Section - 198

60. Substituted by the Companies (Amendment) Act, 1960. For the original section, refer See also rule 20A of General Rules & Forms.

61. Words "managing agent, secretaries and treasurers or" omitted by the Companies (Amendment) Act, 2000, w.e.f. 13-12-2000.

Determination of net profits.

349. (1) In computing [***] the net profits of a company in any financial year—

(a ) credit shall be given for the sums specified in sub-section (2), and credit shall not be given for those specified in sub-section (3) ; and

(b ) the sums specified in sub-section (4) shall be deducted, and those specified in sub-section (5) shall not be deducted.

(2) In making the computation aforesaid, credit shall be given for the following sums :—

bounties and subsidies received from any Government, or any public authority constituted or authorised in this behalf, by any Government, unless and except in so far as the Central Government otherwise directs.

(3) In making the computation aforesaid, credit shall not be given for the following sums :—

(a ) profits, by way of premium, on shares or debentures of the company, which are issued or sold by the company ;

(b ) profits on sales by the company of forfeited shares ;

(c ) [profits of a capital nature including profits from the sale] of the undertaking or any of the undertakings of the company or of any part thereof ;

(d ) profits from the sale of any immovable property or fixed assets of a capital nature comprised in the undertaking or any of the undertakings of the company, unless the business of the company consists, whether wholly or partly, of buying and selling any such property or assets :

[Provided that where the amount for which any fixed asset is sold exceeds the written down value thereof referred to in , credit shall be given for so much of the excess as is not higher than the difference between the original cost of that fixed asset and its written down value.]

(4) In making the computation aforesaid, the following sums shall be deducted :—

(a ) all the usual working charges ;

(b ) directors’ remuneration ;

(c ) bonus or commission paid or payable to any member of the company’s staff, or to any engineer, technician or person employed or engaged by the company, whether on a whole-time or on a part-time basis ;

( d) any tax notified by the Central Government as being in the nature of a tax on excess or abnormal profits;

(e ) any tax on business profits imposed for special reasons or in special circumstances and notified by the Central Government in this behalf ;

(f ) interest on debentures issued by the company ;

(g ) interest on mortgages executed by the company and on loans and advances secured by a charge on its fixed or floating assets ;

(h ) interest on unsecured loans and advances ;

(i ) expenses on repairs, whether to immovable or to movable property, provided the repairs are not of a capital nature ;

(j ) outgoings [inclusive of contributions made under clause (e) of sub-section (1) of ] ;

(k ) depreciation to the extent specified in ;

[( l) the excess of expenditure over income, which had arisen in computing the net profits in accordance with this section in any year which begins at or after the commencement of this Act, in so far as such excess has not been deducted in any subsequent year preceding the year in respect of which the net profits have to be ascertained ;]

(m ) any compensation or damages to be paid in virtue of any legal liability, including a liability arising from a breach of contract ;

(n ) any sum paid by way of insurance against the risk of meeting any liability such as is referred to in clause (m) ;

[( o) debts considered bad and written off or adjusted during the year of account;]

[(p) amount paid as cess under . ]

(5) In making the computation aforesaid, the following sums shall not be deducted :—

(a ) [***]

(b ) income-tax and super tax payable by the company under the Indian Income-tax Act, 1922 (11 of 1922), or any other tax on the income of the company not falling under clauses (d) and (e) of sub-section (4) ;

(c ) any compensation, damages or payments made voluntarily, that is to say, otherwise than in virtue of a liability such as is referred to in clause (m) of sub-section (4) ;

[( d) loss of a capital nature including loss on sale of the undertaking or any of the undertakings of the company or of any part thereof not including any excess referred to in the proviso to of the written down value of any asset which is sold, discarded, demolished or destroyed over its sale proceeds or its scrap value.]

62. Substituted for ", 350 and 351" by the Companies (Amendment) Act, 2000, w.e.f. 13-12-2000.

[Ascertainment of depreciation.

350. The amount of depreciation to be deducted in pursuance of clause (k) of sub-section (4) of shall be the [amount of depreciation on assets] as shown by the books of the company at the end of the financial year expiring at the commencement of this Act or immediately thereafter and at the end of each subsequent financial year [at the rate specified in Schedule XIV] :

Provided that if any asset is sold, discarded, demolished or destroyed for any reason before depreciation of such asset has been provided for in full, the excess, if any, of the written down value of such asset over its sale proceeds or, as the case may be, its scrap value, shall be written off in the financial year in which the asset is sold, discarded, demolished or destroyed.]

63. Proviso omitted by the Companies (Amendment) Act, 2000, w.e.f. 13-12-2000. Prior to its omission, proviso read as under:

"Provided that nothing in this section shall affect the operation of sections 352 to 354 and 356 to 360."

Remuneration of directors

Remuneration of directors.

309. (1) The remuneration payable to the directors of a company, including any managing or whole-time director, shall be determined, in accordance with and subject to the provisions of and this section, either by the articles of the company, or by a resolution or, if the articles so required, by a special resolution, passed by the company in general meeting [and the remuneration payable to any such director determined as aforesaid shall be inclusive of the remuneration payable to such director for services rendered by him in any other capacity:

Provided that any remuneration for services rendered by any such director in any other capacity shall not be so included if—

(a ) the services rendered are of a professional nature, and

( b) in the opinion of the Central Government, the director possesses the requisite qualifications for the practice of the profession.]

[(2) A director may receive remuneration by way of a fee for each meeting of the Board, or a committee thereof, attended by him :

Provided that where immediately before the commencement of the Companies (Amendment) Act, 1960, fees for meetings of the Board and any committee thereof, attended by a director are paid on a monthly basis, such fees may continue to be paid on that basis for a period of two years after such commencement or for the remainder of the term of office of such director, whichever is less, but no longer.

(3) A director who is either in the whole-time employment of the company or a managing director may be paid remuneration either by way of a monthly payment or at a specified percentage of the net profits of the company or partly by one way and partly by the other :

Provided that except with the approval of the Central Government such remuneration shall not exceed five per cent of the net profits for one such director, and if there is more than one such director, ten per cent for all of them together.]

[(4) A director who is neither in the whole-time employment of the company nor a managing director may be paid remuneration—

either

( a) by way of a monthly, quarterly or annual payment with the approval of the Central Government ;

or

( b) by way of commission if the company by special resolution authorises such payment :

Provided that the remuneration paid to such director, or where there is more than one such director, to all of them together, shall not exceed—

(i ) one per cent of the net profits of the company, if the company has a managing or whole-time director [***] or a manager ;

(ii ) three per cent of the net profits of the company, in any other case :

Provided further that the company in general meeting may, with the approval of the Central Government, authorise the payment of such remuneration at a rate exceeding one per cent or, as the case may be, three per cent of its net profits.]

(5) The net profits referred to in sub-sections (3) and (4) shall be computed in the manner referred to in , sub-section (1).

[(5A) 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.

(5B) The company shall not waive the recovery of any sum refundable to it under sub-section (5A) unless permitted by the Central Government.]

(6) No director of a company who is in receipt of any commission from the company and who is either in the whole-time employment of the company or a managing director shall be entitled to receive any commission or other remuneration from any subsidiary of such company.

(7) The special resolution referred to in sub-section (4) shall not remain in force for a period of more than five years; but may be renewed, from time to time, by special resolution for further periods of not more than five years at a time :

Provided that no renewal shall be effected earlier than one year from the date on which it is to come into force.

(8) The provisions of this section shall come into force immediately on the commencement of this Act or, where such commencement does not coincide with the end of a financial year of the company, with effect from the expiry of the financial year immediately succeeding such commencement.

(9) The provisions of this section shall not apply to a private company unless it is a subsidiary of a public company.

Remuneration of manager.

387. The manager of a company may, subject to the provisions of , receive remuneration either by way of a monthly payment, or by way of a specified percentage [* * *] of the "net profits" of the company calculated in the manner laid down in sections [and ], or partly by the one way and partly by the other :

[Provided that except with the approval of the Central Government such remuneration shall not exceed in the aggregate five per cent of the net profits.]

64. Substituted by the Companies (Amendment) Act, 1988, w.e.f. 15-6-1988. For the original sub-section, refer

[ Appointment of managing or whole-time director or manager to require Government approval only in certain cases.

269. (1) On and from the commencement of the Companies (Amendment) Act, 1988, every public company, or a private company which is a subsidiary of a public company, having a paid-up share capital of such sum as may be prescribed, shall have a managing or whole-time director or a manager.

(2) On and from the commencement of the Companies (Amendment) Act, 1988, no appointment of a person as a managing or whole-time director or a manager in a public company or a private company which is a subsidiary of a public company shall be made except with the approval of the Central Government unless such appointment is made in accordance with the conditions specified in Parts I and II of Schedule XIII (the said Parts being subject to the provisions of Part III of that Schedule) and a return in the prescribed form is filed within ninety days from the date of such appointment.

(3) Every application seeking approval to the appointment of a managing or whole-time director or a manager shall be made to the Central Government within a period of ninety days from the date of such appointment.

(4) The Central Government shall not accord its approval to an application made under sub-section (3), if it is satisfied that—

(a ) the managing or whole-time director or the manager appointed is, in its opinion, not a fit and proper person to be appointed as such or such appointment is not in the public interest; or

(b ) the terms and conditions of the appointment of managing or whole-time director or the manager are not fair and reasonable.

(5) It shall be competent for the Central Government while according approval to an appointment under sub-section (3) to accord approval for a period lesser than the period for which the appointment is proposed to be made.

(6) If the appointment of a person as a managing or whole-time director or a manager is not approved by the Central Government under sub-section (4), the person so appointed shall vacate his office as such managing or whole-time director or manager on the date on which the decision of the Central Government is communicated to the company, and if he omits or fails to do so, he shall be punishable with fine which may extend to [five thousand] rupees for every day during which he omits or fails to vacate such office.

(7) Where the Central Government suo motu or on any information received by it is, prima facie, of the opinion that any appointment made under sub-section (2) without the approval of the Central Government has been made in contravention of the requirements of Schedule XIII, it shall be competent for the Central Government to refer the matter to the [ Tribunal] for decision.

(8) The [Tribunal] shall, on receipt of a reference under sub-section (7), issue a notice to the company, the managing or whole-time director or the manager, as the case may be, and the director or other officer responsible for complying with the requirements of Schedule XIII, to show cause as to why such appointment shall not be terminated and the penalties provided under sub-section (10) shall not be imposed.

(9) The [Tribunal] shall, if, after giving a reasonable opportunity to the company, the managing or whole-time director or the manager, or the officer who is in default, as the case may be, comes to the conclusion that the appointment has been made in contravention of the requirements of Schedule XIII, make an order declaring that a contravention of the requirements of Schedule XIII has taken place.

(10) On the making of an order by the [ Tribunal] under sub-section (9),—

(a ) the company shall be liable to a fine which may extend to [fifty] thousand rupees;

(b ) every officer of the company who is in default shall be liable to a fine of [one lakh] rupees; and

(c ) the appointment of the managing or whole-time director or manager, as the case may be, shall be deemed to have come to an end and the person so appointed shall, in addition to being liable to pay a fine of [one lakh] rupees, refund to the company the entire amount of salaries, commissions and perquisites received or enjoyed by him between the date of his appointment and the passing of such order.

(11) If a company contravenes the provisions of sub-section (10) or any direction given by the [ Tribunal] under that sub-section, every officer of the company who is in default and the managing or whole-time director or the manager, as the case may be, shall be punishable with imprisonment for a term which may extend to three years and shall also be liable to a fine which may extend to [five hundred] rupees for every day of default.

(12) All acts done by a managing or whole-time director or a manager, as the case may be, purporting to act in such capacity and whose appointment has been found to be in contravention of Schedule XIII, shall, if the acts so done are valid otherwise, be valid notwithstanding any order made by the [Tribunal] under sub-section (9).

Explanation : In this section "appointment" includes reappointment and "whole-time director" includes a director in the whole-time employment of the company.]

65. See e-Form No. 25A of General Rules and Forms.

Provision for increase in remuneration to require Government sanction.

310. [In the case of a public company, or a private company which is a subsidiary of a public company, any provision relating to the remuneration of any director including a managing or whole-time director, or any amendment thereof, which purports to increase] or has the effect of increasing, whether directly or indirectly, the amount thereof, whether that 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 by its Board of directors, [shall not have any effect—

(a ) in cases where Schedule XIII is applicable, unless such increase is in accordance with the conditions specified in that Schedule ; and

(b ) in any other case, unless it is approved by the Central Government];

and the amendment shall become void if, and in so far as, it is disapproved by that Government :

[Provided that the approval of the Central Government shall not be required where any such provision or any amendment thereof purports to increase, or has the effect of increasing, the amount of such remuneration only by way of a fee for each meeting of the Board or a Committee thereof attended by any such director and the amount of such fee after such increase does not exceed [such sum as may be prescribed] :

[Provided further that where in the case of any private company which converts itself into a public company or becomes a public company under the provisions of , any provision relating to the remuneration of any director including a managing or whole-time director as contained in its memorandum or articles or in any agreement entered into by it or in any resolution passed by it in general meeting or by its Board of directors includes a provision for the payment of fee for each meeting of the Board or a Committee thereof attended by any such director which is in excess of the sum specified under the first proviso, such provision shall be deemed to be an increase in the remuneration of such director and shall not, after it ceases to be a private company, or, as the case may be, becomes a public company, have any effect unless approved by the Central Government.]

Increase in remuneration of managing director on re-appointment or appointment after Act to require Government sanction.

311. In the case of a public company, or a private company which is a subsidiary of a public company, if the terms of any re-appointment or appointment of a managing or whole-time director, made after the commencement of this Act, purport to increase or have the effect of increasing, whether directly or indirectly, the remuneration which the managing or whole-time director or the previous managing or whole-time director, as the case may be, was receiving immediately before such re-appointment or appointment, the re-appointment or appointment [shall not have any effect—

(a ) in cases where Schedule XIII is applicable, unless such increase is in accordance with the conditions specified in that Schedule ; and

(b ) in any other case, unless it is approved by the Central Government];

and shall become void if, and in so far as, it is disapproved by that Government.

66. Figures "348, 352," omitted by the Companies (Amendment) Act, 2000, w.e.f. 13-12-2000.

to apply subject to a modification.

381. [Omitted by the Companies (Amendment) Act, 2000, w.e.f. 13-12-2000. Earlier, section 381 was amended by the Companies (Amendment) Act, 1960.]

Section 198

Overall maximum managerial remuneration and managerial remuneration in case of absence or inadequacy of profits

Footnotes