AMENDMENT TO SCHEDULE V OF
COMPANIES ACT 2013
Ministry of Corporate Affairs vide its notification dated
September 12, 2016 amended Schedule V of the Act, 2013 through which limits of
obtaining approval of Central Government in case of absence or inadequacy of
profits are relaxed further . The said notification is effective from the date
of its publication in official gazette. for full notification refer http://www.mca.gov.in/Ministry/pdf/Notification_12092016.pdf
Difference between old and new provisions (Amended provision) of Schedule V of Companies Act 2013 are mention in below table, for understanding amendments are marked in red fonts.
S.
No.
|
Old
Provision
|
New
Provision
|
||||||||||||||||||||||||
1.
|
Schedule
V -> Part I -> Appointments-> para (a) -> sub paragraph (vi)
Companies
Act 2013;
|
Schedule
V -> Part I -> Appointments-> para (a) -> sub paragraph (vi)
The
Companies Act 2013 ( 18 of 2013)or any previous
company law
|
||||||||||||||||||||||||
2.
|
Schedule
V -> Part II -> Remuneration -> Section II ->
Remuneration
payable by companies having no profit or inadequate profit
without
Central Government approval:
Where
in any financial year during the currency of tenure of a managerial person, a company
has no profits or its profits are inadequate, it may, without Central
Government approval, pay remuneration to the managerial person not
exceeding the higher of the limits under (A) and (B) given
below:—
(A)
(B)
In the case of a managerial person who was not a security holder holding
securities of the company of nominal value of rupees five lakh or more
or an employee or a director of the company or not related to any
director or promoter at any time during the two years prior to his
appointment as a managerial person, — 2.5% of the current relevant profit: Provided
that if the resolution passed by the shareholders is a special resolution,
this limit shall be doubled:
Provided
further that the limits specified under this section shall apply, if—
(i)
payment of remuneration is approved by a resolution passed by the Board and,
in
the
case of a company covered under sub-section (1) of section 178 also by
the
Nomination
and Remuneration Committee;
(ii)
the company has not made any default in repayment of any of its debts
(including
public
deposits) or debentures or interest payable thereon for a continuous period
of
thirty days in the preceding financial year before the date of appointment of
such managerial person;
(iii)
a special resolution has been passed at the general meeting of the company
for
payment
of remuneration for a period not exceeding three years;
(iv)
a statement along with a notice calling the general meeting referred to in
clause (iii)is given to the shareholders containing the following
information, namely:-
|
Schedule
V -> Part II -> Remuneration -> Section II
Remuneration
payable by companies having no profit or inadequate profit
without
Central Government approval:
Where
in any financial year during the currency of tenure of a managerial person, a company
has no profits or its profits are inadequate, it may, without Central
Government approval, pay remuneration to the managerial person not
exceeding the limits under (A) and (B) given below:—
(A)
B) In case of a managerial person who is functioning in a
professional capacity, no approval of Central Government is required, if such
managerial person is not having any interest in the capital of the company or
its holding company or any of its subsidiaries directly or indirectly or
through any other statutory structures and not having any, direct or indirect
interest or related to the directors or promoters of the company
or its holding company or any of its subsidiaries at any time during the last
two years before or on or after the date of appointment and possesses
graduate level qualification with expertise and specialised knowledge in the
field in which the company operates:
Provided that any employee of a company holding shares of the
company not exceeding 05% of its paid up share capital under any scheme
formulated for allotment of shares to such employees including Employees
Stock Option Plan or by way of qualification shall be deemed to
be a person not having any interest in the capital of the company;
Provided
further that the limits specified under items (A) ant (B) of this section
shall apply, if‑
(i)
payment of remuneration is approved by a resolution passed by the Board and..
in the case of a company covered under sub-section (1) of suction 178 also by
the Nomination and Remuneration Committee;
(ii)
the company has not committed any default in repayment of any of its debts
(including public deposits) or debentures or interest payable thereon for a
continuous period of thirty days in the preceding financial year before the
date of appointment of such managerial person and in case of a default, the company obtains prior approval
from secured creditors for the proposed remuneration and the fact of such
prior approval having been obtained is mentioned in the explanatory statement
to the notice convening the general meeting;
iii) an ordinary resolution or a special resolution, as the case
may be, has been passed for payment of Remuneration as per the limits laid
down in item (A) or a special resolution has been passed for payment of
remuneration as per item (13), at the general meeting of the company for a
period not exceeding three years.
(iv)a
statement along with a notice calling the general meeting referred to in
clause (iii) is given to the shareholders containing the following
information, namely:-
All other points are same as before.
|
||||||||||||||||||||||||
3.
|
Earlier
there was no definition of Statutory Structure
|
Now
following line has been added
Explanation: For the purposes of Section II of this part,
“Statutory Structure” means any entity which is entitled to hold shares in
any company formed wider any statute.
|
CONCLUSION
1) Under the existing Schedule V of Companies Act, 2013, in case of default in repayment of debts, public deposits, debentures or interest thereon for a period of 30 days , then the limits of remuneration prescribed under Part II of Section II Schedule V of Companies Act, 2013 does not apply. Now, under the amended schedule, in case of default, the Company may pay remuneration to its managerial personnel under the limits prescribed under Part II of Section II Schedule V of Act, 2013 subject to approval of secured creditors.
2) Under the amended Schedule V of Companies Act, 2013, sub-Para (vi) of para (a) of Part I of Schedule V of Companies Act, 2013 has been amended by replacing the words “Companies Act, 2013” with the words “the Companies Act, 2013 (18 of 2013) or any previous company law”. Till now, person who had been convicted with imprisonment or penalty under “Companies Act, 1956 or any earlier company law” was still eligible for appointment as a managerial person under Section 196 of the Act, 2013. But with the proposed amendment, scope of ineligibility has been widened to include the person who had been convicted under the “Companies Act, 2013 or any previous company laws”
3) Obtaining approval of Central Government is a time consuming
process, therefore the proposed increase in the limits of the Schedule V of
Companies Act, 2013 would provide relief to most of the companies because
companies are approaching year end.
4) Exclusion of remuneration of Professional Directors from the
control of Central Government is a welcome step by the Ministry of Corporate
Affairs and would help the companies to retain good talent.
5) The amended Schedule V of Companies Act, 2013 seems to
give a better picture on the approval of secured creditors which is proposed
under the Companies (Amendment) Bill, 2016. However, it is important to mention
that the approval of secured creditor is required prior to passing of special
resolution. Therefore, clarity would be needed by Ministry of Corporate Affairs
on the approval of secured creditor with respect to existing applications which
have already passed special resolution and there is default in repayment of
debts i.e. whether such defaulter companies can take approval of secured
creditor post-facto or the same shall be prior to passing of special
resolution.
6) Now Schedule V of Companies Act 2013 requires prior consent of secured creditor
in case of default in repayment of debt. Therefore, a question may also arise
why the secured creditor would give his consent to the proposed remuneration in
case of default in his repayment of debts. Thus, in our view, going forward it
would be extremely difficult for defaulter companies to seek consent of lenders
for payment of minimum remuneration to managerial personnel.
Should you have any query then please connect with me.
Should you have any query then please connect with me.
Writer – CS Akash Vij
Email ID: Akashvij20@gmail.com
Disclaimer: The entire contents of this document have been
prepared on the basis of relevant provisions and as per the information
existing at the time of the preparation. Although care has been taken to ensure
the accuracy, completeness and reliability of the information provided, I
assume no responsibility therefore. Users of this information are expected to
refer to the relevant existing provisions of applicable Laws. The user of the
information agrees that the information is not a professional advice and is
subject to change without notice. I assume no responsibility for the
consequences of use of such information. In no event shall i be liable for any
Direct, Indirect, Special or Incidental Damage resulting from, arising out if
or in connection with the use of the information. This is only a knowledge
sharing initiative and author do not intend to solicit any business or
profession.
