Remuneration of Directors:
Ordinarily, the Articles of Association provide for the payment of remuneration to Directors. The Directors are not entitled to any remuneration as a matter of right unless:
(i) There is an agreement to that effect; or
ADVERTISEMENTS:
(ii) The Articles of Association provide, or
(iii) The shareholders so decide at the General Meeting to pay such remuneration.
Image Source: i.ytimg.com
(1) The payment of remuneration to Directors will be governed by the provisions of sections 198 and 309 of the Companies Act.
ADVERTISEMENTS:
(2) The Directors are now paid their remuneration in the form of fees for attending Meetings of the Board or a Committee of the Board. But if fees have been paid to the Directors in the form of a monthly salary before the commencement of the Companies (Amendment) Act, 1960, such a salary shall continue to be paid for a period of two years or for the remaining term of office of the Directors, whichever is less, but not longer.
(3) A Director in the whole time employment of the company or a Managing Director may be paid remuneration either by way of a monthly payment or a specified percentage of the net profits of the company or partly by one way and partly by the other.
Such remuneration shall not exceed 5 percent of the net profits for one such Director and if there is more than one such Director, 10 percent for all of them together except with the approval of the Central Government.
(4) In case of a Director who is neither in the whole time employment of the company nor a Managing Director and whose remuneration does not include anything by way of a monthly payment, the company may by way of a special resolution authorize payment to such a Director, or where there is more than one Director, to all of them together:
ADVERTISEMENTS:
(a) If the company has a whole time Director, Managing Agent, etc. of a commission not exceeding 1 percent of the net profits of the company.
(b) In any other case, of a commission not exceeding 3 percent of the net profits of a company.
The company may increase the percentage by passing a special resolution in a General Meeting.
(5) No Director of a company who is in receipt of any commission from the company and who is either in the whole time employment of the company or a Managing Director shall be entitled to receive any commission or other remuneration from any subsidiary of such company.
(6) If any Director draws or receives any remuneration in excess of the amount mentioned above without the prior approval of the Central Government, he shall refund such sums to the company and until such sum is refunded, hold it in trust for the company.
The company has no power to waive the recovery of any such refundable sum, unless permitted by the Central Government.
(7) The net profits referred to above shall be computed in the manner as prescribed in sections 349 and 353.
The provisions of section 309 shall not apply to a private company unless it is a subsidiary of a public company.
Section 310 of the Companies Act lays down in respect of increase in managerial remuneration as below:
“In the case of a public company or a private company which is a subsidiary of a public company, any provision relating to the remuneration of any Director, including a Managing or whole-time Director, or any amendment thereof, which purports to increase, or has the effect of increasing whether directly or indirectly, the amount thereof, whether the provision be contained in the company’s Memorandum or Articles, or in agreement entered into it, or in any resolution passed by the company in General Meeting or by its Board of Directors, shall out have any effect:
(a) In cases where Schedule XIII is applicable unless such increase is in accordance with the conditions specified in that Schedule; and
(b) In any other case, unless it is approved by the Central Government and the amendment shall become void if, and in so far as, it is disapproved by that Government:
“Provided that the approval of the Central Government shall not be required where any such provisions or any amendment thereof purports to increase or has the effect of increasing, the amount of such enumeration only by way of a fee for each meeting of the Board or a committee thereof attended by any such Director and the amount of itch fee after such increase does not exceed such sum as be prescribed.
Provided further that wherein the case of any private company hitch converts itself into a public company or becomes a public company under this provisions of section 43A, any provision relating to the remuneration of any director including a managing or whole-time director as contained in its memorandum or articles or in any agreement entered into by it or in any resolution passed by it in general meeting or of its Board of Directors includes a provision for the payment of fee for each meeting of the Board or a Committee thereof attended by any such director which is in excess of the sum specified under the first proviso.
Such provision shall be deemed to be an increase in the remuneration of such director and shall not, after it ceases to be a private company or, as the case may be, become a public company, have any effect unless approved by the Central Government.
Section 311 of the Act lays down the following provisions in respect of increase in remuneration of Managing Director on re-appointment:
“In the case of a public company or a private company, which is a subsidiary of a public company, if the terms of any re-appointment or appointment of a Managing or whole time Director, made after the commencement of this Act, purport to increase or have the effect of increasing, whether directly or indirectly, the remuneration which the Managing or whole time Director was receiving immediately before such re-appointment or appointment, the appointment or re-appointment shall not have any effect.
(a) In cases where Schedule XIIII is applicable, unless such increase is in accordance with the auditors specified in that Schedule; and
(b) In any other case, unless it is approved by the Central Government; and shall become void if, and in so far as, it is disapproved by that Government.”
Auditor’s Duty:
(1) The auditor should inspect the contract with the Directors, Articles of Association or the Minutes Book of the Shareholders.
(2) He should refer to the Minutes of the Board of Directors if remuneration is paid on the basis of their attendance at the Board’s Meetings.
(3) He should vouch the account paid by way of remuneration.
(4) If the remuneration is paid on the basis of net profits of a company, he should ascertain whether such profits have been calculated according to sections 349 and 350.
(5) He should also examine the special resolution, if any, and also the approval of the Central Government which is necessary at a time when the remuneration has been paid in excess of the amount prescribed by the Companies Act.
(6) Where special remuneration has been paid to a Director, he should refer to the Minutes Book of Directors and vouch the payments by examining that receipt.
(7) If the Directors waive their right of remuneration, he should refer to the Directors Minutes Book to ensure that all the Directors were present in the meeting called for passing such a resolution.
(8) In case of increase in the managerial remuneration, he should see that the provisions of sections 310 and 311 have been complied with.
(9) Unless the Articles so provide, the Directors are not paid any travelling expenses. If the Articles are silent, the shareholders may pass a resolution to sanction such payment.
However, if the journey has been undertaken by the Director for the work of the company, the Directors may sanction such a payment. The auditor should examine the Directors Minutes Book. He should vouch such a payment.
(10) He should examine the records in the financial books and ascertain that the unpaid remuneration has been shown distinctly in the Balance Sheet.