3 Years of ZAPPY NEWS
We hope that 3 years of Zappy News provided you various insights about our industry. We promise to provide you valid updates that will help you improve your knowledge bank and excel in the field. This month we are going to see about the amendments in Section 196 & 197 of the Companies Act, 2013 which came into effect from 12th September 2018.
The article will follow with the our usual Legal terms and News Bites related to notifications by MCA, SEBI, RBI, IT and GST.
Saranya Deivasigamani,
CEO
Section 196 & 197 of the Companies Act, 2013
We all know that as per Section 197 (1) of the Companies Act, the total managerial remuneration payable by a public company, to its directors, managing director and whole-time director, and its manager in respect of any financial year shall not exceed 11% of the net profits of that company. Provided that the company may, authorise the payment of remuneration exceeding 11%. of the net profits of the company, subject to the provisions of Schedule V. Now MCA has brought in some amendments to the Schedule V along with commencement of Section 66 to 70 of the Companies Act from 12.09.2018.
As per the amendments, now the company need not knock at the doors of the Central Government for approval on remuneration of Directors and KMPs.
The detailed amendments of the act are as follows:
| U/S | Earlier Provisions | Amendments |
| 196 (3) (a) | Inserted: “Provided further that where no such special resolution is passed but votes cast in favour of the motion exceed the votes, if any, cast against the motion and the Central Government is satisfied, on an application made by the Board, that such appointment is most beneficial to the company, the appointment of the person who has attained the age of seventy years may be made. | |
| 196 (4) | Subject to the provisions of section 197 and Schedule V, a managing director, whole-time director or manager shall be appointed and the terms and conditions of such appointment and remuneration payable be approved by the Board of Directors at a meeting which shall be subject to approval by a resolution at the next general meeting of the company and by the Central Government in case such appointment is at variance to the conditions specified in that Schedule: | The words “in that Schedule: “ has been substituted as: “Specified in Part I of that Schedule“ |
| 197 (1) | The company in general meeting may, with the approval of the Central Government, authorise the payment of remuneration exceeding eleven per cent. of the net profits of the company, subject to the provisions of Schedule V. | The words “approval of the Central Government” has been omitted. |
| 197 (1) | Except with the approval of the company in general meeting. | Inserted the words “By a special resolution. Provided also that, where the company has defaulted in payment of dues to any bank or public financial institution or non-convertible debenture holders or any other secured creditor, the prior approval of the bank or public financial institution concerned or the non-convertible debenture holders or other secured creditor, as the case may be, shall be obtained by the company before obtaining the approval in the general meeting.” |
| 197 (3) | Notwithstanding anything contained in sub-sections (1) and (2), but subject to the provisions of Schedule V, if, in any financial year, a company has no profits or its profits are inadequate, the company shall not pay to its directors, including any managing or whole-time director or manager, by way of remuneration any sum exclusive of any fees payable to directors under sub-section (5) hereunder except in accordance with the provisions of Schedule V and if it is not able to comply with such provisions, with the previous approval of the Central Government. | The words “and if it is not able to comply with such provisions, with the previous approval of the Central Government.” has been omitted. |
| 197 (9) | If any director draws or receives, directly or indirectly, by way of remuneration any such sums in excess of the limit prescribed by this section or without the prior sanction of the Central Government, where it is required, he shall refund such sums to the company and until such sum is refunded, hold it in trust for the company. | The subsection was substituted as: “If any director draws or receives, directly or indirectly, by way of remuneration any such sums in excess of the limit prescribed by this section or without approval required under this section, he shall refund such sums to the company, within two years or such lesser period as may be allowed by the company, and until such sum is refunded, hold it in trust for the company.” |
| 197 (10) | The company shall not waive the recovery of any sum refundable to it under sub-section (9) unless permitted by the Central Government. | The words “permitted by the Central Government” has been substituted as: “approved by the company by special resolution within two years from the date the sum becomes refundable.” Inserted “Provided that where the company has defaulted in payment of dues to any bank or public financial institution or non-convertible debenture holders or any other secured creditor, the prior approval of the bank or public financial institution concerned or the non-convertible debenture holders or other secured creditor, as the case may be, shall be obtained by the company before obtaining approval of such waiver.” |
| 197 (11) | In cases where Schedule V is applicable on grounds of no profits or inadequate profits, any provision relating to the remuneration of any director which purports to increase or has the effect of increasing the amount thereof, whether the provision be contained in the company‘s memorandum or articles, or in an agreement entered into by it, or in any resolution passed by the company in general meeting or its Board, shall not have any effect unless such increase is in accordance with the conditions specified in that Schedule and if such conditions are not being complied, the approval of the Central Government had been obtained. | The words “and if such conditions are not being complied, the approval of the Central Government had been obtained..” has been omitted. |
| 197 (16) | Inserted the subsection: “The auditor of the company shall, in his report under section 143, make a statement as to whether the remuneration paid by the company to its directors is in accordance with the provisions of this section, whether remuneration paid to any director is in excess of the limit laid down under this section and give such other details as may be prescribed.” | |
| 197 (17) | Inserted the subsection: “On and from the commencement of the Companies (Amendment) Act, 2017, any application made to the Central Government under the provisions of this section [as it stood before such commencement], which is pending with that Government shall abate, and the company shall, within one year of such commencement, obtain the approval in accordance with the provisions of this section, as so amended” |
Along with these amendments, there are modifications in the e-Form MR-2 which has to be filed in carefully complying with all relevant provisions that are amended. Point we have to be careful is when a Company had defaulted in payment of dues to any secured creditors.
Legal Term
Libel
A published false statement that is damaging to a person’s reputation; a written defamation.
MCA Updates
- Commencement of Section 66 to 70 of the Companies Act and Amendment of Schedule V from 12.09.2018.
- Companies (Prospectus and allotment of securities) 3rd Amendment Rules 2018 dated 10.09.2018.
- Companies (Registration Offices and Fees) fourth Amendment Rules, 2018 dated 21.08.2018.
- Companies (Appointment and Qualification of Directors) Fifth Amendment Rules, 2018 dated 21.08.2018.
SEBI Updates
- Master Circular for Commodity Derivatives Market.
- Extension of Trading hours of Securities Lending and Borrowing (SLB) Segment.
- Amendment to SEBI Circular No. CIR/IMD/FPIC/CIR/P/2018/64 dated April 10, 2018 on Know Your Client Requirements for Foreign Portfolio Investors (FPIs).
- Electronic book mechanism for issuance of securities on private placement basis – Clarifications.
- Streamlining the process of public issue under the SEBI (Issue and Listing of Debt Securities) Regulations, 2008, SEBI (Issue and Listing of Non-Convertible Redeemable Preference Shares) Regulations, 2013, SEBI (Public Offer and Listing of Securitised Debt Instruments) Regulations, 2008 and SEBI (Issue and Listing of Debt Securities by Municipalities) Regulations, 2015
RBI Updates
- No major updates.
Income Tax Updates
- Notification No. 42/2018 [F. No. 370142/05/2018-TPL] / SO 4213(E) – Determination of Fair Market Value for Inventories.
- Clarification on the immunity provided u/s 270AA of the Income-tax Act, 1961.
- Order under section 119 of the Income-tax Act, 1961.
- Amendment to para 10 of the Circular No. 3 of 2018 dated 11.07.2018.
GST Updates
- Facility to download GSTR-2A in excel is now available.
- Advisory for Taxpayers to file Refund for Multiple Tax period.
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