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Chapter Number Sections Rules Form

XI 149 to 172 Companies(Appointment & Qualification of DIR
Director)Rules, 2014
XII 173 to 195 Companies(Meeting of Board & its MBP
Powers)Rules,2014
XIII 196 to 205 Companies(Appointment & Remuneration of MR
Managerial Personnel)Rules,2014

Chapter XI-Sections 149 to 172

Section 149

Minimum • Public Company-3

number of • Private Company-2
directors • OPC-1
• Maximum number of directors-15
• To appoint>15 directors-Pass SR

MCA Clarification-
MCA has clarified that the limit of 15 directors and their increase in
limit by SR shall not apply to Government Company.
Provisions related to minimum and maximum number of directors is
not applicable to Section 8 Companies. . However, the exemption will not
be available if company has defaulted in the filing of annual returns or
financial statements to ROC.

Women Director Rule 3 states

• Every listed company
• Every other public company having
Paid up share capital ≥100 crore
OR
Turnover ≥ 300 crore shall appoint women director.

Vacancy in office • Filled by BOD(Next Board meeting or 3 months whichever is later)

of Women
director
Resident Director Atleast 1 Resident Director(Atleast 182 days in previous calendar year). In
revised study material, financial year is used.
Independent Composition
Director • Listed Public Company-one third of directors.
• If company is required to appoint Audit Committee under Section 177-
Majority of members of Audit Committee must be Independent
• Rule 4-Other Public Company(POT ≥ 10cr/50cr/100cr)
Paid up share capital≥10 cr.
O/S Loans, Debentures and Deposits > 50 cr.
Turnover ≥ 100 cr.
RTP-May 2018
As per Sec 149(4), every listed co shall have at least 1/3rd of total no of directors
as independent directors and other prescribed companies were required to
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have at least 2 independent directors. Now the exemption from having 2

independent directors have been granted to following class of unlisted
companies that is Joint Venture, wholly owned subsidiary and Dormant
Company.

Vacancy in the office of Independent Director

• Next Board Meeting or 3 months whichever is later.
Tenure of Independent Director
• Initial appointment for a term of 5 years by members in GM.
• Can be appointed for 2nd consecutive 5 years (by passing SR).
• No independent director shall hold office for more than two
consecutive terms, but such independent director shall be eligible for
appointment after the expiration of 3 years of ceasing to become an
independent director. An independent director shall not, during the
said period of three years, be appointed in or be associated with the
company in any other capacity, either directly or indirectly.
• The independent directors who have been appointed for the second
time can be removed only after passing SR after giving a reasonable
opportunity of being heard.

Remuneration of Independent Directors

• Entitled to reimbursement of expenses, sitting fees, other profit related
commissions.
• Not entitled to stock options.

Counting Purpose
• Counting for purpose of Section 149(1) i.e Total No of Directors.
• Not counted in rotational directors{152(6),152(7)}
Liability of Independent Directors
• Only for those acts of omission which had occurred with his knowledge
and consent
Section 149(6)-Requirements for being Independent Director
An independent director in relation to a company, means a director
other than a managing director or a whole-time director or a nominee
director who, in the opinion of the Board, is a person of integrity and
possesses relevant expertise and experience.

Non applicable Provisions Related to Independent Directors and Woman Director is not
to NPO applicable on Companies Granted License under Sec.8. (MCA Notification
dated 5th june 2015).
Section 150 • CG may authorise Institute or Agency to Maintain Data Bank of
Independent Directors.
• Interested persons after giving prescribed fees may apply to the
concerned agencies to get there name included in data bank.(in form
DIR-1)
• Independent Director may be appointed from data bank after exercising
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due diligence.
• Appointment of Independent Director shall be approved by the company
in general meeting. Explanatory Statement shall be annexed to the notice
of General Meeting indicating justification for choosing the said person as
director.
Section 151 Appointment of director elected by small shareholder
Read with Rule 7 • A listed company may appoint director of small shareholders if notice is
given by
a) Not less than 1000 shareholders or
b) one tenth of total no of small shareholders whichever is lower.
• Listed companies may also appoint small share holder directors suo moto.
• Notice must be given atleast 14 days before meeting specifying the
details and consent of the proposed director.
• A person can become small shareholder director in maximum 2
companies.
• Small share holder means a share holder who holds shares of nominal
value of Rs.20000 or less.
• Maximum tenure is 3 years and he cannot be reappointed.
• Cannot be reappointed for 3 yrs in any other capacity directly or indirectly.
• Can be an ID if he gives declaration and fulfils criteria. However he cannot
be a MD or WTD.
• A person disqualified under Section 164 cannot be a small shareholder
director. If the disqualification is incurred later on, the small share holder
director will have to vacate his office.

Section 152 Appointment of Directors

• Where no provision is made in the articles of a company for the
appointment of the first director, the subscribers to the
memorandum who are individuals shall be deemed to be the first
directors of the company until the directors are duly appointed .
• In case of OPC an individual being member shall be deemed to be
its first director until the director or directors are duly appointed by
the member in accordance with the provisions of this section.
• Every director shall be appointed by the company in general
meeting.[Sec.152(2)]

Rotation of Directors{152(6),(7)}
• This requirement is applicable only in case of Public Company.
• Atleast 2/3 rd (No rounding off )of the total number of directors shall
be rotational directors(higher is allowed).
• Independent Directors will not be counted in Total Directors for the
purpose of taking two third.
• All directors appointed by BOD are non-rotational directors.
• New Companies Act does not specifically excludes MD and WTD from
the requirement of rotation. However, in normal course they are non-

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rotational.
• Appointed in G.M. by passing OR. Remaining 1/3rd directors shall be
appointed by AOA. If AOA is silent, then by members in GM.
• Exact 1/3 rd of the total number of rotational directors shall retire by
rotation at every AGM(Round off to nearest decimal).FIFO method to be
followed .ie. directors who have been longest in office shall retire first.
If 2 directors are appointed on the same day, then the same shall be
determined by lot.
However in case there is agreement between directors, retirement shall
take place subject to such agreement.
• Example:
i) Total number of directors=9,Minimum no of rotational director=6(say
7).Exact 1/3rd of 7=2.33=2 shall retire.(rounded off to nearest decimal)
ii) Total number of directors=8,Minimum no of rotational
director=2/3rd of 8=5.33.Logically company will have to maintain
atleast 6 rotational directors(say all 8 retire).Exact 1/3rd of 8=2.67 i.e. 3
shall retire.
iii)Total no of directors=10(including 1 Independent Director)
Hence, No of directors to be liable to retire by rotation=9*2/3=6.
Automatic Adjournment and re-appointment(Section 152(7)
(a) If the vacancy of the retiring director is not so filled-up and the
meeting has not expressly resolved not to fill the vacancy, the
meeting shall stand adjourned till the same day
in the next week, at the same time and place, or if that day is a
national holiday, till the next succeeding day which is not a holiday,
at the same time and place.
(b) If at the adjourned meeting also, the vacancy of the retiring
director is not filled up and that meeting also has not expressly
resolved not to fill the vacancy, the retiring director shall be deemed
to have been re-appointed at the adjourned meeting, unless—
(i) at that meeting or at the previous meeting a resolution for the re-
appointment
of such director has been put to the meeting and lost;
(ii) the retiring director has, by a notice in writing addressed to the
company or
its Board of directors, expressed his unwillingness to be so re-
appointed;
(iii) he is not qualified or is disqualified for appointment;
(iv) a resolution, whether special or ordinary, is required for his
appointment or
re-appointment by virtue of any provisions of this Act; or
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(v) section 162 is applicable to the case.{This clause is absurd

because it has effect of nullifying the whole section 152(7))

RTP May 2018

MCA Clarification
Provisions of Section 152(6) and 152(7) shall not apply to a
Government Company. However the exemption shall not be available if the
company has defaulted in the filing of annual returns or financial statements.

.
Section 162 Appointment of directors to be appointed individually
• Separate resolution passed for the appointment of every individual
director is valid.
• However if >1 directors is to be appointed by a single resolution,
a)First pass a unanimous resolution in General Meeting.
b)Only then such a resolution passed in General Meeting is valid.
• Where re-appointment becomes void under Section 162,the provision
relating to automatic re-appointment is not applicable.
Important note-MCA has clarified via Notifications No 464(E) dated 5th june,
2015 that provisions of Section 162 shall not be applicable to a private
company.
Section 160 Notice to be appointed as director by any person at least 14 days
before GM.
Deposit-Rs.100000
Resolution – OR
Refund of Deposits-If he gets 25% of Vote
MCA Notification
Provisions of Section 160(Appointment of a person other than
retiring director) shall not be applicable to
➢ a Private Company.
➢ a Government Company in which the entire paid up share
capital is held by CG, or by SG or by CG and SG.
➢ a subsidiary of a Government Company, in which the entire
paid up share capital is held by that a Government Company.
➢ Section 8 companies whose articles provide for election of
directors by ballot.

Interpretation-14 days notice and deposit of Rs.100000 is not required for

appointment of any other person as director in such companies.
For Nidhi Companies only deposit of Rs 10,000 will be required.
RTP Nov 2018
The requirement of deposit shall not be applicable in case of Independent
Directors or Directors whose names are recommended by Nomination and
Remuneration Committee under Section 178 or in the absence of NRC, the
Board of Directors.

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Section 161-Directors appointed by BOD

Additional Director-161(1) Alternate Director-161(2) Director in casual vacancy-
161(4)
1. Power-Regulation 72 of 1. Authorisation in 1. No authorisation required in
Table A authorizes BOD to AOA/Resolution in GM. AOA i.e. no provision in Table A
appoint additional directors. regarding appointment of
casual directors.
2.Tenure-Upto the 2. Appointed by BOD for the 2. Casual Vacancy means any
commencement of First AGM time being during absence of vacancy(due to death or any
held after the appointment of original director in India for a other reason otherwise than in
additional director(MCA continuous period of 3 months. normal course) arising in the
Clarification).Even if such AGM Such director shall hold office office of such a director who
is not held, still the additional until the return of original was originally appointed In Gm.
director shall retire on the last director in India or End of office Eg: Death of Alternate Director
day on which AGM should have of original director whichever is is not Casual Vacancy. His
been held. earlier. tenure is valid only for the
unexpired period of original
3.Method of appointment 3.In Board Meeting or director.
In Board Meeting or Resolution Resolution by Circulation.
by Circulation. 3. In Board Meeting. Not by
Resolution by Circulation.
4.Restriction 4.
A person who fails to get a) An Individual can act as
appointed as a director in GM, Alternate Director for 1 4.Appointment cannot be done
shall not be appointed as an individual only. by way of RBC.
additional director. However, a b) Concept of automatic re-
person who fails to get appointment shall apply to the RTP Nov 2018
appointed as additional original , and not alternate 1. Section 161(4) is now
director, can be appointed as a director. also applicable to a
directors in GM. c)Person can be appointed as private company.
5.Limit-Existing directors + an alternate director to an 2. The vacancy arising in
Additional Director=Maximum Independent Director only if he the office of the
no of directors permissible in is qualified to be appointed as director shall be
AOA. Independent as per 149(6). fulfilled by the Board
which shall
RTP Nov 2018 subsequently be
a person who is already a approved by members
director in the company cannot in next GM.
become an alternate director
for any other director.

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Nominee Directors- Section 161(3)

• He is a director nominated by any Bank or Financial Institution in pursuance of the

provisions of any law for the time being in force or of any agreement or by the CG or SG by
virtue of its share holding in a Government Company.
• However, AOA must authorise the BOD to appoint nominee directors.

Provisions relating to DIN(Section 153-159)

Section 153 Every individual, who is to be appointed as director----> make an application

electronically in Form DIR-3, to the CG for the allotment of a DIN along with
such fees as prescribed.
RTP Nov 2018
Earlier it was provided in Section 152(3) that “No person shall be appointed as a
director of a company unless he has been allotted the Director Identification
Number. Now the words “or such number as may be prescribed under Section
153 has been added.Similarly in Section 152(4) it was provided that “Every
person proposed to be appointed as a director by the company in General
Meeting or otherwise, shall furnish his Director Identification Number. Now the
words “or such number as may be prescribed under Section 153 has been
added.
Important DIR forms
DIR 3-Particulars of Directors with relevant documents
DIR 4-Verification of particulars given in DIR 3.
DIR 6-Changes in Particulars given in DIR 3.
DIR 7-Verification of change in particulars given in DIR 6.

Section 154 The CG shall, within 1 month from the receipt of the application U/S 153, Allot a
DIN to the applicant in such manner as may be prescribed.
Section 155 No individual, who has already been allotted a DIN under section 154, shall
apply for, obtain or possess another DIN..
Section 156 Every existing director shall, within 1 month of the receipt of DIN from the CG,
intimate his DIN to the company or all companies wherein he is a director.
Section 157 Every company shall, within 15 days of the receipt of intimation, furnish the DIN
of all its directors to the Registrar.
Section 158 Every person or company, while furnishing any return, information or
particulars shall mention DIN.

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Section 159 Contravenes - section 152, section 155 and section156,

Such person shall be punishable with imprisonment for a term which may
extend to 6 months or with fine which may extend to Rs. 50000/ and where
the contravention is a continuing one, with a further fine which may extend to
Rs. 500/ for every day.

Section 163-Appointment of Directors by Proportional Representation

All companies only if authorized by AOA
Appointment of at least 2/3rd of the directors by proportional representation, whether by single
transferable vote or by a system of cumulative voting or otherwise, such appointment shall be made
once in every 3 years.
Section 164-Disqualification of Directors
Section 164(1) A person shall not be eligible for appointment as a director of a
company, if —
(a) he is of unsound mind and stands so declared by a competent court;
(b) he is an undischarged insolvent;(declared insolvent but liabilities not
settled..once liability is settled it is discharged insolvent)
(c) he has applied to be adjudicated as an insolvent and his application is
pending;
(d) he has been convicted by a court of any offence, whether involving
moral turpitude or otherwise, and sentenced in respect thereof to
imprisonment for not less than six months and a period of five years has
not elapsed from the date of expiry of the
sentence:
Provided that if a person has been convicted of any offence and
sentenced in respect thereof to imprisonment for a period of seven years
or more, he shall not be eligible to be appointed as a director in any
company;
(e) an order disqualifying him for appointment as a director has been
passed by a court or Tribunal and the order is in force;
(f) he has not paid any calls in respect of any shares of the company held
by him, whether alone or jointly with others, and six months have
elapsed from the last day fixed for the payment of the call;
(g) he has been convicted of the offence dealing with related party
transactions under section 188 at any time during the last preceding five
years; or
(h) he has not complied with sub-section (3) of section 152.i.e.DIN not
obtained.
Note-In clauses d,e,g - Ist appeal -within 30 days, 2nd appeal-7 days
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from disposal of such appeal.

Section 164(2) No person who is or has been a director of a company which—
(a) has not filed financial statements or annual returns for any continuous
period of three financial years; or
b) has failed to repay the deposits accepted by it or pay interest thereon or
to redeem any debentures on the due date or pay interest due thereon or
pay any dividend declared and such failure to pay or redeem continues for
one year or more, shall be eligible to be re-appointed as a director of that
company or appointed in other company for a period of five years from
the date on which the said company fails to do so.
Q. Does failure to pay interest on loan attract 164(2) disqualification? No
Q.Is there any auditor's liability with regard to reporting the
disqualification under Section 164(2)?Yes, under Section 143(3)(g)

MCA Notification dated 5/06/2015

Section 164(2) is not applicable to Government Company.
Note- A private company may add additional ground of
disqualifications.

Note-As per Section 167(1), the office of the director shall become
vacate if he incurs any disqualification specified in Section 164.
Note-A minor cannot be a director since he is not eligible to obtain
DIN and cannot file a valid consent to act as director.

Points to remember:
As per ICAI view, 164(2) disqualification is not applicable to nominee
director although the Act does not give any such exemption.

Section 165-Number of Directorship

Section 165(1) A person can be a director in maximum 20 companies(public or private including
alternate directorships) in which there can be maximum 10 public companies.
MCA Clarification-Directorship of NPO shall be excluded.
RTP Nov 2018

Now while counting the limit of directorship of twenty

companies, the directorship in dormant company shall not
be included.

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Section 165(2) The members of a company may specify in AOA by SR, specify any lesser number
of companies .
Section 167-Vacation of office of Director
Section 167(1) The office of a director shall become vacant in case he
• incurs any of the disqualifications specified in section 164;
• absents himself from all the meetings of the Board of Directors held
during a period of twelve months with or without seeking leave of
absence of the Board.
• contravenes provisions of Section 184.
• becomes disqualified by an order of a court or the Tribunal
• is convicted by a court of any offence(minimum imprisonment-6 m).
The office shall be vacated by the director even if he has filed an appeal
against the order of such court;
• is removed in pursuance of the provisions of this Act;
• appointed a director by virtue of his holding any office or
other employment in the holding, subsidiary or associate company.
Subsequently if he ceases to hold such office, he shall vacate the office
of director.

Some Do’s for directors Some Don’ts for directors

Act in good faith Direct or Indirect interest that conflicts his
interest
Act in accordance with articles Achieve any undue gain or advantage
Exercise independent judgement Assignment of office.
Exercise power with due care, skill and due
diligence.

Resignation and Removal of Director

Section 168 Resignation of Director

• by giving a notice in writing to the company
• forwarding copy of resignation within 30 days with reasons to ROC in
DIR-11(Rule 16)
• company shall intimate the Registrar within 30 days in DIR-12.(Rule 15)
• place the fact of such resignation in the report of directors laid in the
immediately following general meeting by the company.
• The resignation of a director shall take effect from the date on which the
notice is received by the company or the date, if any, specified by the
director in the notice, whichever is later.
• Director who has resigned shall be liable even after his resignation
for the offences which occurred during his tenure.

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• Even if company has not filed DIR-12 to ROC, the resignation shall be valid .
PTR:
If all the directors of a company resign from their office or vacate their
office , the promoter or in his absence the CG shall appoint the required
number of directors to hold office till the directors are appointed by the
Company in General Meeting.
In case a company has already filed DIR-12 with Registrar , a foreign
director of such company resigning from office may authorize in writing a
practising CA or CS or CWA of other resident director of company to sign
Form DIR-11 and file the same on his behalf intimating the reasons of his
resignation.

Section 169 • A company may, remove a director (except the director appointed by
National Company Law Tribunal u/s 242, and appointed by central
government ) before the expiry of the period of his office after giving
him a reasonable opportunity of being heard after passing the ordinary
resolution
• A special notice shall be required of any resolution, to remove a
director under this section, or to appoint somebody in place of a
director so removed, at the meeting at which he is removed.

Register of Directors & KMP & members right to inspect the same

Section 170 Right of directors and KMP and their shareholding

Every company shall keep at its registered office a register containing such
particulars of its directors and key managerial personnel including the details of
securities held by each of them in the company or its holding, subsidiary,
subsidiary of company’s holding company or associate companies.
Return containing such particulars shall be filed with the Registrar within thirty
days from the appointment of every director and key managerial personnel, as
the case may be, and within thirty days of any change taking place.
Illustrative list of some of particulars to be included as per Rule 17
DIN, PAN, Name, Address, Date of Birth, office held, No of shares held, date of
acquisition, mode of holding(physical or dematerialized)
Section 170 shall not be applicable to 100 % Government Company.
Section 171 Members Right to inspect
• Business hours
• Free of cost
• Take extract and copies
• Open for inspection at AGM
• If inspection is refused or copies not sent within 30 days, ROC shall on
application order immediate inspection/supply of copies.
Section 172 General Punishment(Ch xi)
Minimum-50000
Maximum-500000

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Chapter XII-Section 173-195

Section 173-Meetings of Board

Section 173(1) • First Board Meeting should be held within 30 days from the date of
incorporation of company.
• Minimum 4 Board Meeting every year
• Maximum gap between 2 Board Meeting=120 days.
MCA Clarification -Section 173(1) shall apply to to Non Profit
Organisations(Section 8 Companies) only to the extent that the BOD of such
Co's shall hold atleast one meeting within every six calendar months.

Section 173(2) • Directors may participate either personally or by video conferencing by other
audio visual means.
Section 173(3) • Notice shall be given in writing.
• Notice period to call BM-7 days.
• Mode of sending notice-by hand delivery or by post or by electronic
means.(Notice of Board Meeting by Fax will be adequate notice(Ferrucio Sias
V. Jai Manga Ram)
• Shorter notice- may be called at shorter notice to transact urgent business
subject to the condition that at least one independent director, if any, shall be
present at the meeting.
• In case of absence of independent directors from such a meeting of the
Board, decisions taken at such a meeting shall be circulated to all the directors
and shall be final only on ratification thereof by at least one independent
director, if any.
Parmeshwari Omission to give Notice – Consequences
Prasad Gupta v 1. BM shall be void even if single director is not given notice;
UOI]: 2. If BM at (1) is void, resolutions passed thereat also void;
3. Accidental/Deliberate omission immaterial;
4. BM not void if:
 Absentee director do not complain of want of notice;
 The director to whom notice is not given, attends BM.
Can a director Notice of Board Meeting is statuary obligation and not a contractual obligation,
waive the right to and therefore, cannot be waived off by any director.
receive notice
Section 173(4) • Every officer of the company whose duty is to give notice under this section
and who fails to do so shall be liable to a penalty of twenty-five thousand
rupees.
Section 173(5) • One Person Company, small company and dormant company.
At least one meeting in each half of a calendar year.
Minimum gap between 2 BM-90 days.

• 173(5) and Section 174 shall not apply to OPC's having only 1 director.

RTP- May 2018

As per 173(5), in the earlier law, OPC/Small Cos and Dormant Companies only
were granted exemption with respect to conduct of BM, they were required to
hold only one board meeting in each half of the calendar year with minimum gap

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of 90 days between 2 board meeting, Now the exemption has also been given to
Private companies provided they are Start Ups.
Now the exemption has also been given to Private companies provided they are
Start Ups. However, the exemption is not available if the company has made
default in the filing of financial statements and Annual Returns.

Content of Notice • No specific requirement in Section 173.

• Date, time and place must be given as a matter of good secretarial practise.
Rule 4 Matters not to be dealt with VC/AV
(i)Approval of annual Financial Statement u/s Section 134(1).
(ii)Approval of Board's Report u/s 134(3).
(iii)Approval of Prospectus.
(iv)the Audit Committee Meetings for consideration of F/S including CFS to be
approved by BOD.
(v)Approval of matters relating to amalgamation , merger , demerger, acquisition
and turnover.
RTP-May 2018
A director who desires to attend the meeting through electronic mode can
participate electronically if he submits his declaration to the company. This
Declaration shall be valid for a period of one year. Now with prior intimation, This
Director can also attend the meeting physically.

Sections 174-Quorum of Board Meeting

Section 174(1) Quorum-1/3rd of Total Strength or 2 directors whichever is higher.
Round off the fraction to the highest number.
Total strength does not include directors whose offices are liable to be
vacant.
MCA Clarification-Quorum for BM of Section 8 Companies-Eight Members or 25
% of its total strength whichever is less. Provided that quorum shall not be less
than two members
Section 174(3) Where at any time the number of interested directors exceeds or is equal to two
thirds of the total strength of the Board of Directors, the number of directors who
are not interested directors and present at the meeting, being not less than two,
shall be the quorum during such time.
Analysis of Section 174(3)
Step 1-Check whether number of interested director exceeds or is equal to two
third of total strength.
Step 2-If yes, then check no of directors who are not interested and present in
BM. If atleast 2 non interested directors are present, quorum is present.
Note-Interested directors shall be counted in Total Strength since office not
vacated but not counted in Quorum.

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RTP May 2018

As per earlier law, Under Sec 174(3), if 2/3rd or more, of total strength of directors
are interested, then for the purposes of quorum the remaining directors shall be
construed as quorum provided they are more than 2 and are non-interested.
Now, If an interested director discloses his interest to the board u/s 184, then for
the purposes of quorum under 174(3), he would be counted in the quorum.
Section 175-Resolution by Circulation
Section 175(1) Resolution has been circulated in draft, together with the necessary papers, if
any, to all the directors, or members of the committee, as the case may be, at
their addresses registered with the company in India by hand delivery or by
post or by courier(Notice of BM main courier nai tha), or through such electronic
means(Electronic means includes email or fax as per Rule 5) as may be
prescribed
AND
approved by a majority of the directors or members, who are entitled to vote on
the resolution(If 11 directors were entitled to vote, 2 abstained from voting.5
voted in favour , % of directors who approved=5/11 and not 5/9.)
Minimum 1/3rd of total no of directors may require that resolution under
circulation must be decided at meeting.
Section 175(2) A resolution under sub-section (1) shall be noted at a subsequent meeting of the
Board or the committee thereof, as the case may be, and made part of the
minutes of such meeting.

Powers of the Board-Section 176 to 183

Section 176 Acts done by a person as a director shall be deemed to be valid, even if it is
subsequently noticed that his appointment was invalid by reason of any defect or
disqualification or office was later on terminated because of any provisions of
Act/Articles. However, any act done which came to notice of company shall be
invalid.
PTR:
Acts of MD after expiry of his term is not valid because the company
cannot claim that the company was not aware of the expiry of tenure of 5
years.{ Varkey Souriar Vs Keraleeya Banking Co.Ltd}

Powers of BOD
Section The Board of Directors of a company shall exercise the following powers on behalf
179 of the company by means of resolutions passed at meetings of the Board, namely:—
(a) to make calls on shareholders in respect of money unpaid on their shares;
(b) to authorise buy-back of securities under section 68;
(c) to issue securities, including debentures, whether in or outside India;
(d) to borrow monies;(Clause d is not applicable when a banking company
borrows from other Banking Co./Banks/RBI.)
(e) to invest the funds of the company;
(f) to grant loans or give guarantee or provide security in respect of loans;
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Note-Powers given in clause (d) to (f ) can be delegated to committee of

directors, the managing director, the manager or any other principal officer of branch
office.
MCA Clarification- Matters given in clause (d) to (f ), may be decided by the
board by circulation instead of at the meeting in case of Section 8 Co's.
(g) to approve financial statement and the Board’s report;
(h) to diversify the business of the company;
(i) to approve amalgamation, merger or reconstruction;
(j) to take over a company or acquire a controlling or substantial stake in another
company;
Rule 8 • Now only there are three matters in Rule 8 for which passing resolution in
BM is mandatory
➢ To Make Political contributions.
➢ To Appoint or Remove KMP.
➢ To Appoint Internal Auditor's and Secretarial Auditors

Section 180-Restrictions on powers of Board

Section 180(1) Following powers exercisable by BOD only by passing SR
(a) To sell, lease or otherwise dispose of the whole or substantially the whole of
the undertaking of the company or where the company owns more than one
MCA undertaking, of the whole or substantially the whole of any of such undertakings
Notification- (b) to invest otherwise in trust securities the amount of compensation received
by it as a result of any merger or amalgamation;
Section 180
(c) If existing borrowings plus proposed borrowings> aggregate of paid up
now not
capital and free reserves and securities premium (apart from temporary loans
applicable to obtained from the company’s bankers in the ordinary course of business_
private (d)To remit, or give time for the repayment of, any debt due from a director.
companies.
Section 180(2) Every special resolution passed shall specify the total amount up to which
monies may be borrowed by the Board of Directors.

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Powers to contribute/donate(Section 181 to 183)

Section 181 Section 182 Section 183

Company to Contribute to Powers of BOD to Powers of BOD and other
bonafide & charitable funds Contribute to Political authorise persons to
etc Parties contribute to National
Defence Fund etc
the BOD of a company may • companies The Board is authorized to
contribute to ‘bona fide’ Prohibited-- contribute such amount as it
charitable and other funds Government thinks fit to the National
provided that prior permission of company, a company Defense Fund or any other
the company in GM is required if which has been in fund approved by the
such contribution exceeds 5% of existence for less Government for the purpose of
its average net profits for the 3 than 3 F/Y national defense. The company
immediately preceding previous • Other companies can is required to disclose in its
years contribute any profit and loss account the
amount as they may total amount or amounts
deem fit . contributed by it during the
• Resolution Required— financial year.
BR in BM
• Contribution shall be
made only by an
account payee cheque
or account payee bank
draft or use of an
electronic clearing
system through a
bank account.
• Disclosure in P & L-
amount contributed,
name of the Political
party

Committees of the Board(S :177 & 178) ( R : 6 & 7)

Following Companies to have Audit Committee, Nomination and Remuneration C ommittee:-(Every

Listed Co plus POT(10/50/100)

• Every Listed Company;

• All Public Companies with a paid up capital of 10 crores or more,
• All Public Companies with turnover of 100 crores or more;
• All Public Companies having outstanding dues exceeding fifty crores or more.
(Note: All this figures shall be taken as existing on the date of last audited financial statements)

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Section 177- Audit Committee

1 The Board of Directors of every listed company and such other class or classes of
companies, as may be prescribed, shall constitute an Audit Committee.
2 The Audit Committee shall consist of a minimum of three directors. Majority of them
shall be Independent Director. Majority of members of Audit Committee including its
Chairperson shall be persons with ability to read and understand, the financial
statement.
MCA Clarification-Section 8 Co's are not required to form a majority of Independent
Directors.
3 Transition period-1 year.
4 Every Audit Committee shall act in accordance with the terms of reference specified
in writing by the Board which shall, inter alia, include,—
(i) the recommendation for appointment, remuneration and terms of appointment
of auditors of the company;
(ii) review and monitor the auditor’s independence and performance, and
effectiveness of audit process;
(iii) examination of the financial statement and the auditors’ report thereon;
(iv) approval or any subsequent modification of transactions of the company with
related parties;
The Audit Committee may give omnibus approval for RPT's proposed to be entered
by the Company(i.e. one time AC approval for all RPT's transactions )
(v) scrutiny of inter-corporate loans and investments;
(vi) valuation of undertakings or assets of the company, wherever it is necessary;
(vii) evaluation of internal financial controls and risk management systems;
(viii) monitoring the end use of funds raised through public offers and related matters.
5 Every listed company or such class or classes of companies, as may be prescribed (Rule 7),
shall establish a vigil mechanism for directors and employees to report genuine
concerns.
a) All listed Companies.
b) Companies which accepted deposits from the public .
c) Companies which have borrowed money from banks and public financial
institutions in excess of Rs. 50 Crores.

• Section 178-Nomination and Remuneration Committee and Stakeholders Relationship

Committee
MCA Clarification-Section 178 shall not be applicable to Non Profit Organisations(Section 8
Companies)
•
• a)Nomination and Remuneration Committee shall consists three or more non – executive
executive directors directors with not less than one half of members members of the
Committee shall be Independent Directors
• b) The Board of a company which consist of more than 1000 shareholders, debenture holders,
and deposit holders or any other security holder any time during the financial year shall
constitute a stakeholder relationship committee with a chair person to be non-executive
director and such other members as may be decided by the Board of directors.
• c) Non consideration of resolution of any grievance in good faith shall not constitute
contravention of this Section.
• d)Functions of Nomination and Remuneration Committee
• i)Identify quality personnel to become director.
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• ii)Performance Evaluation of Directors

• iii)Formulate policy to ensure; that remuneration is reasonable and attractive, remuneration
is balanced(i.e. fixed and performance based) and to define clear cut relation between
performance and remuneration,.

Related Party Transactions(Section 184, 188 and 189)

Section 184

Every director
1st BM after appointment
1st BM of every FY
If interest is changed than 1st BM after such change.
Shall disclose his concern or interest (by way of form no MBP-1) in any company or
companies or bodies corporate, firms, or other association of individuals which shall include
the shareholding. every director of a company who is in any way, whether directly or
indirectly, concerned or interested in a contract or arrangement or proposed contract or
arrangement entered into or to be entered into"
• with a body corporate in which such director or such director in association
with any other director, holds more than 2 % shareholding of that body
corporate,
• or is a promoter, manager, Chief Executive Officer of that body corporate; or
• with a firm or other entity in which, such director is a
• partner,
• owner or
• member,
Shall disclose the nature of his concern or interest at the meeting of the Board in which the
contract or arrangement is discussed and shall not participate in such meeting.

MCA Clarification- In case of private companies, there is an exception given in Section

184(2).The interested director may participate in meeting after disclosure of his interest. In case of
Section 8 Companies, Section 184(2) shall apply only if the transaction with reference to Section
188 on the basis of terms and conditions of the contract or arrangement, exceeds one lakh rupees.

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Section 188-Related Party Transactions(Rule 15)

COVERAGE OF “RELATED PARTY”

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Approvals needed for RPT's

Board Resolution is always needed for all RPT's.

Audit Committee approval is needed(Section 177).

OR is needed if threshold limits are exceeded.{Companies Amendment Act, 2015}.Earlier SR was

needed.

RPT's by company where value of transactions are in excess of limit specified as mentioned below will
require prior approval of shareholders by ordinary resolution(First proviso of Section 188(1)

1) Sale, purchase, supply of goods/materials;(If directly/indirectly through appointment of agent>10% of

turnover or 100 cr whichever is less), resolution must be passed in GM.

2) Selling /disposing/buying of any property;(If directly/indirectly through appointment of agent > 10% of net
worth or 100 cr whichever is less), resolution must be passed in GM.

3) Leasing of any property;(> 10% of net worth /turnover or 100 cr whichever is less), resolution must be
passed in GM.

4) Availing/rendering any service;(If directly/indirectly through appointment of agent > 10% of turnover or 50
cr whichever is less), resolution must be passed in GM.

5) Appointing any agent for purchase /sale of goods /material /services/property(>10% of turnover or 50 cr
whichever is less), resolution must be passed in GM.
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6) Appointment of related party to any office or place of profit in the Company /its subsidiary/its associate ;(If
monthly remuneration > 2.50 lakhs), resolution must be passed in GM.

7) Undertaking subscription of securities/derivatives of the Company.(remuneration > 1 % of net worth),

resolution must be passed in GM.

No member of the company shall vote on such resolution , to approve any contract or arrangement
which may be entered into by the company, if such member is a related party(Second proviso to
Section 188(1).Here related party is construed with reference only to the contract or arrangement for
which the said resolution is being passed.

RTP NOV 2018

If 90 % or more members in number are relatives of promoters or are related parties, they shall be
allowed to vote .

Every contract or arrangement entered with a related party as mentioned above, shall be referred in
Board report to the shareholders along with justification for entering into such contract or
arrangement.

First and Second Proviso of Section 188(1) is not applicable to

Government Company entered into contract or arrangement with another Government Company.

Unlisted Government Company, if prior approval of Department or Ministry is taken.

Register of contracts or arrangements in which

directors are interested. (S:189)(R :16)
Company shall maintain a register in Form “MBP-4” for contracts
entered into under Section 184(2) or 188.

Loans & Investments -Section 185,186,187

Loan to directors, etc. (S:185) ( R : 10)
Under Section185 there is total prohibition on making of loans to Directors or
giving guarantee/providing security in connection with loan taken by director or
any person in which director is interested.
This sub-section shall not apply to:-
a. Loan to MD or WTD:
- as a part of service provided to all employees;
- under any scheme approved by a special resolution;
b. By a Company in ordinary course of business where the interest charged is not
less than that fixed by RBI.
c. Loan/Guarantee/Security provided by a holding Company to its WOS.
d. Providing of Guarantee/Security by a Holding Company for a loan provided by
a Bank to its subsidiary company.

(Provided such loan is utilised by the subsidiary for its principal business activities)
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􀁹 No Central Government approval is required under this Section now.

Section 186-Loan and investment by company.

(S: 186)(R : 11 to 13)

• Approval by special resolution is required where the inter-corporate

loan/guarantee/security exceed 60% of its paid up capital, free reserves
and securities premium account or 100% of its free reserves.[186(2)]
When term loan is subsisting in PFI, conditions for every Inter-corporate
Loans/Guarantee/Security
• Obtain unanimous consent of all directors present in Board Meeting
• Prior approval of PFI .
• However, if I/L/G/S is within limits & company has not defaulted in repayment of
loan/interest only unanimous consent is needed.PFI approval is not required.

• Exceptions of Section 186

a)Loan made/Guarantee given/Security given by Banking Co./Insurance
Co/Housing finance Co in ordinary course of business.
b)Company engaged in business of financing/infrastructure/NBFC's or any other
Company whose principal business is acquisition of securities.
c)Allotment of Right Shares.
d) Where a loan/guarantee/security has been provided by a Company to its
WOS, JV or acquisition is made by a Holding Company of shares of WOS
no special resolution is required even if it exceeds the limit under Section 186(2).
• MCA Circular-10-3-2015
If a company gives loan to its EE's (other than MD/WTD) in accordance with
condition of service and as per remuneration policy of co, Section 186 is not
applicable.
PTR:
Delegation of power exercisable under Section 186 can be done to MD, Manager
or Principal officers of the Company. However, Section 186 specifically provides
that unanimous resolution of all directors are needed.
RTP-May 2018
1. 186(7) is not applicable to a company in which 26% or more of paid up share capital is
held CG/ SG or both in respect of loans provided for funding industrial development
projects.
PTR:
As per Section 186(3), no loan shall be given under this section at a rate of interest
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lower than the prevailing yield of one year, three year , five year or ten year
Government security closest to the tenor of the loan.
2. In the earlier law, as per Sec 186, no company can invest through more than 2 layers of
Subsidiaries. Now the exemption has been granted to Banking Company/ NBFC/
Insurance Co and Govt Co.

Investments of company to be held in its

own name. (S:187)( R : 14)
All investments made by a Company shall be held in its own name.
Following are the circumstances when a company may not have investment in its own name.
a) A company may deposit with a bank, being the bankers of the company, any shares or
securities for the collection of any dividend or interest payable thereon; or
b) A company may deposit with, or transferring to, or holding in the name of, the State
Bank of India or a scheduled bank, being the bankers of the company, shares or
securities, in order to facilitate the transfer thereof, but required to again hold the
shares or securities in its own name within a period of six months;
c) A company may deposit with, or transferring to, any person any shares or securities, by
way of security for the repayment of any loan advanced to the company or the
performance of any obligation undertaken by it;
d) A company may hold investments in the name of a depository when such investments
are in the form of securities held by the company as a beneficial owner.

Section 192: Restriction on non-cash transactions involving directors

Applicability All the companies
Companies shall not enter into certain types of contracts with certain persons
except with the prior approval of members in the general meeting.
Types of contracts a. Company acquires or is to acquire assets for consideration other than cash
b. Director of the company or holding company or subsidiary company or
associate company or any person associated with them acquires or is to
acquire assets from the company for consideration other than cash.
How contract is entered Every such contract requires prior approval of the members by a resolution.
into? The notice of general meeting shall include the particulars of the arrangement
along with the value of the assets involved in such arrangement duly calculated

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by a registered valuer.
Approval in holding Where contract is entered into with the director of the holding company then
company also approval of member shall be obtained in holding company also.
Effect of contravention Contract entered into in contravention of these provisions shall be voidable at
the option of the company.

Section 193: Contract by One Person Company with the sole member who is also a director
Form of contract Any such contract shall be in writing.
If it is not in writing, the terms of the contract shall be recorded in a
memorandum or in the minutes of the first meeting of the Board of
Directors of the company held next after entering into contract.
Intimation to RoC Within 15 days since approval by the Board.
Non-applicability Contracts entered into by the company in the ordinary course of business.

RTP Nov 2018

Section 194 and 195 are now omitted.

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Ch XIII- APPOINTMENT AND REMUNERATION OF KEY MANAGERIAL PERSONNEL

(Section 196-205)
Some important definitions

Key Managerial Personnel

The Companies Act, 2013 has for the first time recognized the concept of Key Managerial
Personnel.
As per section 2(51) “key managerial personnel”, in relation to a company, means—
(i) the Chief Executive Officer or the managing director or the manager;
(ii) the company secretary;
(iii) the whole-time director;
(iv) the Chief Financial Officer; and
(v) such other officer as may be prescribed.

Section 196-Appointment of managing director, whole-time director or manager

(1) No company shall appoint or employ at the same time a managing director and
a manager.
(2) No company shall appoint or re-appoint any person as its MD/WTD/Manager for a
term exceeding five years at a time.
However they can be reappointed before the end of original term but only during
last one year of the original term.
(3) No company shall appoint or continue the employment of any person as
managing director, whole-time director or manager who —
(a) is below the age of twenty-one years or has attained the age of seventy yrs.
However, even if age is 70 years or more the person can be appointed by
passing SR and indicating justification in explanatory statement.
(b) is an undischarged insolvent or has at any time been adjudged as an
insolvent;
(c) has at any time suspended payment to his creditors or makes, or has at any
time made, a composition with them; or
(d) has at any time been convicted by a court of an offence and sentenced for a
period of more than six months.
(4) Appointment of MD, WTD, Manager
• approval by the Board of Directors
• approval by a resolution at the next general meeting of the company
• by the Central Government in case such appointment is at variance to
the conditions specified in Schedule V.
(5) Even if appointment of a managing director, whole-time director or manager is
not approved by the company at a general meeting, any act done by him before
such refusal shall be valid.
MCA Section 196 (4) & (5) not applicable to private companies and 196(2), (4) and
Notification (5) not applicable to government companies.
dated 5th
june 2015

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Section 197-Overall maximum managerial remuneration and managerial remuneration in

case of absence or inadequacy of profits
(This Section is applicable only to a public company)
• Maximum remuneration payable to all directors(including MD, WTD, Mgr) is 11% of Net
Profits of the Company.
• Any one MD/WTD/Mgr=5% of Net Profits of Co.
• >1 MD/WTD/Mgr=10% of Net Profits of Co.
• Other directors=1 % of Net profits if there is a MD/WTD/Mgr in Co. and 3% if there is
no MD/WTD/Mgr.
However if CG approval is taken and conditions of Schedule V is complied with ,the company in
GM may authorise payment of remuneration>11%.To jump the other limits only approval in GM
is sufficient.
Remuneration to director includes
• remuneration paid to him in capacity of director & includes
• remuneration paid to him in any other capacity but does not include the remuneration
paid to him in professional capacity provided that he holds the professional qualification
in opinion of NRC/BOD, for such capacity.
Directors are entitled to sitting fees. According to Rule 4, the maximum sitting fees per
meeting is Rs.1,00,000.
Remuneration of Independent Director
• shall not be entitled to any stock option.
• may receive remuneration by way sitting fees, reimbursement of expenses for
participation in the Board and other meetings and profit related commission as may be
approved by the members.

Section 199-Recovery of remuneration in certain cases

If a company is required to re-state its financial statements due to fraud or non-
compliance with any requirement under this Act and the rules made there under, the
company shall recover from any past or present MD or WTD or manager or CEO (by
whatever name called) who, during the period for which the financial statements are
required to be re-stated, received the remuneration (including stock option) in excess of
what was permissible as per restated F/S.

Compensation for Loss of Office of Managing or Whole time Director or Manager

(Section 202)
(i)Section 202 provides that a company may make payment to a MD/WTD/Mgr
but not to any other director, by way of compensation for loss of office, or as consideration
for retirement from office or in connection with such loss or retirement.

(ii) However, No payment shall be made in the following cases:—

(a) where the director resigns from his office as a result of the
reconstruction/amalgamation of the company and is
appointed as the managing or whole-time director, manager
or other officer of the reconstructed company/of resulting
company from the amalgamation;
(b) where the director resigns from his office otherwise than on
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the reconstruction/ amalgamation of the company;

(c) where the office of the director is vacated due to disqualification;
(d) where the company is being wound up due to the negligence or
default of the director;
(e) where the director has been guilty of fraud or breach of trust
or gross negligence or mismanagement of the conduct of the
affairs of the company or any subsidiary company or holding
company; and
(f) where the director has instigated, or has taken part directly or
indirectly in bringing about, the termination of his office.

(iii)Maximum limit of compensation to MD/WTD/Mgr

• Any payment made to a MD OR WTD or manager shall not exceed the remuneration
which he would have earned if he had been in office for the remainder of his term or for
3 years, whichever is shorter
• The amount shall be calculated on the basis of the average remuneration actually
earned by him during a period of 3 years immediately preceding the date on which he
ceased to hold office, or where he held the office for a lesser period than 3 years, during
such period.
• no such payment shall be made to the director in the event of the commencement of the
winding up of the company, (ii)The company can recover the amount of Rs.5 lakhs
paid on the ground that Mr.Doubtful is not entitled to any compensation,
because he is guiding of corrupt practise

Bell vs. Lever Bros it was observed that directors are not bound to disclose any
breach of his fiduciary obligations so as to give the company an opportunity to
dismiss him.

Section 203- Appointment of key managerial personnel(Applicable only to public co)

(1) a)As per Section 203 read with Rule 8 of Companies(Appointment & Remuneration of
Managerial Personnel) Rules, 2014
Every listed company &{ every unlisted public company having a paid up share capital (P out
of Pot) of Rs. 10 crore or more shall appoint following whole time KMP
(i) managing director, or Chief Executive Officer or manager and in their absence,
a whole-time director;
(ii) company secretary; and
(iii) Chief Financial Officer :
& appointment of CS in Practise is compulsory if Paid up share capital is Rs.5 crore or more.

(2) Every whole-time key managerial personnel of a company shall be appointed by

means of a resolution of the Board containing the terms and conditions of the
appointment including the remuneration.
(3) a)A whole-time key managerial personnel shall not hold office in more than one
company except in its subsidiary company at the same time. However, he can hold
directorship in other companies with permission of Board.
b)A whole time KMP holding office in more than one company at same time has to

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choose one company within 6 months from the date of commencement of Act.
c)A person can be appointed as MD in 2nd Company if he is Mgr/MD of 1st Company if
unanimous resolution is passed at Board Meeting of 1st Company & specific notice
stating that unanimous resolution has been passed shall be send to all directors in India
.(A person can never be appointed as Manager of 2nd Co)
Unanimous resolution at BM-Section 186 when limits exceeded and one mgr/md
appointed as MD in 2nd co.
Unanimous resolution at GM-Section 162.
(4) Vacancy if any in office of KMP shall be filled-up by the Board at a meeting of the Board
within a period of six months from the date of such vacancy.

Section 204- Secretarial audit for bigger companies

(1) As per Section 204 read with rule 9 ,
Every Listed Company and other public companies if paid up share capital is _>50 or
turnover _> 250 crore shall annex with Board Report a Secretarial Audit Report.
(2) Company to give all assistance and facilities to the CS in practise for audit purpose.
(3) BOD in Board report shall explain in full any qualification or observation or other
remarks made by CS.

SCHEDULE V
(See sections 196 and 197)
Part I Part II Part III Part IV
Pre-requisites Remuneration Procedural Power of
- Imprisonment requirements Central
or fine Govt. to
- Detention grant
- Age exemptions
- Two Sec. I Sec. II Sec. III Sec. IV Sec. V - Filing of
Companies return
Company Net Profit Excess Perquisites Remuneration
- Resident - Members
having is Remuneration from two
adequate inadequate companies approval
net profit or loss
PART I

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DDDDDDDDD DIRECTORS SUMMARY BY CA SANIDHYA SARAF

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CONDITIONS TO BE FULFILLED FOR THE APPOINTMENT OF A MANAGING OR WHOLE-

TIME DIRECTOR OR A MANAGER WITHOUT THE APPROVAL OF THE CENTRAL
GOVERNMENT

APPOINTMENTS
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 this Act or any of the following Acts, namely:—
(i) the Indian Stamp Act, 1899 (2 of 1899);
(ii) the Central Excise 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, 2013;
(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 Competition Act, 2002 (12 of 2003);
(xii) the Foreign Exchange Management Act, 1999 (42 of 1999);
(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, 1922 (22 of 1922);
(xvi) the Prevention of Money-Laundering Act, 2002 (15 of 2003);
(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.
(c) he has completed the age of twenty-one years and has not attained the age of seventy years:
Provided that where he has attained the age of seventy 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 V of Part II;
(e) he is resident of India.

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DDDDDDDDD DIRECTORS SUMMARY BY CA SANIDHYA SARAF

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Explanation I.—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 vacation in India.
Explanation II.—This condition shall not apply to the companies in Special Economic Zones as notified by
Department of Commerce from time to time :
Provided that a person, being a non-resident in India shall enter India only after obtaining a proper
Employment Visa from the concerned Indian mission abroad. For this purpose, such person shall be
required to furnish, along with the visa application form, profile of the company, the principal employer
and terms and conditions of such person's appointment.

PART II
REMUNERATION
SECTION I
Remuneration payable by companies having profits :
Subject to the provisions of section 197, a company having profits in a financial year may pay
remuneration to a managerial person or persons not exceeding the limits specified in such section.
SECTION II
Remuneration payable by companies having no profit or inadequate profit without Central
Government approval :
Where in any financial year during the currency of tenure of a managerial person, a company has no profits
or its profits are inadequate, it may, without Central Government approval, pay remuneration to the
managerial person not exceeding the higher of the limits under (A) and (B) given below:—
(A):

(1) (2)

Where the effective capital is Limit of yearly remuneration payable shall

not exceed (Rupees)

(i) Negative or less than 5 crores 60 lakhs

(ii) 5 crores and above but less than 100 crores 84 lakhs

(iii) 100 crores and above but less than 250 crores 120 lakhs

(B):
In case of a managerial person who is functioning in a professional capacity, no approval of Central
Government is required, if such managerial person is not having any interest in the capital of the
company or its holding company or any of its subsidiaries directly or indirectly or through any other
statutory structures and not having any direct or indirect interest or related to the directors or
promoters of the company or its holding company or any of its subsidiaries at any time during the
last two years before or on or after the date of appointment and possesses graduate level

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DDDDDDDDD DIRECTORS SUMMARY BY CA SANIDHYA SARAF

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qualification with expertise and specialised knowledge in the field in which the company operates:
Provided that any employee of a company holding shares of the company not exceeding 0.5% of its
paid up share capital under any scheme formulated for allotment of shares to such employees
including Employees Stock Option Plan or by way of qualification shall be deemed to be a person
not having any interest in the capital of the company.

How to compute effective capital?

Effective capital means the aggregate of the paid up share capital (excluding share
application money or advances against shares) plus share premium credit balance plus
reserves and surplus(excluding revaluation reserves) plus long term loans and deposits
repayable after one year minus accumulated losses and preliminary expenses(except in
cases of investment by investment co whose principal business is the acquisition of
securities.

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