197. Overall maximum managerial remuneration and managerial remuneration in case of absence or inadequacy of profits

(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:

Provided that the company in general meeting may, with the approval of the Central

Government, 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,—

(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,—

(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.

(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 wholetime

director or manager, 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 and if it is not able to comply with such provisions, with the previous approval

of the Central Government.

(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 services 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.

(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 prescribed:

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) 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.

(8) The net profits for the purposes of this section shall be computed in the manner

referred to in section 198.

(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.

(10) The company shall not waive the recovery of any sum refundable to it under

sub-section (9) unless permitted by the Central Government.

(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 and if such conditions

are not being complied, the approval of the Central Government had been obtained.

(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 prescribed.

(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 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.