Tuesday, August 12, 2008

Companies Act_Practical Problems_31

Mr. X was appointed as the Managing Director of XYZ Ltd. w.e.f. 1st October, 2006. The company made an application to the Central Government for approval, as the remuneration proposed to be paid to Mr. X was beyond the limits laid down in Schedule XIII to the Companies Act, 1956. The company started paying remuneration from the date of appointment and continued to do so till 31st March, 2007. The Central Government did not approve the remuneration as proposed by the company and restricted the same to a lower amount. On scrutiny of the accounts, it was noticed that the company, till 31st March, 2007 has paid to Mr. X, a total of Rs. 1.20 Lakhs in excess of the remuneration sanctioned by the Central Government, Explain with reference to the provisions of the Act whether Mr. X can keep the excess remuneration ? Draft a resolution for waiver of recovery of the excess remuneration so paid by the company.

Mr. Weldon was appointed as a non-executive director. He was paid monthly remuneration awaiting the approval of the Central Government. However, the remuneration sanctioned by the Central Government was lesser than the remuneration actually paid to Mr. Weldon. As per section 309, Mr. Weldon cannot keep remuneration drawn by him which is in excess of the remuneration sanctioned by the Central Government Accordingly, he shall refund to the company Rs. 1,20,000. Until such refund is made, he shall hold it in trust for the company. Further, the company cannot waive the recovery of excess remuneration.
However, if on an application made to the Central Government, the Central Government permits the waiver of recovery of such excess remuneration, the company may waive the recovery of excess remuneration, and then Mr. Weldon shall have a right to retain the excess remuneration drawn by him.

Waiver of recovery of excess remuneration
Passing Authority - General Meeting
Nature of the Resolution - Ordinary Resolution

RESOLVED that pursuant to the provisions of section 309 and other applicable provisions, if any, and subject to the approval of the Central Government, consent of the company be and is hereby given for waiving the recovery of an amount of Rs, 1,20,000 paid to Mr. Weldon, the director of the company, during the period 1st October, 2002 to 31st March, 2003, being in excess of the remuneration sanctioned by the Central Government vide Letter No. ................ dated ..................

RESOLVED FURTHER that an application be made to the Central Government and the company secretary be and is hereby authorised to take the necessary steps in this regard."