This is very settled law that law applicable at the time of any act or action is law applicable to that action. This is also applicable on Company Law and for that matter also on managerial remuneration also.
The provisions of Schedule XIII (sixth proviso to Para (C) of Section ll of Part ll) of the Companies Act, 1956 (Earlier Act) and as clarified vide Circular number 14/11/2012-CL-VII dated 16th August, 2012, which allowed listed companies and their subsidiaries to pay remuneration, without approval of Central Government, in excess of limits specified in para II Para (C) of such Schedule if the managerial person met the conditions specified therein.
Similar provisions are not available in the Schedule V of the Companies Act, 2013. There is no need to worry because law that time was clear and applicable to the terms and conditions of agreement entered into that time. However, absence of similar provision in present law, may have a question that whether present law discontinue and invalidate act done under earlier law. Many stakeholders asked for a need for a clarification that a managerial person appointed in accordance with such provision of Schedule XIII of Earlier Act may receive relevant remuneration for the period as approved by the company in accordance with such provisions of Earlier Act.
Now, Ministry of Corporate Affairs through its General Circular 07/2015 dated 10th April 2015 clarified this transitional matter.
A managerial person may continue to receive remuneration for his remaining term in accordance with terms and conditions approved by company as per relevant provisions of Schedule XIII of earlier Act even if the part of his/her tenure falls after 1st April, 2014.
Now the question raised by this circular is very pertinent. The phrase used in the circular “a managerial person referred to in para 1 above may continue to receive” denote all other person receiving remuneration as per provision of earlier Act, may not continue to receive remuneration for remaining term.
Please note, the Companies Act, 2013 does not ask companies and managerial personnel to discontinue agreement in continuation at the time of new Act come into force. All agreements related to Managerial Remuneration under the provision of the Companies Act 1956.
Please note following points before working on the circular discussed here:
- There is no Circular number 14/11/2012-CL-VII dated 16th August, 2012 referred in the circular issued by Ministry of Corporate Affairs.
- Nearest possibility is that this circular may be talking about notification issued under File number 14/11/2012-CL-VII dated 16th August 2012 which is available on site of Ministry of Corporate Affairs here.
- The Proviso VI to Para (C) of Section II of Part II of Schedule XIII referred in present circular was inserted by a notification dated 14th July 2011 which is available on site of Ministry of Corporate Affairs here.
- The Notification dated 16th August 2012 does not talk about listed companies and their subsidiaries but companies in general.
- The Notification dated 16th August 2012 which is applicable to all companies that time clarified that any employee of a company holding shares of the companies up to 0.5% of paid up share capital therof under any scheme formulated for allotment of shares to such employees including under Employee’s Stock Option Plan or by way of qualification shares are also covered under the category of person not having any interest in the capital of the company in terms of the Ministry’s Notification 534(E) dated 14.07.2011.
- The notification 534(E) dated 14.07.2011 inserted proviso VI which is also referred in present circular.
- The Proviso VI as inserted on 14th July 2011 provided that no approval of central government is required if the managerial person is not having any interest in the capital of the company or its holding company, directly or indirectly or through any other statutory structures and not having any direct or indirect interest or related to directors or promoters of the company or its holding company at any time during last two years before or on the date of appointment and is having a graduate level qualification with expert and specialized knowledge in the field of his profession.
- Interestingly, the proviso V was also inserted on same date as a result of substitution of earlier Proviso IV substituted by not one but two proviso.
- Proviso V inserted as above said manner provided that “a listed company or a subsidiary of a listed company shall not require Central Government approval for the payment of remuneration to its managerial personnel, if the remuneration is fixed by Board of Industrial and Financial Reconstruction.”
- However, this seems clear Proviso VI stand alone. The word “The” refer to company to main provision that is Section II of which this is a proviso and an independent proviso. The word “the” does not refer any earlier proviso because which is not a proviso of earlier proviso. [Readers may Please share your views on this interpretation]
- For the sake of interest new Proviso IV came into effect by the notification provided that “approval of Central Government is not require for a subsidiary of a listed company, if- (i) the Remuneration Committee and Board of Directors of the holding company give their consent for the amount of such remuneration of the applicant and for the said amount to be deemed remuneration by the holding company for the purpose of Section 198 of the Companies Act 1956 and (ii) a special resolution has been passed at the general meeting of the company for payment of remuneration of the applicant and (iii) the remuneration of the applicant is deemed to be remuneration paid by holding company and (iv) all members of subsidiary of body corporate.
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