CHAPTER XIII: APPOINTMENT AND REMUNERATION OF MANAGERIAL PERSONNEL

CHAPTER XIII

APPOINTMENT AND REMUNERATION OF MANAGERIAL PERSONNEL

OF

THE COMPANIES ACT, 2013

In the series of Comparative Analysis on the Companies Act, 2013 with the Companies Act, 1956 second chapter in the series is Chapter XIII: APPOINTMENT AND REMUNERATION OF MANAGERIAL PERSONNEL

Section 196, the Companies Act, 2013: Appointment of Managing Director, Whole Time Director or Manager:

Corresponding sections of the Companies Act, 1956: section 197A,267,317, 384,385,388

Ø  The new act says that the re-appointment shall not be earlier than 1 year before expiry of his term, in old act it was 2 years.

Ø  The minimum age mentioned in new act for a person to be appointed as MD is 21 years as per old act it was 25 years.

Ø  The terms and conditions of appointment of MD shall be approved by the Board and by the shareholders in ensuing general meeting.

Ø  Return for appointment shall be filed with ROC with 60 days, earlier it was 90 days.

Section 197, the Companies Act, 2013: Overall maximum managerial remuneration and managerial remuneration in case of absence or inadequacy of profits:

Corresponding sections of the Companies Act, 1956: section 198, 201, 309, 310 & 387

Ø  As per new act independent directors shall not be entitled for any stock option, in old act independent director was not defined and as per ESOP guidelines an independent director could receive stock options.

Ø  As per new act the Board Report shall disclose the ratio of remuneration of each director to the median employee’s remuneration and such other details as may be prescribed.

Ø  Persons contravening provisions of this section shall be punishable with penalty for an amount not less than Rs. 100,000 but which may extend to Rs. 500,000.

Section 198, the Companies Act, 2013: Calculation of profit

Corresponding sections of the Companies Act, 1956: section 349.        

Ø  In addition to the provisions of old act the new act says that at the time of calculation of profit any changes in carrying amount of an asset or liability recognized in equity reserves including surplus in profit and loss account on measurement of the asset or the liability at fair value shall not be recognised.

Section 199, the Companies Act, 2013: Recovery of remuneration in certain cases:

Corresponding sections of the Companies Act, 1956: None

Ø  This is a newly introduced section which states that in case of re-statement of financial statements of a company due to fraud or non-compliance, shall recover from the MD/Manager/WTD/CEO the remuneration paid in excess of the applicable provisions or which should actually had been paid in compliance with re-stated statements.

Section 200, the Companies Act, 2013: Central Government or company to fix limit with regard to remuneration:

Corresponding sections of the Companies Act, 1956: section 637AA

Ø  Earlier the power to fix remuneration was given to only Central Government now the Company and Central Government any can fix the remuneration.

Section 201, the Companies Act, 2013: Forms of and procedure in relation to, certain applications:

Corresponding sections of the Companies Act, 1956: section 640B

Ø  Same provisions.

Section 202, the Companies Act, 2013: Compensation for loss of office of managing or whole time director or manager:

Corresponding sections of the Companies Act, 1956: section 318

Ø  Same provisions.

Section 203, the Companies Act, 2013: Appointment of key managerial personnel:

Corresponding sections of the Companies Act, 1956: section 269, 316 & 386.         

Ø  The new section says such class of companies as may be prescribed shall appoint the KMP, and that class is yet to be prescribed as the rules has not yet been approved. As per definition of new act KMP also include CEO, CFO and CS.

Ø  The new section says that the same individual shall not be appointed as the Chairperson and MD/CEO of the company unless the articles of the company otherwise provides or the company does not carry multiple business.

Ø  As per new section every KMP shall be appointed by means of a Board Resolution and this resolution shall also include the terms/ conditions of the appointment and remuneration payable.

Ø  The vacancy of any KMP shall be filled within 6 months of such vacancy caused.

Ø  For contravention of any provision of this section the company shall be liable for a minimum penalty of Rs. 100,000 which can be fined upto Rs. 500,000 and every KMP in default shall be fined  upto Rs. 50,000, Rs. 1000 per day can be charged where the default be of continuing nature.

Section 204, the Companies Act, 2013: Secretarial audit for bigger companies:

Corresponding sections of the Companies Act, 1956: None                      

Ø  This is a newly introduced section which states that every listed company and such other class of company as may be prescribed shall annex with it’s Board Report a Secretarial Audit Report provided by a company secretary in practice. The report shall also explain in full the qualifications or observations made in the secretarial audit report.

Ø  Penalty for contravention of this section can be imposed from Rs. 100,000 to Rs. 500,000.

Section 205, the Companies Act, 2013: Functions of company secretary

Corresponding sections of the Companies Act, 1956: None

Ø  This is a new section which mention the functions to be performed by company secretary which mainly includes ensuring compliance of applicable provisions and applicable secretarial standards.

~ By Nikita Singh~

The information given in this blog is the personal understanding of the writer and shall not be used as a conclusive material. The content stated/mentioned here is subject to changes by respective government/authorities in the applicable laws. The writer shall not be liable for any direct or indirect damages caused to any person acting solely on/based upon the information provided herein.