Category Archives: Chapter XIII – CA2013

APPOINTMENT AND REMUNERATION OF MANAGERIAL PERSONNEL

Decoding Secretarial Standards – Attendance


In my earlier post here I have raised some issues related to issuance of secretarial standards. As these are curable technical issues. I continue my study of these Secretarial Standards.

In this post, I will discuss Secretarial Standards related to Attendance at Meetings under SS – 1 and SS – 2.

Attendance registers:

Every company shall maintain separate attendance registers for the Meetings of the Board and Meetings of the Committee. [Paragraph 4.1.1 of SS – 1]

The pages of the respective attendance registers shall be serially numbered. [Background Paragraph 1 after Paragraph 4.1.1 of SS – 1]

If an attendance register is maintained in loose-leaf form, it shall be bound periodically depending on the size and volume. [Paragraph 2 after Paragraph 4.1.1 of SS – 1]

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Decoding Secretarial Standards – Quorum


In my earlier post here I have raised some issues related to issuance of secretarial standards. As these are curable technical issues. I continue my study of these Secretarial Standards.

In this post, I will discuss Secretarial Standards related to frequency of Meetings under SS – 1 and SS – 2.

Quorum of Board meeting:

Quorum shall be present throughout the Meeting. Quorum shall be present not only at the time of commencement of the Meeting but also while transacting business. [Paragraph 3.1 of SS – 1]

A Director shall not be reckoned for Quorum in respect of an item in which he is interested and he shall not be present, whether physically or through Electronic Mode, during discussions and voting on such item. [Paragraph 3.2 of SS – 1]

For this purpose, a Director shall be treated as interested in a contract or arrangement entered into or proposed to be entered into by the company:

(a) with the Director himself or his relative; or

(b) with any body corporate, if such Director, along with other Directors holds more than two percent of the paid-up share capital of that body corporate, or he is a promoter, or manager or chief executive officer of that body corporate; or

(c) with a firm or other entity, if such Director or his relative is a partner, owner or Member, as the case may be, of that firm or other entity. [Background Paragraph 1 after Paragraph 3.2 of SS – 1]

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Decoding Secretarial Standards – Frequency of meetings


In my earlier post here I have raised some issues related to issuance of secretarial standards. As these are curable technical issues. I continue my study of these Secretarial Standards.

In this post, I will discuss Secretarial Standards related to frequency of Meetings under SS – 1 and SS – 2.

Board Meetings:

The Board shall meet at least once in every calendar quarter, with a maximum interval of one hundred and twenty days between any two consecutive Meetings of the Board, such that at least four Meetings are held in each Calendar Year. [Paragraph 2.1 of SS – 1]

The Board shall hold its first Meeting within thirty days of the date of incorporation of the company. It shall be sufficient if one Meeting is held in each of the remaining calendar quarters, subject to a maximum interval of one hundred and twenty days between any two consecutive Meetings of the Board, after the first Meeting. [Background Paragraph 1 after Paragraph 2.1 of SS – 1]

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Decoding Secretarial Standards – Notice of General Meetings


In my earlier post here I have raised some issues related to issuance of secretarial standards. As these are curable technical issues. I continue my study of these Secretarial Standards.

In this post, I will discuss Secretarial Standards related to Notice of a General Meeting under SS – 2 issued by Institute of Company Secretaries of India.

Notice in writing of every Meeting shall be given to every Member of the company. Such Notice shall also be given to the Directors and Auditors of the company, to the Secretarial Auditor, to Debenture Trustees, if any, and, wherever applicable or so required, to other specified persons. [Paragraph 1.2.1 of SS – 2]

In the case of Members, Notice shall be given at the address registered with the Company or depository. In the case of shares or other securities held jointly by two or more persons, the Notice shall be given to the person whose name appears first as per records of the Company or the depository, as the case may be. In the case of any other person who is entitled to receive Notice, the same shall be given to such person at the address provided by him. [Background Paragraph 1 after Paragraph 1.2.1 of SS – 2]

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Decoding Secretarial Standards – Notice of Board Meetings


In my earlier post here I have raised some issues related to issuance of secretarial standards. As these are curable technical issues. I continue my study of these Secretarial Standards.

In this post, I will discuss Secretarial Standards related to Notice of a board meeting under SS – 1 issued by Institute of Company Secretaries of India.

Notice in writing of every Meeting shall be given to every Director

  • by hand or
  • by speed post or
  • by registered post or
  • by courier or
  • by facsimile or
  • by e-mail or
  • by any other electronic means. [Paragraph 1.3.1 of SS – 1]

In SS – 1, Electronic means is not defined by it is defined in Paragraph 1.2.2 of SS – 2. Please refer there for definition. I will post my remark on definition when I will write a post on those standards.

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Decoding Secretarial Standards – Convening a Meeting


In my earlier post here I have raised some issues related to issuance of secretarial standards. As these are curable technical issues. I continue my study of these Secretarial Standards.

In this post, I will discuss Secretarial Standards related to convening a board meeting and general meeting under SS – 1 and SS – 2 respectively.

Authority for Board Meeting:

According to Paragraph 1.1.1 of SS – 1;

  • Any Director of a company may, at any time, summon a Meeting of the Board, and
  • the Company Secretary or where there is no Company Secretary any person authorised by the Board in this behalf, on the requisition of a Director, shall

convene a Meeting of the Board, in consultation with

  1. the Chairman or
  2. in his absence, the Managing Director or
  3. in his absence, the Whole-time Director, where there is any,

unless otherwise provided in the Articles.

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Decoding Secretarial Standards – Scope and Definitions


In my earlier post here I have raised some issues related to issuance of secretarial standards. As these are curable technical issues. I continue my study of these Secretarial Standards.

In this post, I will discuss scope of the Secretarial Standards namely SS – 1 and SS – 2 issued by Institute of Company Secretaries of India and interesting definitions.

SS – 1 is applicable to the Meetings of Board of Directors of all companies incorporated under the Act except One Person Company (OPC) in which there is only one Director on its Board. The principles enunciated in this Standard for Meetings of the Board of Directors are also applicable to Meetings of Committee (s) of the Board, unless otherwise stated herein or stipulated by any other applicable Guidelines, Rules or Regulations.

SS – 1 is not applicable to the meeting of Board of One Person Companies which has only one director, otherwise SS – 1 is applicable to One Person Companies Also.

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TECHNICAL FAULT IN ISSUANCE OF SECRETARIAL STANDARD


Section 118(10) of the Companies Act, 2013 made it mandatory for every company to observe Secretarial Standards on general and board meetings. According to sub – section 118(10), these two Secretarial Standards shall be “specified” by the Institute of Company Secretaries of India and “approved” as such by the Central Government.

This sub – section does not confer any power to the Institute of company Secretaries of India to “issue” any Secretarial standards. This just confer power to “specify” some standards related to general and board meeting which may have been issued by the institute.

Whether the Companies Act, 2013 somewhere else confer any power to the institute of company Secretaries of India to “issue” any secretarial standards? If yes, Secretarial Standards should be issued under the power conferred by that provision and should only be “specified” under sub – section 118(10).

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Transition period for Managerial Remuneration


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.

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Ceiling on Secretarial Audit and Annual Return


Institute of Company Secretaries of India on 7th April 2015 informed its members by mail that it has put ceiling on Secretarial Audit and Annual Return. “The Council of the Institute has issued “Guidelines for Issuing Secretarial Audit Report, Signing and Certification of Annual Return” in supersession of the “Guidelines for Issuing Compliance Certificate and Signing of Annual Return” issued by the Council on 27th November, 2007”, the mailed apparently send by president of the institute declares. These new guidelines are issued on 6th April 2015.

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Immediate professional concern on Secretarial Audit


Late CS Bipin S. Acharya used to say that Secretarial Audit will confer this professional its legitimate dues and legal recognition for secretarial audit his life mission. Recently, the Companies Act 2013 introduced secretarial audit first time in India under legal mandate. However, there is suspicious among company secretaries about its future as earlier compliance certificates became useless piece of paper. The Institute of Company Secretaries of India seems to share same apprehension and working to address all issues. However, Institute has own limitations. Presently, we have about 9500 companies covered under compulsory secretarial audit and there are about 6500 company secretaries in practice.

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COMPENSATION TO DIRECTOR FOR LOSS OF OFFICE


Section 191 of the Companies Act 2013 discusses payment of compensation for Director for loss of office.  In an earlier post here, we have discussed this section in detail.

According to sub – section (1) of section 191, no director of a company shall, in connection with—

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REMUNERATION OF DIRECTORS


We have already discussed remuneration of managerial personnel under Section 197 read with Schedule V of the Companies Act 2013. In addition to managerial remuneration under Section 197 a company may pay sitting fees to its directors.

According to Rule 4 of the Companies (appointment and Remuneration of Managerial Personnel) Rule 2014, a company may pay a sitting fee to a director for attending meetings of the Board or committees thereof, such sum as may be decided by the Board of directors thereof which shall not exceed one lakh rupees per meeting of the Board or committee thereof. For Independent Directors and Women Directors, the sitting fee shall not be less than the sitting fee payable to other directors.

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APPOINTMENT OF MANAGERIAL PERSONNEL


Section 196 of the companies Act 2013 deals with appointment of certain managerial personnel namely; Managing Director, Whole time Director and Manager. Remuneration of these managerial personnel is discussed in Section 197 read with Schedule V of the Companies Act 2013. Section 203 of this Act further deals with appointment of certain other managerial personnel along with managerial personnel already discussed in Section 197.

According to Rule 3 of the Companies (appointment and Remuneration of Managerial Personnel) Rule, 2014, A company shall file a return of appointment of a Managing Director, Whole Time Director or Manager, Chief Executive Officer (CEO), Company Secretary and Chief Financial Officer (CFO) within sixty days of the appointment, with the Registrar in Form MR – 1 along with such fee as may be specified for this purpose. We have earlier discussed Form MR – 1 in detail here.

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MR – 2


Form of application to the Central Government for approval of appointment or reappointment and remuneration or increase in remuneration or waiver for excess or over payment to managing director or whole time director or manager and commission or remuneration to directors  Continue reading

MR – 1


Return of appointment of MD/WTD/Manager

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ISSUES RELATED TO MANAGERIAL REMUNERATION


We have much earlier discussed “Appointment of Managing Director and Manager” and “Managerial Remuneration in case of inadequate profit”. I understand, Section 197 read with Schedule V is a code for managerial remuneration. Now, we will discuss other relevant provision for managerial remuneration.

CALCULATION OF PROFIT (SECTION 198):

In computing the net profit of a company in any financial year credit shall be given for:

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APPOINTMENT OF MANAGING DIRECTOR AND MANAGER


UPDATE: on 30th August 2013: Companies Bill 2012 became the Companies Act, 2013 (Act 18 of 2013).

[NOTE: The law stated in this post is effective from 1st April 2014 till 11th September 2018. For the law applicable from 12th September 2018, please visit here]

Managing Director is Key Managerial Personnel of utmost importance. He is the face of a company and its decision-making mechanism. A person gains significant advantages as Managing Director which may not be there, in case of his appointment as Manager or Chief Executive Officer. While Chief Executive Officer has no special advantage except his clubbing as Key Managerial Personnel with Manager and Managing Director, Manager has some. Their definitions speak themselves. Appointment of Managing Director, Whole – Time Director and Manager is governed by the provision of Section 196 of the Bill. They all are a different class of Key Managerial Personnel and has the specific provision of appointment in addition to Section 203, discussed in an earlier post.

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KEY MANAGERIAL PERSONNEL


UPDATE: on 30th August 2013: Companies Bill 2012 became the Companies Act, 2013 (Act 18 of 2013).

In any jurisdiction, Quality of Corporate Governance and compliance of ethics depends upon quality of people taking charge of the affairs. The companies Bill 2012 have some inbuilt elements of corporate governance in it. First time Concept of Key Managerial Personnel is being introduced in India. Which seems different with “officer who is in default” as that concept is still in this Bill.

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