The Companies Act, 1956
671. SCHEDULE XIII
Conditions to be fulfilled for the appointment of a managing or whole-time director or a manager without the approval of the Central Government
(See sections 198, 269, 310 and 311)
1. Inserted by the Companies (Amendment) Act, 1988, w.e.f. 15th. June, 1988.
1. Substituted by Notification No. GSR 48(E), dated 1st. February, 1994.
- No person shall be eligible for appointment as a managing or whole-time director or a manager (hereinafter referred to as managerial person) of a company unless he satisfies the following conditions, namely:-
- (a) he had not been sentenced to imprisonment for any period, or to a fine exceeding one thousand rupees, for the conviction of an offence under any of the following Acts, namely.-
- (i) the Indian Stamp Act, 1899 (2 of 1899),
(ii) the Central Excise and Salt Act, 1944 (1 of 1944),
(iii) the Industries (Development and Regulation) Act, 1951 (65 of 1951),
(iv) the Prevention of Food Adulteration Act, 1954 (37 of 1954),
(v) the Essential Commodities Act, 1955 (10 of 1955),
(vi) the Companies Act, 1956 (1 of 1956),
(vii) the Securities Contracts (Regulation) Act, 1956 (42 of 1956),
(viii) the Wealth-tax Act, 1957 (27 of 1957),
(ix) the Income-tax Act, 1961 (43 of 1961),
(x) the Customs Act, 1962 (52 of 1962),
(xi) the Monopolies and Restrictive Trade Practices Act, 1969 (54 of 1969), (xii) the Foreign Exchange Regulation Act, 1973 (46 of 1973),
(xiii) the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986),
(xiv) the Securities and Exchange Board of India Act, 1992 (15 of 1992),
(xv) the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992);
(b) he had not been detained for any period under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (52 of 1974): Provided that where the Central Government has given its approval to the appointment of a person convicted or detained under sub-paragraph (a) or sub-paragraph (b), as the case may be, no further approval of the Central Government shall be necessary for the subsequent appointment of that person if he had not been so convicted or detained subsequent to such approval;
1[(c) he has completed the age of 25 years and has not attained the age of 70 years:
Provided that where-
- (i) he has not completed the age of 25 years, but has attained the age of majority; or
(ii) he has attained the age of 70 years; and where his appointment is approved by a special resolution passed by the company in general meeting, no further approval of the Central Government shall be necessary for such appointment;
(d) where he is a managerial person in more than one company he draws remuneration from one or more companies subject to the ceiling provided in section III of Part II;]
(e) he is resident in India.
Explanation.-For the purpose of this Schedule, resident in India includes a person who has been staying in India for a continuous period of not less than twelve months immediately preceding the date of his appointment as a managerial person and who has come to stay in India,-
- (i) for taking up employment in India, or
(ii) for carrying on a business or vocation in India.
1. Earlier cluases (c) & (d) substituted by Notification No. GSR 418(E), dated 12th. September, 1996.
Section I.- Remuneration payable by companies having profits
- Subject to the provisions of section 198 and section 309, a company having profits in a financial year may pay any remuneration, by way of salary, dearness allowance, perquisites, commission and other allowances, which shall not exceed five per cent of its net profits for one such managerial person, and if there is more than one such managerial person, ten per cent for all of them together.
Section II.- Remuneration payable by companies having no profits or inadequate profits
- 1[1. Notwithstanding anything contained in this part, where in any financial year during the currency of tenure of the managerial person a company has no profits or its profits are inadequate, it may pay remuneration to a managerial person by way of salary, dearness allowance, perquisites and any other allowances, not exceeding ceiling limit of Rs.24,00,000 per annum or Rs.2,00,000 per month calculated on the following scale: –
1. Substituted by Notification No. GSR 215(E) dated 2nd. March, 2000.
|Where the effective capital of Company is –||Monthly remuneration payable shall not exceed|
|(i)||Less than rupees 1 crore||rupees 75,000|
|(ii)||rupees 1 crore or more but less than rupees 5 crores||rupees 1,00,000|
|(iii)||rupees 5 crores or more but less than rupees 25 crores||rupees 1,25,000|
|(iv)||rupees 25 crores or more but less than rupees 100 crores||rupees 1,50,000|
|(v)||rupees 100 crores or more||rupees 2,00,000]|
- 2. A managerial person shall also be eligible to the following perquisites which shall not be included in the computation of the ceiling on remuneration specified in paragraph 1 of this section:
- (a) contribution to provident fund, superannuation fund or annuity fund to the extent these either singly or put together are not taxable under the Income-tax Act, 1961,
(b) gratuity payable at a rate not exceeding half a month’s salary for each completed year of service, and
(c) encashment of leave at the end of the tenure.
3. In addition to the perquisites specified in paragraph 2 of this section, an expatriate managerial person (including a non-resident Indian) shall be eligible to the following perquisites which shall not be included in the computation of the ceiling on remuneration specified in paragraph 1 of this section:
- (a) Children’s education allowance: In case of children studying in or outside India, an allowance limited to a maximum of Rs. 5,000 per month per child or actual expenses incurred, whichever is less. Such allowance is admissible upto a maximum of two children.
(b) Holiday passage for children studying outside India/ family staying abroad: Return holiday passage once in a year by economy class or once in two years by first class to children and to the members of the family from the place of their study or stay abroad to India if they are not residing in India with the managerial person.
(c) Leave travel concession: Return passage for self and family in accordance with the rules specified by the company where it is proposed that the leave be spent in home country instead of anywhere in India.
Explanation I.-For the purposes of section II of this Part, “effective capital” means the aggregate of the paid-up share capital (excluding share application money or advances against shares); amount, if any, for the time being standing to the credit of share premium account; reserves and surplus (excluding revaluation reserve); long-term loans and deposits repayable after one year (excluding working capital loans, over-drafts, interest due on loans unless funded, bank guarantee, etc., and other short-term arrangements) as reduced by the aggregate of any investments (except in the case of investment by an investment company whose principal business is acquisition of shares, stock
debentures or other securities), accumulated losses and preliminary expenses not written off.
- (a) Where the appointment of the managerial person is made in the year in which company has been incorporated, the effective capital shall be calculated as on the date of such appointment;
(b) In any other case, the effective capital shall be calculated as on the last date of the financial year preceding the financial year in which the appointment of the managerial person is made.
Explanation III.-For the purposes of section II of this Part, family means the spouse, dependent children and dependent parents of the managerial person.
1[Section III – Remuneration payable to a managerial person in two companies
- Subject to the provisions of section I and II, a managerial person shall draw remuneration from one or both companies, provided that the total remuneration drawn from the companies does not exceed the higher maximum limit admissible from any one of the companies of which he is a managerial person.]
1. Inserted by Notification No. GSR 418(E), dated 12th. September, 1996.
Provisions applicable to Parts I and II of this Schedule
- 1. The appointment and remuneration referred to in Parts I and II of this Schedule shall be subject to approval by a resolution of the shareholders in general meeting.
2. The auditor or the secretary of the company or where the company has not appointed a secretary, a secretary in whole-time practice shall certify that the requirements of this Schedule have been complied with and such certificate shall be incorporated in the return filed with the Registrar under sub-section (2) of section 269.]