Section 197. Overall maximum managerial remuneration and managerial remuneration in case of absence or inadequacy of profits
(1) The total managerial remuneration payable by a public company, to its directors, including managing director and whole-time director, and its manager in respect of any financial year shall not exceed eleven per cent. of the net profits of that company for that financial year computed in the manner laid down in section 198 except that the remuneration of the directors shall not be deducted from the gross profits:
Provided that the company in general meeting may, subject to Schedule V, authorise the payment of remuneration exceeding eleven per cent. of the net profits of the company.
Provided further that, except with the approval of the company in general meeting by special resolution—
(i) the remuneration payable to any one managing director, or whole-time director or manager shall not exceed five per cent. of the net profits of the company and if there is more than one such director remuneration shall not exceed ten per cent. of the net profits to all such directors and manager taken together;
(ii) the remuneration payable to directors who are neither managing directors nor whole-time directors shall not exceed—
(A) one per cent. of the net profits of the company, if there is a managing or whole-time director or manager;
(B) three per cent. of the net profits in any other case.
(2) The percentages specified in sub-section (1) shall be exclusive of any fees payable to directors under sub-section (5).
(3) Notwithstanding anything contained in this section, but subject to the provisions of Schedule V, if, in any financial year, a company has no profits or its profits are inadequate, the company shall pay to its directors, including managing or whole-time directors or manager, remuneration in accordance with the provisions of Schedule V.
(4) In cases where Schedule V is not complied with, remuneration shall be payable only with the approval of the company by special resolution and, where required by the Act, in accordance with the applicable approval requirements.
(5) A director may be paid sitting fees for attending meetings of the Board or committee thereof, as prescribed.
(6) A director or manager may be paid remuneration by way of monthly payment, or at a specified percentage of the net profits of the company, or partly by one way and partly by the other.
(7) Notwithstanding anything contained in any other provision of this Act, an independent director shall not be entitled to any stock option and may receive sitting fees and reimbursement of expenses for participation in Board and other meetings and commission as approved by the members, subject to the statutory limits.
(8) The net profits for the purposes of this section shall be computed in accordance with section 198.
(9) If any director draws or receives, directly or indirectly, remuneration in excess of the limits prescribed by this section or without the approval required by this section, he shall refund the sums so received to the company within two years or such lesser period as the company may allow and, until such sum is refunded, hold it in trust for the company.
(10) The company shall not waive the recovery of any sum refundable under sub-section (9) unless approved by the company by special resolution within two years from the date the sum becomes refundable.
(11) Where any insurance is taken by a company on behalf of its managing director, whole-time director, manager, Chief Executive Officer or other officer against any liability for which he may be liable in respect of negligence, default, misfeasance, breach of duty or breach of trust, the premium paid shall not be treated as part of remuneration except in the circumstances specified by the Act.
(12) Every listed company shall disclose in the Board’s report the ratio of the remuneration of each director to the median employee’s remuneration and such other particulars as may be prescribed.
(13) Where any insurance is taken in accordance with this section, the company shall indicate such insurance in the Board’s report.
(14) Subject to the provisions of this section, any remuneration payable to directors shall be determined in accordance with and subject to the provisions of the Act.
(15) If any person contravenes the provisions of this section, the company shall be liable to a penalty of five lakh rupees and every director or officer of the company who is in default shall be liable to a penalty of one lakh rupees.
(16) The auditor of the company shall, in his report under section 143, make a statement as to whether the remuneration paid by the company to its directors is in accordance with the provisions of this section and whether remuneration paid to any director is in excess of the limit prescribed by this section and Schedule V, and such other particulars as may be prescribed.
