Remuneration payable by the Company to its Directors

While paying remuneration it is relevant to take note of the contrast among employment and profession. In the event that the services delivered by the director are of professional nature and not identified with daily routine nature then he can’t be considered to be in the employment of a company the same is considered to be in the professional capacity. Nonetheless, in case the director is named in employment via a binding agreement and the terms and conditions are standing then he would be considered in the employment of a company. Further are the two categories in which remuneration is given to its director:

On account of a private company – Section 197 and Section 198 provides just managerial remuneration paid by a public company. Thus, any remuneration paid by a private company to its director shall not be remembered for this Section.

On account of a public company – Section 197 provides the absolute managerial remuneration paid by a public company to its directors consisting of managing directors, the entire time director shall not exceed 11 percent of the net benefit of the company in any monetary year. In any case, this limit must be exceeded by the endorsement of the members of the company by a conventional resolution according to Section 197(1) of the Act.

The remuneration paid to a director of the company will also incorporate special services delivered by him. This means that in addition to directorial services, special services must also be inclusive in the complete remuneration and inside the limits of 11 percent as prescribed before. The company can move toward the focal government for its express opinion as to remuneration delivered to the director for its professional service in a company. When the focal government expresses its opinion that the director is qualified to be payable for the professional service then the previous provision of the focal government is not needed as the same is avoided from the complete remuneration under Section 197 of the Act.

Nonetheless, the exemption is given under Section 197(4) of the Act, when remuneration is paid for professional services delivered by a director to the company with no specified limit, the accompanying condition needs to be satisfied to prevail the remuneration:

The services delivered should be of professional nature.

As indicated by the Nomination and Remuneration Committee, the director shall possess the specialized qualification for the practice of the profession, in the event that no such committee is constituted, the board can frame its opinion.

Thus, to reject the services delivered by the director or in some other capacity from the prescribed limit, it is necessary to satisfy the aforementioned conditions. Further, the Act neither defines the term profession nor services of professional nature. As indicated by the Black’s Law Dictionary (fifth Edition), “Profession” is characterized as a livelihood or occupation requiring special, progressed, training and skill. Nowadays vocations also require special information as opposed to simple skill. Section 200 of the Act is with the reference to the professional qualification according to managerial remuneration.

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