MANAGERIAL REMUNERATION

Directors have no right to claim remuneration for their services unless there is a specific provision to that effect in the Articles or the company resolves for the same in a general meeting as per the provisions of Section 309. The resolution may be ordinary or special as the Articles may require.

As per Section 198, the total managerial remuneration payable by a public company or a private company which is a subsidiary of a public company, to its directors and its managing agent, secretaries and treasurer or manager in respect of any financial year shall not exceed 11% of the net profit of that company for that financial year. This percentage shall be exclusive of the fees payable to the directors under Section 309.

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If in any financial year, a company has no profits or its profits are inadequate, the company shall not pay any remuneration to its directors except with the previous approval of the Central Government. The word remuneration shall include the following :

(i) any expenditure incurred on providing free accommodation and other amenities connected therewith ;

(ii) any expenditure incurred on providing any other amenity either absolutely free or at a concessional rate ;

(iii) any expenditure incurred in providing any obligation or service which in the absence of provision by the company would have to be borne by that person ;

(iv) any expenditure incurred in providing life insurance, pension, annuity or gratuity to such person or his spouse or child.

According to Section 249, in computing the net profits of a company in any financial year for the purpose of Section 348, credit shall be given for 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.

However credit shall not be given for the following sums :

(i) Profits, by way of premium, on the shares or debentures of the company, which are issued or sold by the company,

(ii) Profits on the sales by the company of the forfeited shares;

(iii) 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

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(iv) Profits from the sales of any immovable property or fixed assets of a capital nature comprising 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.

In making the aforesaid computation, the following sums shall be deducted :

(i) all the usual working charges ; (ii) director's remunerations ;

(iii) bonus or commission paid or payable to any employees of the company whether on a whole time or on a part time basis ;

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

(v) any tax on business profits imposed for special reasons or in special circumstances;

(vi) interest on debentures issued by the company ;

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

(viii) interest on unsecured loans and advances ;

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

(x) contributions to charitable and other funds ;

(xi) depreciation to the extent specified in Section 350;

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(xii) past losses arising after Ist April, 1956 to the extent not already deducted in any year preceding that in which net profits have to be ascertained ;

(xiii) any compensation or damages under a legal liability or arising from breach of contract ;

(xiv) any sum paid by way of insurance against the risk of meeting any liability as specified in clause (iii) above ; and

(xv) bad debts written off or adjusted during the year of account.

The following sums shall not be deducted in computing the profits :

(i) Income tax and super tax payable by the company or any other tax on the income of the company not falling under clauses (d) and (e) of Section 399 (4);

(ii) any compensation, damages or payments made voluntarily ; and (iii) loss of a capital nature.

It is pertinent to note that according to Section 309, a whole time director or 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. Except with the approval of the Central Government, such remuneration shall not exceed 5 per cent of the net profits for one such director, or 10 per cent for all of them in case there are more than one such director.

A part time director may be paid remuneration either by way of a monthly, quarterly, or annual payment with the approval of the Central Government, or by way of commission if the company by a special resolution authorises such payment with the approval of the Central Government, or

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The remuneration paid to part time directors shall not exceed per cent of the net profits of the company if the company has a managing or whole time director or a manager and 3 per cent of the profits in any other case. However, the company in a general meeting may, with the approval of the Central Government, increase these rates of remuneration.

6.11 SUMMARY

A meeting is a gathering or assembly of a number of persons for transacting any lawful business. But every gathering of persons does not constitute a meeting. A meeting would be valid if it is held by following the prescribed rules and regulations. The meetings of a company are of three kinds namely meetings of shareholders directors and creditors. Statutory meeting is the first meeting of the members of the company after its incorporations and must be held within six months from the date at which the company is entitled to start business. Annual general meeting is the regular meeting of the members of the company and the purpose of this meeting is to provide an opportunity to the members of the company express their views on the management of company's affairs. Any meeting other than the statutory and the annual general meeting of the company is known as extra-ordinary general meeting, class meeting is the meeting of a particular class of shareholders. The business of the meeting is conducted in the form of resolutions passed at the meeting and the resolutions proposed in the meeting are decided on the votes of the members of the company.

The remuneration payable to directors is determined by the articles of association of the company, or by a resolution of the company passed in its general meeting. The overall maximum limit of management remuneration in fixed by Section 198 of the Companies Act.

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6.11 KEYWORDS

Meeting: A meeting may be defined as gathering or assembly of a number of persons for transacting any lawful business.

Statutory Meeting: Every public company limited by shares and every company limited by guarantee and having a share capital, shall, within a period of not less than one month nor more than six months from the date on which the company is entitled to commence business hold a general meeting of the members of the company. This meeting is called the statutory meeting.

Annual General Meeting: Every company must in each year hold in addition to any other meeting, a general meeting as its annual general meeting.

Extra Ordinary General Meeting: Any meeting other than a statutory and an annual general meeting is called an Extra Ordinary General Meeting.

Class Meeting: Class meetings are separate meetings of holders of different classes of shares. They are held in cases where their rights are sought to be affected.

Quorum: It means the minimum number of members that must be present at the meeting.

Vote: A vote is the formal expression of the will of the members of the house either for or against a proposal.

Ordinary Resolution: It is the resolution which is passed, at a valid meeting by simple majority of the members, i.e., where the votes cast in favour of resolution exceed the votes cast against it.

Managerial Remuneration: The total managerial remuneration payable by a public company or a private company which is a subsidiary of a public

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manager in respect of any financial year shall not exceed 11% of the net profit of that company for that financial year.

6.13 SELF ASSESSMENT QUESTIONS

1. What is a statutory meeting ? When and how is it held ? What are the objects of such a meeting ? What business is transacted at such meetings ?

2. What are the statutory provisions regarding the holding of an annual general meeting ? What types of business are transacted in such meetings ?

3. What are the requisites of a valid meeting ? Discuss in detail

4. What is a quorum ? What happens if there is no quorum at a meeting?

5. What are different types of resolutions which must be passed in the meeting of shareholders ?

6. Discuss the statutory provisions relating to payment of managerial remuneration of a public limited company.

6.14 SUGGESTED READINGS

S.R. Davar, Mercantile Law, Progressive Corporation Pvt. Ltd., Mumbai.

K.R. Balchandari, Business Law for Management, Himalaya Publication House, New Delhi.

S.S. Gulshan & G.K. Kapoor, Business Law, New Age International Publishers, New Delhi.

S.C. Kuchhal, Mercantile Law, Vikas Publishing House, New Delhi.

Nirmal Singh, Business Law, Deep and Deep Publication Pvt. Ltd., New Delhi.

1 7.3 Winding up by the Court

7.4 Persons entitled to apply for Winding up 7.5 Commencement of Winding up

7.6 Official Liquidation 7.7 Voluntary Winding up

7.7.1 Member's Voluntary Winding up 7.7.2 Creditor's Voluntary Winding up 7.7.3 Liquidators in Voluntary Winding up

7.7.4 Powers and Duties of Liquidation in Voluntary Winding up 7.8 Winding up subject to Supervision of the Court

7.9 Winding up of Involvement Companies 7.10 Winding up of Unregistered Companies 7.11 Winding up of Foreign Companies

7.12 Effect of Winding up on Antecedent and other Transactions 7.13 Summary

7.14 Keywords

7.15 Self Assessment Questions 7.16 Suggested Readings

7.0 OBJECTIVE

This lesson is intended to familiarize you with a) The concept of winding up.

b) Different modes of winding up of a public company.

c ) Persons entitled to apply for winding up.