and (ix) whether any such employee is a relative of any director or manager of the company and if so, name of such director or manager: Provided that the particulars of employees posted and working in a country outside India, not being directors or their relatives, drawing more than sixty lakh rupees per financial year or five lakh rupees per month, as the case may be, as may be decided by the Board, shall not be circulated to the members in the Board’s report, but such particulars shall be filed with the Registrar of Companies while filing the financial statement and Board Reports: 82. Substituted for “the name of every employee of the company, who—” by the Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2016, w.e.f.

30-6-2016.

83. Substituted for “sixty lakh rupees”, ibid.

84. Substituted for “five lakh rupees per month”, ibid.

1.507

CH. XIII - APPOINTMENT AND REMUNERATION

S. 198

Provided further that such particulars shall be made available to any shareholder on a specific request made by him in writing before the date of such Annual General Meeting wherein financial statements for the relevant financial year are proposed to be adopted by shareholders and such particulars shall be made available by the company within three days from the date of receipt of such request from shareholders: Provided also that in case of request received even after the date of completion of Annual General Meeting, such particulars shall be made available to the shareholders within seven days from the date of receipt of such request.

85

Calculation of profits.

86

198. (1) In computing the net profits of a company in any financial year for the purpose of section 197,— (a) credit shall be given for the sums specified in sub-section (2), and credit shall not be given for those specified in sub-section (3); and (b)

the sums specified in sub-section (4) shall be deducted, and those specified in sub-section (5) shall not be deducted.

(2) In making the computation aforesaid, credit shall be given for the bounties and subsidies received from any Government, or any public authority constituted or authorised in this behalf, by any Government, unless and except in so far as the Central Government otherwise directs.

(3) In making the computation aforesaid, credit shall not be given for the following sums, namely:— (a) profits, by way of premium on shares or debentures of the company, which are issued or sold by the company 87[unless the company is an investment company as referred to in clause (a) of the Explanation to section 186]; (b) profits on sales by the company of forfeited shares; (c) profits of a capital nature including profits from the sale of the undertaking or any of the undertakings of the company or of any part thereof; (d) profits from the sale of any immovable property or fixed assets of a capital nature comprised in the undertaking or any of the undertakings of the company, unless the business of the company consists, whether wholly or partly, of buying and selling any such property or assets: Provided that where the amount for which any fixed asset is sold exceeds the written-down value thereof, credit shall be given for so much of the excess as is not higher than the difference between the original cost of that fixed asset and its written down value; (e) any change in carrying amount of an asset or of a liability recognised in equity reserves including surplus in profit and loss account on measurement of the asset or the liability at fair value; 85. Corresponds to section 349 of the 1956 Act. 86. Enforced with effect from 1-4-2014.

87. Inserted by the Companies (Amendment) Act, 2017, w.e.f. 12-9-2018.

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[(f) any amount representing unrealised gains, notional gains or revaluation of assets.]

(4) In making the computation aforesaid, the following sums shall be deducted, namely:— (a) all the usual working charges; (b) directors’ remuneration; (c) bonus or commission paid or payable to any member of the company’s staff, or to any engineer, technician or person employed or engaged by the company, whether on a whole-time or on a part-time basis; (d) any tax notified by the Central Government as being in the nature of a tax on excess or abnormal profits; (e) any tax on business profits imposed for special reasons or in special circumstances and notified by the Central Government in this behalf; (f) interest on debentures issued by the company; (g) interest on mortgages executed by the company and on loans and advances secured by a charge on its fixed or floating assets; (h) interest on unsecured loans and advances; (i) expenses on repairs, whether to immovable or to movable property, provided the repairs are not of a capital nature; (j) outgoings inclusive of contributions made under section 181; (k) depreciation to the extent specified in section 123; (l) the excess of expenditure over income, which had arisen in computing the net profits in accordance with this section in any year 88[***], in so far as such excess has not been deducted in any subsequent year preceding the year in respect of which the net profits have to be ascertained; (m) any compensation or damages to be paid in virtue of any legal liability including a liability arising from a breach of contract; (n) any sum paid by way of insurance against the risk of meeting any liability such as is referred to in clause (m); (o) debts considered bad and written off or adjusted during the year of account.

(5) In making the computation aforesaid, the following sums shall not be deducted, namely:— (a) income-tax and super-tax payable by the company under the Incometax Act, 1961 (43 of 1961), or any other tax on the income of the company not falling under clauses (d) and (e) of sub-section (4); 87a. Inserted by the Companies (Amendment) Act, 2017, w.e.f. 12-9-2018.

88. Words “which begins at or after the commencement of this Act” omitted by the Companies (Amendment) Act, 2017, w.e.f. 12-9-2018.

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(b) any compensation, damages or payments made voluntarily, that is to say, otherwise than in virtue of a liability such as is referred to in clause (m) of sub-section (4); (c) loss of a capital nature including loss on sale of the undertaking or any of the undertakings of the company or of any part thereof not including any excess of the written-down value of any asset which is sold, discarded, demolished or destroyed over its sale proceeds or its scrap value; (d) any change in carrying amount of an asset or of a liability recognised in equity reserves including surplus in profit and loss account on measurement of the asset or the liability at fair value.

Recovery of remuneration in certain cases.

199. Without prejudice to any liability incurred under the provisions of this Act or any other law for the time being in force, where a company is required to re-state its financial statements due to fraud or non-compliance with any requirement under this Act and the rules made thereunder, the company shall recover from any past or present managing director or wholetime director or manager or Chief Executive Officer (by whatever name called) who, during the period for which the financial statements are required to be restated, received the remuneration (including stock option) in excess of what would have been payable to him as per restatement of financial statements.

89

90

Central Government or company to fix limit with regard to remuneration.

200. Notwithstanding anything contained in this Chapter, 92[***] a company may, while according its approval under section 196, to any appointment or to any remuneration under section 197 in respect of cases where the company has inadequate or no profits, fix the remuneration within the limits specified in this Act, at such amount or percentage of profits of the company, as it may deem fit and while fixing the remuneration, 92[***] the company shall have regard to— 91

(a) the financial position of the company; (b) the remuneration or commission drawn by the individual concerned in any other capacity; (c) the remuneration or commission drawn by him from any other company;

89.

90.

91.

92.

Enforced with effect from 1-4-2014.

Corresponds to section 637AA of the 1956 Act. Enforced with effect from 1-4-2014.

Words “the Central Government or” omitted by the Companies (Amendment) Act, 2017, w.e.f.

12-9-2018.

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(d) professional qualifications and experience of the individual concerned; (e) such other matters as may be prescribed93.

RELEVANT RULE : RULE 6 OF THE COMPANIES (APPOINTMENT AND REMUNERATION OF MANAGERIAL PERSONNEL) RULES, 2014 94

[Parameters for consideration of remuneration].

Rule 6 : The 95[***] company shall have regard to the following matters, namely:— (1) the Financial and operating performance of the company during the three preceding financial years.

(2) the relationship between remuneration and performance.

(3) the principle of proportionality of remuneration within the company, ideally by a rating methodology which compares the remuneration of directors to that of other directors on the Board who receives remuneration and employees or executives of the company.

(4) whether remuneration policy for directors differs from remuneration policy for other employees and if so, an explanation for the difference.

(5) the securities held by the director, including options and details of the shares pledged as at the end of the preceding financial year.

96

Forms of, and procedure in relation to, certain applications.

97

201. (1) Every application made to the Central Government under 98[section 196] shall be in such form as may be prescribed99.

(2) (a) Before any application is made by a company to the Central Government under 1[section 196], there shall be issued by or on behalf of the company a general notice to the members thereof, indicating the nature of the application proposed to be made. (b) Such notice shall be published at least once in a newspaper in the principal language of the district in which the registered office of the company is situate and circulating in that district, and at least once in English in an English newspaper circulating in that district. (c) The copies of the notices, together with a certificate by the company as to the due publication thereof, shall be attached to the application.

93. See rule 6 of the Companies (Appointment & Remuneration of Managerial Personnel) Rules, 2014.

94. Substituted for “Applications to the Central Government” by the Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2018, w.e.f. 12-9-2018.

95. Words “Central Government or the” omitted, ibid.

96. Corresponds to section 640B of the 1956 Act. 97. Enforced with effect from 1-4-2014.

98. Substituted for “this Chapter” by the Companies (Amendment) Act, 2017, w.e.f. 12-9-2018.

99. See rule 7 and Form No. MR 2 of the Companies (Appointment & Remuneration of Managerial Personnel) Rules, 2014.

1. Substituted for “any of the sections aforesaid” by the Companies (Amendment) Act, 2017, w.e.f. 12-9-2018.

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RELEVANT RULE : RULE 7 OF THE COMPANIES (APPOINTMENT AND REMUNERATION OF MANAGERIAL PERSONNEL) RULES, 2014

Fees.

Rule 7 : (1) Every application made to the Central Government under the provisions of Chapter XIII shall be made in Form No. MR.2 and shall be accompanied by fee as may be specified for the purpose.

(2) 2[***] (3) Every such application seeking approval shall be made to the Central Government within a period of ninety days from the date of such appointment.

3

Compensation for loss of office of managing or whole-time director or manager.

4 202. (1) A company may make payment to a managing or whole-time director or manager, but not to any other director, by way of compensation for loss of office, or as consideration for retirement from office or in connection with such loss or retirement.

(2) No payment shall be made under sub-section (1) in the following cases, namely:— (a) where the director resigns from his office as a result of the reconstruction of the company, or of its amalgamation with any other body corporate or bodies corporate, and is appointed as the managing or whole-time director, manager or other officer of the reconstructed company or of the body corporate resulting from the amalgamation; 2. Omitted by the Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2018, w.e.f. 12-9-2018. Prior to its omission, sub-rule (2) read as under : “(2) The companies other than listed companies and subsidiary of a listed company may without Central Government approval pay remuneration to its managerial personnel, in the event of no profit or inadequate profit beyond ceiling specified in Section II, Part II of Schedule V, subject to complying with the following conditions namely:— (i) payment of remuneration is approved by a resolution passed by the Board and, in the case of a company covered under sub-section (1) of section 178 also by the Nomination and Remuneration Committee, if any, and while doing so record in writing the clear reason and justification for payment of remuneration beyond the said limit; (ii) the company has not made any default in repayment of any of its debts (including public deposits) or debentures or interest payable thereon *preference shares and dividend on preference shares for a continuous period of thirty days in the preceding financial year before the date of payment to such managerial personnel; (iii) the approval of shareholders by way of a special resolution at a general meeting of the company for payment of remuneration for a period not exceeding three years; (iv) a statement alongwith a notice calling the general meeting referred to clause (iii) of sub-rule (2) above, shall contain the information as per sub-clause (iv) of second proviso to clause (B) of Section II of Part II of Schedule V of the Act including reasons and justification for payment of remuneration beyond the said limit; (v) the company has filed Balance Sheet and Annual Return which are due to be filed with the Registrar of Companies.” *Words “preference shares” need to be deleted.

3. Corresponds to section 318 of the 1956 Act. 4. Enforced with effect from 12-9-2013.

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(b) where the director resigns from his office otherwise than on the reconstruction of the company or its amalgamation as aforesaid; (c) where the office of the director is vacated under sub-section (1) of section 167; (d) where the company is being wound up, whether by an order of the Tribunal or voluntarily, provided the winding up was due to the negligence or default of the director; (e) where the director has been guilty of fraud or breach of trust in relation to, or of gross negligence in or gross mismanagement of, the conduct of the affairs of the company or any subsidiary company or holding company thereof; and (f) where the director has instigated, or has taken part directly or indirectly in bringing about, the termination of his office.

(3) Any payment made to a managing or whole-time director or manager in pursuance of sub-section (1) shall not exceed the remuneration which he would have earned if he had been in office for the remainder 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 preceding the date on which he ceased to hold office, or where he held the office for a lesser period than three years, during such period: Provided that 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 shareholders the share capital, including the premiums, if any, contributed by them.

(4) Nothing in this section shall be deemed to prohibit the payment to a managing or whole-time director, or manager, of any remuneration for services rendered by him to the company in any other capacity.

5 Appointment of key managerial personnel.6 7 203. (1) Every company belonging to such class or classes of companies as may be prescribed8 shall have the following whole-time key managerial personnel,— (i) managing director, or Chief Executive Officer or manager and in their absence, a whole-time director; (ii) company secretary; and (iii) Chief Financial Officer : 5. Corresponds to sections 269, 316 and 386 of the 1956 Act. 6. See also SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and Table F of Schedule I. 7. Enforced with effect from 1-4-2014.

8. See rules 8 and 8A of the Companies (Appointment & Remuneration of Managerial Personnel) Rules, 2014.

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Provided that an individual shall not be appointed or reappointed as the chairperson of the company, in pursuance of the articles of the company, as well as the managing director or Chief Executive Officer of the company at the same time after the date of commencement of this Act unless,— (a) the articles of such a company provide otherwise; or (b) the company does not carry multiple businesses: Provided further that nothing contained in the first proviso shall apply to such class of companies engaged in multiple businesses and which has appointed one or more Chief Executive Officers for each such business as may be notified by the Central Government.9 (2) Every whole-time key managerial personnel of a company shall be appointed by means of a resolution of the Board containing the terms and conditions of the appointment including the remuneration.

(3) A whole-time key managerial personnel shall not hold office in more than one company except in its subsidiary company at the same time: Provided that nothing contained in this sub-section shall disentitle a key managerial personnel from being a director of any company with the permission of the Board: Provided further that whole-time key managerial personnel holding office in more than one company at the same time on the date of commencement of this Act, shall, within a period of six months from such commencement, choose one company, in which he wishes to continue to hold the office of key managerial personnel: Provided also that a company may appoint or employ a person as its managing director, if he is the managing director or manager of one, and of not more than one, other company and such appointment or employment is made or approved by a resolution passed at a meeting of the Board with the consent of all the directors present at the meeting and of which meeting, and of the resolution to be moved thereat, specific notice has been given to all the directors then in India.

(4) If the office of any whole-time key managerial personnel is vacated, the resulting vacancy shall be filled-up by the Board at a meeting of the Board within a period of six months from the date of such vacancy.

10

9. Notification No. SO 1913(E), dated 25-7-2014 [Notified Company under Second Proviso to section 203(1) : Public companies having paid-up share capital of rupees one hundred crore or more and annual turnover of rupees one thousand crore or more which are engaged in multiple businesses and have appointed Chief Executive Officer for each such business]. For details, see Division Three.

10. In case of Government Companies, after sub-section (4), the following sub-section shall be inserted, namely :— “(4A) The provisions of sub-sections (1), (2), (3) and (4) of this section shall not apply to a managing director or Chief Executive Officer or manager and in their absence, a whole-time director of the Government Company.” - Notification No. GSR 463(E), dated 5-6-2015.

Company Law Manual AUTHOR PUBLISHER DATE OF PUBLICATION EDITION ISBN NO PAGE NO. BINDING TYPE

: TAXMANN : TAXMANN : JANUARY 2022 : 17TH EDITION : 9789392211454 : 1962 : PAPERBACK

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Description Taxmann’s Company Law Manual is a compendium of the Companies Act, 2013, along with Relevant Rules framed thereunder. In other words, it contains Compilation of Amended, Updated & Annotated text of the Companies Act, 2013 [as amended by the Companies (Amendment) Act, 2020] & Rules along with Amended Schedules (III & V), Circulars, Notifications, SS-1 to SS-4, and ICSI Guidance Note on Corporate Social Responsibility (CSR).

What sets this book apart is the unique way of presenting the Annotated, Amended & Updated text of the Companies Act and relevant Rules mapped with the relevant Section of the Act. In other words, the Annotation under each Section shows: u

u

Relevant Rules framed under the Relevant Section

u

Reference to Relevant Forms prescribed

u

u u u u

The Gist of Relevant Circulars and Notifications

u

Date of enforcement of the provisions

Exemptions available to private companies/Government companies/Nidhis/ Charitable Companies/Unlisted Public Company/Private Company operating from IFSCs located in SEZ

Corresponding provision under the 1956 Act Words & Phrases judicially noticed Allied Laws referred to in the provision(s), and Relevant provisions of SEBI Rules/SS-1 to SS-4/Listing Obligations/Table F of Schedule I

The Present Publication is the 17 th Edition, authored by Taxmann’s Editorial Board, as amended by the Companies (Amendment) Act 2020 & updated till 10th December 2021. This book is divided into three divisions:

u u

The Companies Act, 2013 with (40+) Rules

u

Other Rules (15+) Circulars & Notifications

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