Remuneration to Director/MD/WTD as per section 197

Remuneration to Director/MD/WTD as per section 197. In this article we will take you through the Section 197 of the Companies Act, 2013 which governs the overall managerial remuneration payable by a public company to its directors, including the managing director, whole-time directors, and key managerial personnel. It stipulates that the total remuneration shall not exceed 11% of the net profits of the company in a financial year. The section also prescribes 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. The remuneration payable to directors who are neither managing directors nor whole-time directors shall not exceed: -

one per cent. of the net profits of the company, if there is a managing or whole-time director or manager.

three per cent. of the net profits in any other case.

Applicable Provisions
The case involves an appeal under Section 454(5) of the Companies Act, 2013, concerning the MCA adjudication of penalties. The relevant rules include the Companies (Adjudication of Penalties) Rules, 2014. The matter was brought before the Regional Director (ER), Kolkata, for consideration.
Facts of the Case with ROC and RD
In Seva Parmodharmah Samjik Nidhi Limited, concerned ROC had issued adjudication notice dated 19/12/2023 for violation of section 197 of the Act to the company and its officers. In this regard, reply was received from the company and its officers for aforesaid adjudication notice on 17.01.2024.
The Registrar of Companies (ROC) imposed penalties for non-compliance, leading the company to file an appeal before the Regional Director (RD) and an opportunity of being heard was given by the RD to appellants on 29/08/2024.

The authorised representative was asked to make submissions regarding the infirmity if any in the order of Registrar of Companies. The authorised representative had no valid submission in this regard.

Hence, the order of ROC is confirmed as no cogent ground was made out by the authorised representative.

Imposed Penalty
The ROC after considering the fact and circumstances of the case levied penalties. The penalty amount was determined based on the auditor’s failure to comply with the relevant legal requirements. The details of the penalty, are as follows:-

Financial Year

To whom penalty imposed

Total maximum penalty

2018-19

On Company

5,00,000

1st Officer in default

1,00,000

2nd Officer in default

1,00,000

3rd Officer in default

1,00,000

2019-20

On Company

5,00,000

1st Officer in default

1,00,000

2nd Officer in default

1,00,000

3rd Officer in default

1,00,000

Reduction in Penalty
Upon hearing the appeal, the RD reviewed the circumstances and the submission made by the authorised representative with respect to the non-compliance and did not find any merit in their submission thus confirm the order of ROC.  Further RD directed the company and officers in default shall pay the amount of penalty from out of their own pockets. The amount of penalty shall be paid within a period of 90 days from the date of the receipt of the copy of the order. Further, if the company and its directors fail to deposit the penalty amount within the prescribed time limit under section 454 (8) (i) and (ii) of the companies Act 2013.
Any Benefit of Section 446B of Companies Act
Section 446B of the Companies Act, 2013 provides a significant relief mechanism for small companies and start-ups by reducing the penalty burden for certain non-compliances. Under this provision, if a small company or a start-up commits a default for which a penalty is prescribed under the Act, the penalty imposed shall not be more than half of the specified penalty, subject to a maximum limit. In the adjudication matter of Seva Parmodharmah Samjik Nidhi Limited RD consider the submission made by the authorised representative on the behalf of the appellant and confirm the order of ROC itself.
Summary:
In conclusion, the appeal under Section 454(5) of the Companies Act, 2013, was carefully examined by the Regional Director, considering the submission made by the appellant authority and the circumstances surrounding its non-compliance with Section 197 and confirm the order of ROC. This case signifies the importances of strict adherence to corporate compliance requirements while also recognizing the need for a balanced approach in adjudicating penalties, considering the financial and operational realities of the company.
Download MCA Adjudication Order:

In this article we will take you through the Section 197 of the Companies Act, 2013 which governs the overall managerial remuneration payable by a public company to its directors, including the managing director, whole-time directors, and key managerial personnel. It stipulates that the total remuneration shall not exceed 11% of the net profits of the company in a financial year. The section also prescribes 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. The remuneration payable to directors who are neither managing directors nor whole-time directors shall not exceed: -

one per cent. of the net profits of the company, if there is a managing or whole-time director or manager.
three per cent. of the net profits in any other case.

Applicable Provisions

The case involves an appeal under Section 454(5) of the Companies Act, 2013, concerning the MCA adjudication of penalties. The relevant rules include the Companies (Adjudication of Penalties) Rules, 2014. The matter was brought before the Regional Director (ER), Kolkata, for consideration.

Facts of the Case with ROC and RD

In Seva Parmodharmah Samjik Nidhi Limited, concerned ROC had issued adjudication notice dated 19/12/2023 for violation of section 197 of the Act to the company and its officers. In this regard, reply was received from the company and its officers for aforesaid adjudication notice on 17.01.2024.

The Registrar of Companies (ROC) imposed penalties for non-compliance, leading the company to file an appeal before the Regional Director (RD) and an opportunity of being heard was given by the RD to appellants on 29/08/2024.

The authorised representative was asked to make submissions regarding the infirmity if any in the order of Registrar of Companies. The authorised representative had no valid submission in this regard.
Hence, the order of ROC is confirmed as no cogent ground was made out by the authorised representative.

Imposed Penalty

The ROC after considering the fact and circumstances of the case levied penalties. The penalty amount was determined based on the auditor’s failure to comply with the relevant legal requirements. The details of the penalty, are as follows:-

Financial Year	To whom penalty imposed	Total maximum penalty
2018-19	On Company	5,00,000
	1^st Officer in default	1,00,000
	2^nd Officer in default	1,00,000
	3^rd Officer in default	1,00,000
2019-20	On Company	5,00,000
	1^st Officer in default	1,00,000
	2^nd Officer in default	1,00,000
	3^rd Officer in default	1,00,000

Reduction in Penalty

Upon hearing the appeal, the RD reviewed the circumstances and the submission made by the authorised representative with respect to the non-compliance and did not find any merit in their submission thus confirm the order of ROC. Further RD directed the company and officers in default shall pay the amount of penalty from out of their own pockets. The amount of penalty shall be paid within a period of 90 days from the date of the receipt of the copy of the order. Further, if the company and its directors fail to deposit the penalty amount within the prescribed time limit under section 454 (8) (i) and (ii) of the companies Act 2013.

Any Benefit of Section 446B of Companies Act

Section 446B of the Companies Act, 2013 provides a significant relief mechanism for small companies and start-ups by reducing the penalty burden for certain non-compliances. Under this provision, if a small company or a start-up commits a default for which a penalty is prescribed under the Act, the penalty imposed shall not be more than half of the specified penalty, subject to a maximum limit. In the adjudication matter of Seva Parmodharmah Samjik Nidhi Limited RD consider the submission made by the authorised representative on the behalf of the appellant and confirm the order of ROC itself.

Summary:

In conclusion, the appeal under Section 454(5) of the Companies Act, 2013, was carefully examined by the Regional Director, considering the submission made by the appellant authority and the circumstances surrounding its non-compliance with Section 197 and confirm the order of ROC. This case signifies the importances of strict adherence to corporate compliance requirements while also recognizing the need for a balanced approach in adjudicating penalties, considering the financial and operational realities of the company.