Ch 2 - Appointment and Remuneration of Managerial personnel Flashcards
What is the definition of Managing director as per the provisions of Section 2(54) of the act?
Managing Director [Section 2(54)] means a director who, by virtue of the articles of a company or an agreement with the company or a resolution passed in its general meeting, or by its Board of Directors, is entrusted with substantial powers of management of the affairs of the company and includes a director occupying the position of managing director, by whatever name called.
Should already have the position as a director before appointment as MD.
What are not considered to be substantial powers of management of the affairs of the company by the managing directors as per explanation to section 2(54)?
What is the tenure of managing director, Whole time director, Manager as per the provisions of section 196?
(a) 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.
(b) It is further provided that no re-appointment shall be made earlier than one year before the expiry of his term.
Exemption from the provision is available only to a government company and not for a private company, but with regard to other provisions both govt and public companies has equal exemption applicability
What is the eligibility conditions for appointment as per the provisions of section 196 of the act? -Part 1 eligibility requirement with relation to age criteria?
no company shall appoint or continue the employment of any person as managing director, whole-time director or manager who-
What is the eligibility conditions for appointment as per the provisions of section 196 of the act? -Part 2 eligibility requirement with relation to age criteria?
no company shall appoint or continue the employment of any person as managing director, whole-time director or manager who-
(b) is an undischarged insolvent or has at any time been adjudged as an insolvent; or
(c) has at any time suspended payment to his creditors or makes, or has at any time made, a composition with them; or
(d) has at any time been convicted by a court of an offence and sentenced for a period of more than six months.
(e) Additional eligibility conditions for appointment as per Schedule V: Part I of Schedule V2 to the Companies Act, 2013, has prescribed additional eligibility conditions for appointment as managing director or whole-time director or a manager without seeking approval from the Central Government. They are stated as under - See Image
What is the procedure for appointment of MD,WTD and Manager as per section 196(4) of the act?
What is the validity of the acts done by MD,WTD or manager when subsequent to the appointment by the board, the director fails to get appointed at the subsequent general meeting? - what is the validity of the acts done during the intermittent period?
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 be deemed to be valid.
What is the exemption provided to government and private company is relation to the provisions of section 196?
(i) In case of a Government Company, Section 196(2), (4) and (5) shall not apply. However, for availing the exemption, such Government Company must not have committed a default in filing its financial statements under Section 137 or Annual Return under Section 92 with the Registrar. (Notification No. G.S.R. 463(E) dated 5th June, 2015 as amended by Notification No. G.S.R. 582 (E), dated 13-06-2017).
(ii) In case of Private Company, Section 196(4) and (5) shall not apply provided such private company has not committed a default in filing its financial statements under Section 137 or Annual Return under Section 92 with the Registrar. (Notification No. G.S.R. 464(E) dated 5th June, 2015 as amended by Notification No. G.S.R. 583(E) dated 5th June, 2015) - Tenure condition will still apply to a private company as well.
APPOINTMENT OF KEY MANAGERIAL PERSONNEL [SECTION 203] - Appointment of Key Managerial Personnel [Section 203(1)]:
Every company belonging to the prescribed class or classes of companies shall have the following whole time key managerial personnel:
According to Rule 8 following companies shall have whole-time key managerial personnel:
(a) every listed company; and
(b) every other public company having a paid-up share capital of 10 crore rupees or more
APPOINTMENT OF KEY MANAGERIAL PERSONNEL [SECTION 203] - Appointment of Key Managerial Personnel [Section 203(1)] - Requirement of Company Secretary in certain other companies(Whole time company secretary)?
According to Rule 8A6, every private company which has a paid up share capital of 10 crore rupees or more shall have a whole-time company secretary.
In other words, it is now mandatory for every private company to have a whole-time company secretary if its paid up share capital is 10 crore rupees or more.
What is the prohibition on individual to be appointed as Chairperson as well as Managing Director or Chief Executive Officer at the same time [Proviso to Section 203(1)]:?
In other words, a person appointed as C**hairperson of a company cannot be appointed as MD or CEO at the same time in that company**. This prohibition is not applicable in the following cases: [Second proviso to Section 203(1)] • Where the **_articles of such company provide otherwise_** i.e., they allow the Chairperson to be appointed as MD or CEO. • Where the c**_ompany belongs to the prescribed class of companies (refer Box below); is engaged in multiple businesses_**; and has appointed Chief Executive Officer for each such business.
What are the conditions for appointment as per the provisions of section 203 of the companies act, 2013?
(a) Requirement of Board Resolution7: Every whole-time key managerial personnel of a company shall be appointed by means of a resolution of the Board(No need to have appointment confirmed at subsequent general meeting of the company). The resolution shall contain the terms and conditions of the appointment including the remuneration.
[refer Section 203 (2)]
(b) Bar on multiple appointments: A whole-time key managerial(Nothing in this section relates to MD or Manager or None of what relates to MD or manager in relation to appointment in more than one company shall not be applicable here) personnel shall not hold office in more than one company at the same time except in its subsidiary company(That means if want to hold position of whole time personnel in holding co, It will not be possible at all, but can act as MD or manager in more than one company at the same time(Even it is holding or any other company).
[Section 203 (3)]
However, key managerial personnel shall not be disentitled from being a director in any company with the permission of the Board. [refer Proviso to Section 203 (3)]
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.
What is the position when a person acts as a managing director or manager in more than one company as per Third Proviso to Section 203(3)]:
If a person is MD or manager in some other company it is permissible for a company to appoint him as its managing director. The modus operandi is as under:
See example given in Pg. 2.11
What is the procedure for filling of vacancy of KMP as per the provisions of section 203(4)?
If the office of any whole-time KMP 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.
OVERALL MAXIMUM MANAGERIAL REMUNERATION AND MANAGERIAL REMUNERATION IN CASE OF ABSENCE OR INADEQUACY OF PROFITS [SECTION 197] - Basic provisions - section 1 of Part 2 to schedule 5 - When there are adequate profits that are available?
Section 197 of the Act lays down the provisions relating to overall maximum managerial remuneration payable by every public company and the managerial remuneration payable by it in case of absence or inadequacy of profits. Section 197 read with Schedule V to the Companies Act, 2013 defines maximum remuneration payable to KMPs and 10other directors. This section does not apply to a private company. These provisions are discussed as under:
OVERALL MAXIMUM MANAGERIAL REMUNERATION AND MANAGERIAL REMUNERATION IN CASE OF ABSENCE OR INADEQUACY OF PROFITS [SECTION 197] - No profits or inadequate profits [Section 197(3) & (11)] - SECTION II OF PART II OF SCHEDULE V- Remuneration payable by companies having no profit or inadequate profit
OVERALL MAXIMUM MANAGERIAL REMUNERATION AND MANAGERIAL REMUNERATION IN CASE OF ABSENCE OR INADEQUACY OF PROFITS [SECTION 197] - What is the meaning of effective capital and It’s inclusions and exclusions that has to be made?
For the purposes of Section II of this Part, “effective capital” means the aggregate of the paid-up share capital (excluding share application money or advances against shares); amount, if any, for the time being standing to the credit of share premium account; reserves and surplus (excluding revaluation reserve); long-term loans and deposits repayable after one year (excluding working capital loans, over drafts, interest due on loans unless funded, bank guarantee, etc., and other short-term arrangements) as reduced by the aggregate of any investments (except in case of investment by an investment company whose principal business is acquisition of shares, stock, debentures or other securities), accumulated losses and preliminary expenses not written off.
OVERALL MAXIMUM MANAGERIAL REMUNERATION AND MANAGERIAL REMUNERATION IN CASE OF ABSENCE OR INADEQUACY OF PROFITS [SECTION 197] - Limits under B
Here in this case, no prior approval of CG will be required if it is paid in professional capacity and subject to satisfaction of the requisite conditions accordingly.
What are the applicable overall conditions that needs to be kept in check in relation to both limits under A and B as per section 197 of the act?
What are the provisions in relation to sitting fees as per the provisions of section 197(5)?
Conditions relating to Increase of sitting fees from Example 6 - From the above, it is clear that sitting fees can be increased from 30,000 rupees to 45,000 rupees per m_eeting by passing a resolution in the Board Meeting and altering the Articles of Association by passing a Special Resolutio_n. When sitting fees stands increased for other directors, _it shall automatically be increased in case of independent directors because the latter cannot be paid less than that payable to former_
What are the provisions in relation to mode of payment of remuneration as per section 197(6) of the act?
Disclosure in Board’s Report by a Listed Company [Section 197(12) and Rule 5] - what is the requirement of Every listed company shall disclose in the Board’s report?
Also see this in the textual form in page 2.25 in detail
Meaning of median:(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.
What is the treatment of premium paid in respect of Insurance taken for Indemnification as per the provisions of section 197(13)?
What is the special exemption in relation to a Nidhi company as per second proviso to sub section 1 of section 197 of the act?
What are the scenarios of RECOVERY OF MANAGERIAL REMUNERATION IN CERTAIN CASES [SECTION 199]?
What is the COMPENSATION FOR LOSS OF OFFICE OF MANAGING OR WHOLE-TIME DIRECTOR OR MANAGER [SECTION 202]?
Section 202 of the Act contains provisions for compensation for loss of office of Managing Director or Whole-time director or Manager as under:
Calculation of compensation: The compensation shall be calculated on the basis of the average remuneration earned by him during a period of three years immediately preceding the date on which he ceased to hold such office, or where he held the office of less than three years, then for such shorter period.
