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."

Companies Act_Practical Problems_20

M/s Star Health Specialties Limited owns a Multi-specialty Hospital in Chennai. Dr. Hamilton, a practicing Heart Surgeon has been appointed by the company as its non-executive ordinary director and it wants to pay him fee, on case to case basis, for surgery performed on the patients at the hospital. A question has arisen whether payment of such fee to him would amount to payment of managerial remuneration to a director subject to any restriction under the Companies Act 1956. Advise the company, which seeks to ensure that the same does not contravene any provision of the Companies Act, 1956.

As per section 309, remuneration payable to a director for rendering services in any other capacity shall also be covered in 'overall managerial remuneration'. However, remuneration paid for rendering services in any other capacity shall not be so included, if-

(i) the services are rendered in a professional capacity; and
(ii) the Central Government has expressed the opinion that the director concerned possesses requisite professional qualifications.

In the given case, M/s Star Health Specialties Limited intends to pay fees for surgery performed by Dr. Hamilton its non-executive director, on case to case basis. Such payment of fees shall amount to payment of managerial remuneration unless -
(i) the services are rendered by Dr. Hamilton in a professional capacity; and
(ii) the central Government has expressed the opinion that Dr. Hamilton possesses requisite professional qualifications.

The company is advised to make an application to the Central Government. Since Dr. Hamilton possesses requisite professional qualifications (since he is a qualified doctor), and it is proposed that Dr. Hamilton shall render the services in a professional (since the company intends to pay him fees on case to case basis) it is very much probable that the Central Government will express its opinion that the services are rendered in professional capacity by Mr. Hamilton possessing requisite professional qualifications. In such a case the fess paid by Star Health Specialities to Dr. Hamilton shall not be included in overall managerial remuneration and other limits of remuneration specified under the Act

Companies Act_Practical Problems_19

Articles of Association of a listed company has fixed payment of sitting fee for each Meeting of Directors subject to maximum of Rs.10 000 in view of increased responsibilities of independent directors of listed companies, the company proposes to increase the sitting fee to Rs, 25,000 per meeting. Advise the company about the requirements under the Companies Act. 1956 to give effect to this proposal.

The given problem relates to section 309 of the Companies Act, 1956, as explained below:
(a) The amount of sitting fees shall not exceed the sum prescribed. As per Notification No. GSR 580(E),dated 24.7.2003, the sum prescribed is -

(i) Rs. 20,000, in case the aggregate of paid up share capital and free reserves of the company is Rs. uses or more or the turnover of the company is Rs. 50 crores or more;
(ii) Rs.10, 000, in case of any other company.

(b) Sitting fees in excess of the sum prescribed can be paid only with the approval of the Central Government.
Thus, in the given case, the increase in sitting fees from Rs. 10,000 to Rs. 25,000 per Board meeting is not permissible unless approval of the Central Government is obtained.