FAQs on Minimum Remuneration to NEDs and IDs

3 replies
  1. Bhaunik Shah
    Bhaunik Shah says:

    What is the meaning of “inadequate profit or adequacy of profit” for the purpose of calculating Managerial Remuneration u/s 197 of the Companies Act, 2013?

    The adequacy or inadequacy of profit is to be checked for the individual limit of managerial remuneration i.e. 5%, 10%, etc. or it is to be checked for the overall limit of managerial remuneration i.e. 11%?

    Reply
    • Henil Shah
      Henil Shah says:

      Dear Sir,

      The profit is said to be ‘adequate’ when the remuneration payable to the managerial personnel is within the limits specified under section 197(1) of the Act. If such an amount subsequently exceeds the limits, then the profits are considered as ‘inadequate’.

      For example, the company approves to pay Rs 30 lacs to its WTD (being an amount within 5% of its net profits). In the subsequent year of his appointment, if the said amount exceeds the limit of 5% (say 5.5% or any higher % more than 5%) then the profits will be considered as inadequate for the said financial year.

      The adequacy or inadequacy of profits needs to be checked for at the individual limits i.e. 5%, 10% or 1%, considering the category and number of directors to whom the remuneration is being paid. There cannot be a situation that without breaching the individual limits, a company can breach the aggregate limit of 11%.

      Reply

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