File No. 12/7/2000
CL.VII
GOVERNMENT
OF INDIA
MINISTRY
OF LAW JUSTICE AND COMPANY AFFAIRS
.....
Shastri
Bhawan, 5th floor,
'A'
Wing, Dr. R.P. Road,
New
Delhi-110001
Dated:
27.12.2000
Subject:
- Appointment of Managerial Personnel and payment of Managerial Remuneration in
case of Companies having no profit or inadequate profit - rationalization
thereof.
...
Cases are coming to the
Department of Company Affairs wherein Public Companies or Private Companies
which are subsidiaries of Public Companies are submitting applications to the
Department of Company Affairs for approval of the Central Govt. for appointment
of and/or payment of remuneration to managerial personnel in excess of the
limits prescribed in sections 269, 310, 311 & 387 and in terms of section
198(4) read with schedule XIII to the Companies Act, 1956,which provides scales
of remuneration (salary, dearness allowance, perquisites and any other
allowance).
2.
The scales of monthly remuneration prescribed in para 1 of section II of
part II of Schedule XIII have since been revised vide notificationGSR No. 215(E) dated
02.03.2000. The revised scales
are as under: -
Where
the effective capital of the company is
Monthly remuneration payable shall
not
exceed
------------------------------------------------------------------------------------------------------------------------------
(i)
less than rupees 1 crore
rupees 75,000
(ii)
rupees 1 crore or more but less than
rupees 1,00,000
rupees 5 crores
(iii)
rupees 5 crores or more but less than
rupees 1,25,000
rupees 25 crores
(iv)
rupees 25 crores or more but less than
rupees 1,50,000
rupees 100 crores.
(v)
rupees 100 crores or more
rupees 2,00,000
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3.
Where a Particular Company intends to pay a remuneration higher than that
prescribed in the Companies Act read with the necessary Schedule, an application
may be made to the Department of Company Affairs giving in detail the
justification alongwith a copy of the resolution passed by the Board/AGM as the
case may be.
4.
In order to reduce subjectivity and to bring in an element of greater
transparency and objectivity, the Company which submits an application for a
remuneration which is higher than the prescribed limit must take into
consideration the following factors (detailed note on each as applicable be
furnished) and give a detailed justification.The application for increase in the
remuneration should not be submitted in a mechanical way:
(i)
Reasons for loss/inadequacy of profit.
(ii)
Steps taken to improve the performance of the
company.
(iii)
Financial health/performance of the Company as may be reflected by
effective capital, Net worth, Turnover, Profit/loss, dividend declared,
etc.
(iv)
Nature of industry - high technology area, core sector, infrastructure
field, etc.
(v)
Export performance and net foreign exchange earned.
(vi)
Performance of the Company in socio-economic
activities.
(vii) General
performance of Industry in the relevant sector
(viii) Foreign
investment and foreign collaborations
(ix)
Expansion/Diversification/Modernisation/Technology
upgradation
(x)
Qualification, experience, period of association and contribution of the
proposed appointee.
(xi)
Requirement of personal skill and challenges ahead
(xii) Past
remuneration of the proposed appointee.
(xiii)
Creativity/innovativeness of the proposed
appointee/company.
(xiv) Recognition/Award
obtained by the proposed appointee/company.
(xv) The amount
of remuneration proposed to be paid including salary, allowances, perquisites
and whether it will have any effect on the overall financial health of the
Company.
(xvi) Any other factors
relevant to the proposal, which the company may like to bring to the notice of
the Govt. justifying their proposal.
5.
Deficiencies generally observed in respect of the applications on the
above subject are listed below: -
(i)
Application fee is not paid in proper manner. Sometimes the Demand draft is not for
the full amount of application fee and some-times the demand draft is not
payable in favor of Pay & Accounts Officer, Department of Company Affairs,
New Delhi as prescribed in rule 2 of the Companies (Fees for application rules,
1961) as amended vide GSR No. 501(E) dated 06.07.1999.
(ii)
Application is not filled in properly and completely in respect of all
the columns. If a column is left
blank, the letters N.A. should be filled up implying 'Not Applicable'.
(iii)
Applications are submitted after remuneration in excess of Schedule III
has already been paid to the managerial person.
(iv)
Certified copies of Newspaper clippings of notices, in original,
published in the Newspaper in English and in local Newspaper in local language
as required in terms of section 640-B of the Companies Act are not
furnished.
(v)
Certified copies of Directors report and audited accounts of the company
for each of the last 5 financial years of the company are not
enclosed.
(vi) In
case of foreign collaboration, certified copy of the FIPB approval letter(s) is
not furnished.
(vii)
Remuneration drawn by the proposed appointee from the applicant company
or from any other company during the past 3 years prior to the proposed date of
appointment is not indicated in terms of monetary package.
(viii)
Requirements of section 316(2)/(4) of the Companies Act are not followed
where the proposal is for appointment as managerial person in two or more than
two companies and resolution is not passed by all the companies
concerned.
(ix)
Estimated project cost and source of finance together with projected
equity, position regarding growth in effective capital, projection of turnover
and net profit as computed under section 198 of the Companies Act, 1956 for the
next five years is not given as required in col. 4 of the application (Form 25A
& 26) in respect of new Companies.
(x)
Figure of turnover, net profit as computed under section 198 of the
Companies Act, as projected/unaudited for the year in which the application is
made, is not given even if the application is made towards the end of Financial
Year/after the end of Financial Year, unaudited figures of working results are
not furnished.
(xi) In
case of proposal for mid-term increase for remaining period, it is not indicated
how the requirement of section 269 (2) of the Companies Act, 1956 read with part
I & II of Schedule XIII was met at the time of appointment of MD/WTD/Manager
and how the mid-term increase in remuneration is justified in terms of working
results of the Company.
(xii)
Papers/documents attached with the application are not authenticated and
seal of the company is not put on each paper.
6.
Attention is also invited to explanation to Section 198 of the Companies
Act, 1956 which states that 'Remuneration' includes any expenditure incurred by
the Company giving benefit to its directors/managers on items mentioned at (a)
to (d) of the said explanation i.e.
(i)
In providing any rent free accommodation or any other benefit or amenity
in respect of accommodation free of charge, to any of the persons specified in
sub section (1).
(ii)
In providing any other benefit or amenity free of charge or at a
concessional rate to any of the persons aforesaid;
(iii) In
respect of any obligation or service which but for such expenditure by the
company, would have been incurred by any of the persons aforesaid;
and
(iv) To
effect any insurance on the life, or to provide any pension, annuity or gratuity
for any of the person aforesaid or his spouse or child.
The
term 'Salary' under the provisions of the Income Tax Act has been defined to
include all payments received by a person in employment and includes wages,
fees, commission,
Perquisites,
profits in lieu of or in addition to salary, advance salary, pension, gratuity,
encashment of leave etc. Certain
items of perquisites are, however, excluded, to the
extent
permissible for the purpose of payment of Income Tax as per Central Board of
Direct Taxes circular No. 781(F.No. 275/192/99-IT (B) dated 05.11.99). It has
been observed that companies sometimes indicate the value of perks stating that
the same is as per Income Tax Act.
This is not the correct position and value of perquisites included in the
total remuneration under section 198 of the Companies Act, 1956 is to be
indicated as per actual cost.
Income Tax liability as per CBDT circular is to be indicated
separately.
7.
The applicant companies should therefore, hereafter also ensure that the
prescribed forms are completely and properly filled in regard to all the details
so that the applications submitted are complete and proper at the time of
submission itself. This will result
in quicker and faster disposal. In
this regard a checklist is also enclosed to facilitate proper filing of the
applications. It is hoped that with
filing of complete application disposal would be quicker.
8.
Copy of this circular is also available at the Web Site of the Department
of Company Affairs at the following address:
http/www.nic.in/dca.
9.
PLEASE cooperate by furnishing all the above requirements to facilitate
expeditious clearance of your proposal.
(B.N.
PRASAD)
Under
Secretary to the Government of India
To,
As per mailing list attached.
CHECK
LIST
Please
ensure before submitting the application that the following information/
documents have been furnished: -
(i)
Proper application fee in the manner provided vide GSR No. 501(E) dtd.
6.7.99.
(ii)
Copies of public notices in English and in local newspaper in local
language.
(iii)
Monetary value of each of the perquisites and allowances and total
remuneration package (in the form of statement annexed) valued as per actual
cost.
(iv)
Appropriate and clear resolution in support of the
proposal.
(v)
In case of appointment as Managerial personnel in two or more companies
the manner in which compliance of section 316(2)/(4) has been
made.
(vi)
Reasons for loss/inadequacy of profit, steps taken to improve the
financial performance and future projections.
(vii) Full &
proper justification for proposed appointment/
remuneration.
(viii) The manner
in which compliance of section 269(2) of the Companies Act was met at the time
of appointment/ reappointment of the managerial person where mid term increase
in remuneration is proposed.
(ix)
Application for condonation of delay under section 637B along with
justification and requisite application fee where the application was not
submitted within 90 days of date of appointment/
reappointment.
(x)
Monetary value of total remuneration in Rupees or Rupees equivalent drawn
by the proposed appointee during last three years from the applicant company or
any other company.
(xi) Copy
of the Directors report and the audited accounts of the company for each of the
last five financial years of the company.
(xii) Each column
of the application is filled up.
(xiii) Copies of FIPB
approvals, in case of foreign collaboration/ investment.
(xiv) Each page of
application and documents attached is authenticated under the seal of the
applicant company.
STATEMENT
OF REMUNERATION PROPOSED
In
Rupees/Rupees equivalent per month
A.
SALARY
Basic
Salary
Bonus
Gratuity
(Non taxable)
Contribution
to Provident fund (Non taxable)
Contribution
to Superannuation fund/ Annuity fund (Non taxable)
B.
ALLOWANCES
Entertainment
allowance
Special
allowance
C.
PERQUISTIES
Accommodation
Gas/Electricity/Water
expenses
Children
education
Transport
and driver
Leave
Travel concession (Non taxable)
Medical
reimbursement (Non taxable)
Insurance
(a)
Personal effect
(b)
Medical (Non taxable)
Servant,
mail, cook
Security
Telephone
Club
fee
Total
Note
1 Any other item(s), which the
company wants to indicate, may be added in the appropriate group
above.
Note 2
As per explanation given under
section 198 of the Companies Act, 1956, the salary and perquisites included in
the total remuneration should be valued as per actual
cost.
Note
3 Income tax liability be
indicated on a separate sheet to be attached.
STATEMENT
OF INCOME TAX LIABILITY W.R.T. REMUNERATION PROPOSAL
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