corporate advisory division managerial remuneration...

Managerial Remuneration Amended

Corporate Advisory Division

Blessing during Festive Season

Pantomath Advisors LLP – A Group entity of Pantomath


Issued By - Ministry of Corporate Affairs Approved By - Central Government Dated - September 12, 2016 Notification - Amendment in Schedule V Applicability - Public Companies

“This presentation includes an analysis on Amendment in Schedule V ”

Background

Ministry on September 12, 2016,

showered important amendments providing relaxations in provisions relating to managerial personnel with the obvious motive of promoting Indian Corporate Sector. Government stands by its mantra – ‘We don’t need Acts but Actions’. Highlighting amendments includes increase in the remuneration limits to Managerial Personnel without Central Government approval.


Content

Disqualification Criteria Expanded

Rem Limits doubled for Related Managerial Personnel (RMP)

Rem limits detached for Unrelated Professional Managerial Personnel (UPMP)

Prior Approval of Secured Creditors in case of default in repayment

Shareholder Approval Mechanism for Managerial Remuneration

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• Every person becomes ineligible

to be appointed as Managerial Person, if he is imprisoned or fined under Companies Act, 2013.

• Every person becomes ineligible

to be appointed as Managerial Person, if he is imprisoned or fined under Companies Act, 2013 or any previous Company Law.

• Widens the scope of

disqualifications mentioned under Part I of Schedule V.

• Hence, convict under past Company Laws (e.g. 1956, etc.) shall be disqualified now.

EXISTING MODIFICATIONS COMMENTS

Whether Managerial Personnel appointed under New Act before this notification, who is convicted under Companies Act, 1956 can continue their office after this notification?

GREY BOX

Disqualification Criteria Expanded Part I(a)(vi)


Rem Limits doubled for Related Managerial Personnel (RMP)

Limits prescribed under item (A) was as follows:

Limits prescribed under item (A) has been doubled as follows:

• Limits for RMP doubled

• Perhaps, there seems no

automatic upgradation of remuneration limits for the Managerial Personnel appointed before the date of this notification

• Encouragement for Industry professionals to engage themselves with progressive Start-ups

• Welcome step for corporates desiring higher payout for RMP


Part II Sec II Item (A)

Whether resolution passed before Sept 12, 2016 holds good to double the limits today?

GREY BOX

Effective Capital Max. Remuneration payable

Neg- or < 5 Crores 30 Lakhs 60 Lakhs

>= 5 crores but < 100 Crores

42 Lakhs

84 Lakhs

>= 100 crores but < 250 crores

60 Lakhs 120 Lakhs

>= 250 crores 60 Lakhs plus 0.01% of the effective capital in excess of Rs. 250 Crores

120 Lakhs plus 0.01% of the effective capital in excess of Rs. 250 Crores

Note: Limits can be doubled by passing Special Resolution


Rem limits detached for Unrelated Professional Managerial Personnel (UPMP)

Limits prescribed under item (B) was 2.5% of the current relevant profit, subject to following conditions are fulfilled by the appointee during two years prior to his appointment: • He is not a security holder of nominal

value >= 5 Lakhs. • He is not an employee of the

Company. • He is not a Director of the Company. • He is not related to any Director or

promoter of the Company. Note: Limits can be doubled by passing Special Resolution.

No CG approval required for payment of remuneration to UPMP if appointee fulfill below conditions during last 2 yrs before or on or after the date of appointment : • No direct or indirect interest in the

capital of the Company / Holding Company / Subsidiaries / other Statutory Structures (Note: For Employees, Interest means holding <= 0.5% of share capital under ESOP Scheme or by way of qualification)

• No direct or indirect interest or related to the Directors / Promoters of the Company / its Holding Company / any of its Subsidiaries.

Note: Appointee to posses graduate level qualification with expertise in respective field

• No remuneration limits for UPMP

• Position aligned to Companies Act,

1956 (MCA Circular No.46/2011 dated July 14, 2011)

• Person with employment or directorship relation with the Company can also be considered as UPMP since specific criteria is removed now. Position changed.

• Appointee (other than Employee / Director) holding shares would not be considered as UPMP

• Educational Qualification criteria has been set down under new Schedule

• Interest in its Holding / Subsidiaries / any other Statutory Structures will also be considered


Part II Sec II Item (B)

See comparison between RMP vis-à-vis UPMP


Prior Approval of Secured Creditors in case of default in repayment

• One of the Condition to qualify to

pay remuneration without CG approval is that the Company should not have made any default in repayment of any of its debts / debentures / interest payable thereon for a continuous period of 30 days in Preceding financial year

• The Company should not have

committed any default in repayment of any of its debts / debentures / interest payable thereon for a continuous period of 30 days in Preceding financial year.

• In case of default, Prior approval from secured Creditors required.

• Governmental intervention

dispensed in case approval of Secured Creditor sought

• Facilitates defaulted companies to provide remuneration without CG approval, in case Secured Creditors approves

• No approval of unsecured Creditors required

• Default in repayment of / to preference shareholders not included expressly the way it has been spelled out under exemptions for Unlisted public companies or its subsidiaries under Rule 7(2)(ii) of Chapter XIII


Part II Section II


Shareholder Approval Mechanism for Managerial Remuneration

• One of the Condition to qualify to

pay remuneration without CG approval is that the Special Resolution has been passed at the General Meeting of the Company for a period not exceeding three years

• Condition modified as –

• Inconsistency with respect to

shareholder approval prevailing under Item A & B vis-à-vis its conditions, now removed.

• Special Resolution approval for remuneration for UPMP compulsory

• Remuneration for RMP may be by way of Ordinary / Special Resolution, as the case may be


Part II Section II

Rem under Item A

Ordinary / Special Resolution

Rem under Item B

Special Resolution


Section- II, Part –II, Schedule – V of CA, 2013

• Disqualification under Part I applicable

• No Eligibility criteria

• Special / ordinary resolution

• Limits specified

• Limits doubled vis-à-vis existing Companies Act,

2013

• Disqualification under Part I applicable

• Eligibility criteria defined

• Special resolution required

• No Limits specified

• Position re - aligned with Companies Act, 1956

No Profit or Inadequate profit without CG approval

Item – A Related Managerial Personnel

Item – B Unrelated Professional Managerial Personnel

Comparison RMP vis-à-vis UPMP


Our Insight ndustry representations made to the Ministry bear its fruit now. Report by the Companies Law Committee on Companies Act Amendment Bill, 2016 led down several propositions to relax the provisions relating managerial remuneration. The move is aimed at striking the right balance among objectives such as improving corporate governance, incentivising individuals to take up positions of responsibility, and reducing the cost of compliance. his amendment provides additional leg room to corporates for deciding managerial salaries, encourage Start-ups to lure experienced talent, lessens Governmental intervention and decreases cost of compliance for corporates. Win-Win for corporate as well as professionals, hence the amendment sees a warm greeting by India Inc.

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Disclaimer All data and information is provided for informational purposes only and is not intended for any factual use. It should not be considered as binding / statutory provisions. Neither Pantomath Capital Advisors nor any of its group company, directors, or employs shall be liable for any of the data or content provided for any actions taken in reliance thereon.

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MCA Circular No.46/2011 dated July 14, 2011

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