Section 196  No company shall appoint MD as Disqualifications

(Appointment of well as Manager

MD/ WTD/  Min. age  21 years; Max. age  70 years
Manager)  Tenure – 1 term of 5 years (can appoint if > 70 years by passing SR)
(cooling period - 1 year)  Undischarged insolvent + adjudged insolvent
 Suspended payment to creditors or made compromise with them
Procedure for Appointment  Convicted for > 6 months for any offence
1 Resolution at BM Schedule V
2 Approval by OR at next GM  Not subject to imprisonment or fine > INR 1,000 under the prescribed 16 Acts
3; or CG approval; or  Not detained for smuggling
4 Follow Schedule V
 Min. age 21 years; Max. age – 70 years (can appoint if > 70 years by SR)
Note - File MR-1 within 60 days  If appointed in more than 1 company  comply with section V Part II of Schedule V
 Resident in India

Section 197 Limit to director’s salary Note - Salary is exclusive of any sitting Mode of paying remuneration
(Director’s fees  Monthly remuneration; or
remuneration) % of Sitting fees  % of Net profits; or
Conditions Net
Profits  Max. which Board can prescribe is  Mix of both
Overall 11% INR 1 lakh per meeting
1 MD/ WTD/ Manager 5%  Sitting fees to I.D. and Woman Other points
> 1 MD/ WTD/ Manager 10% director can’t be less than others  I.D. not entitled to ESOP
Non-executive director(s)  Director is liable to refund any excess
 If MD/ WTD there 1% Note – Salary includes remuneration salary (Co. can waive it by CG approval)
 If MD/ WTD not there 3% payable in any other capacity, other  Listed Co. to disclose ratio with median
than salary in Board’s report
Net Profit – Computed u/s 198 w/o - Services of professional nature +  Insurance premium paid for indemnity
requisite qualification is there
deducting director’s remuneration
- Guarantee commission insurance included in salary  only if
director is proved guilty
Options to pay salary in case of NO or Inadequate profits
Option 1 – CG approval Option 2 – Part II of Section II of Schedule V
Part A Part B
Option 3 – Part 111 of  Functioning in professional capacity
Section II of Schedule V Effective capital # Yearly remuneration
< 5 cr 60 lakhs  No direct or indirect interest in share capital
≥ 5 cr but < 100 cr 84 lakhs of Co./ Holding/ Subsidiary
Option 4 – Rule 7(2) ≥ 100 cr but < 250 cr 120 lakhs (can hold upto 0.5% pursuant to ESOP etc.)
≥ 250 cr 120 lakhs+ 0.01% of  No direct or indirect interest in Director or
excess capital Promoter of Co./ Holding/ Subsidiary in last 2
years
Note – Limits can be doubled by passing SR
 Possess graduate level experience with
expertise & specialised knowledge

i. Payment approved by NRC or Board, as the case may be

ii. No default in debts/ debentures/ interest for 30 days in preceding FY  if defaulted, obtained
approval of creditor(s) for payment of remuneration
iii. Part A – OR/ SR is passed, as the case may be
Part B – SR is passed
iv. Requisite disclosures made in Explanatory Statement

# Meaning of Effective Capital

Paid-up share capital xxx
(excluding share application pending allotment)
+ Share premium account xxx
+ Reserves & Surplus xxx
(excluding revaluation reserve)
+ Long term loans & deposits payable after 1 year xxx
(excluding working capital loans, O/D etc.)
(-) Investments (except in case of Investment company) (xxx)
(-) Accumulated losses (xxx)
(-) Preliminary expenses not written-off (xxx)
Effective Capital xxx

Section 198 In computing Net Profits 1 – Added 2 – Not added

(Calculation of 1 Added  Bounties & subsidies  Premium on issue or sale of shares or debentures
Profits) 2 Not added  Profit on sale of forfeited shares
3 Deducted  Profit on sale of undertaking
4 Not deducted  Profit on sale of fixed assets of capital nature (unless in
ordinary course of business)
 Change in carrying amount of asset/ liability

CA HARSH GUPTA (I.G.P.) Appointment & Remuneration of Managerial Personnel

 3- Deducted 4 – Not deducted
 Working charges, director’s remuneration  Income-tax
 Bonus or commission  Compensation or damages paid voluntarily
 Tax on abnormal profits,  Loss of capital nature
 Tax on business profits for special reasons  Change in carrying amount of asset or liability
 Interest on debentures, mortgages, loans & advances
 Repairs, donation to charitable funds
 Depreciation, compensation for legal liability
 Past losses, insurance & bad debts
Section 199 If company is required to re-state its financial statements due to Company shall recover excess remuneration from MD/
(Recovery of fraud or non-compliance WTD/ Manager/ CEO
remuneration)
Section 200 CG or Company may, while Certain factors to be considered while fixing limits, which inter-alia includes -
(CG or company giving approval, fix limits
may fix limit on on remuneration in cases Financial position of company Remuneration drawn in any other capacity
remuneration) of inadequate or no profits. Remuneration drawn from other company Professional qualifications & experience
Financial & operating performance in 3 FYs Relationship b/w remuneration & performance

Section 201 Every application to CG under this Before giving application, general notice to members shall be given + it shall also be
(Filing with CG) chapter shall be in Form MR-2 published and their copies are attached with the application

Section 202 A company may pay Non-eligibility Limits on compensation

(Compensation for compensation for loss of  Director resigns in case of reconstruction &
loss of office of office to MD/ WTD/ Manager, gets employed with reconstructed company Lower of average remuneration* for
MD/ WTD/ but NOT to any other director
 Director resigns in any other case - Remainder of his term; or
Manager) - 3 years
 Vacation of office u/s 167(1)
 Company wound up due to default of director *Average remuneration means average
salary during the lesser of
 Director guilty of fraud or breach of trust
 Period of office; or
 He instigated in termination of his office
 3 years
Section 203 Following whole-time KMPs
(Appointment of mandatory in  Listed company; or
KMP)  MD or CEO or Manager or WTD  Public company Whole-time CS  Any company having
having PSC ≥ INR 10 mandatory in PSC ≥ INR 5 crore
 CS
crore
 CFO
Chairperson + MD/ CEO Conditions for appointment Casual Vacancy
Same person shall not be Chairperson & MD/ CEO, unless  Every whole time KMP appointed by Vacancy of whole-
 AOA provides; or resolution at BM time KMP shall be
filled up by Board
 Company carries on single business  He shall not hold office in more than one within 6 months
company  except subsidiary company
Further above restriction N.A. for following companies, if
into multiple businesses & has CEOs for each business  A person may be appointed as MD, if he
is MD/ Manager of one other company 
Public companies having with UNANIMOUS resolution with consent
- PSC ≥ INR 100 cr; and of ALL the directors present
- Turnover ≥ INR 1,000 cr

Section 204 Following companies shall get Secretarial Duty of Company

 Listed company
(Secretarial Audit) audit done and annex secretarial audit  Company shall give assistance to CS in
report to Board’s report.  Public Co. having practice
- PSC ≥ INR 50 cr  Explain any qualifications or
Note – Secretarial audit can be done by
only CS in practice. - Turnover ≥ INR 250 cr observation in Board’s report
Section 205
(Functions of CS)  Report to Board about compliance  Provide needed guidance to Board  Obtain requisite approvals
with Act, rules etc.
 Ensure compliance with Secretarial  Convene meetings & make minutes  Represent company before various
Standards authorities
 Assist Board in conduct of affairs  Ensure good corporate governance  Do such other duties assigned

CA HARSH GUPTA (I.G.P.) Appointment & Remuneration of Managerial Personnel