Central Government Notification
Legislation UpdatesRules & Regulations

On 9-7-2022, Central Government notified Arbitration Council of India (Terms and conditions and salary and allowances payable to Chairperson and Members) Rules, 2022 to defines rules of appointment, qualifications and conditions of service of officers of Arbitration Council and applicable with immediate effect.

Key Points:

  • According to Sec. 43-M of Arbitration and Conciliation Act, 1996, In the Council of Arbitration, Chief Executive Officer is the one who is responsible for the day-to-day administration and an appointing authority.
  • As per Rule 6, any person who qualifies to be an officer, can be somebody who is-
    1. Officers of Central Government/ Courts/ Tribunals.
    2. More than the age of 45 years.
    3. Possessing a Master’s degree in Management or Economics or Public Administration or a Bachelor’s degree in Law from a recognised University or Institution.
    4. Holding the post of Joint Secretary or equivalent, Judicial Officer, or any other analogous post.
  • Term for which the CEO is appointed will be 3 years and his age should not have exceeded the limit of 65 years as per Rule 7.
  • Centre has decided the salary of the CEO at level 15, along with the allowances, etc.
  • Perquisites available to the CEO include pay, allowances, leave, provident fund, age of superannuation, pension and retirement benefits, medical facilities, etc. He is entailed to a house rent allowance. All the allowance is payable as per the pay scale of Group A in the Central Government.

*Shubhi Srivastava, Editorial Assistant has reported this brief.

OP. ED.Practical Lawyer Archives

Remuneration to executive and non-executive directors has always one of the most deliberated and debated topics in corporate governance. The topic gains importance as there it involves outflow of money from the company, calculation of net profits, disclosures to its shareholders, approval of directors, shareholders and remuneration Committee. Remuneration to directors of loss-making company or company which is very sensitive to the economy or sector performance is always in the limelight. This article is an analysis of the important and relevant provisions of the Companies Act and the Securities and Exchange Board of India (SEBI) (Listing Obligations and Disclosure Requirements) Regulations, 2015 w.r.t. remuneration to non-executive directors. There is also a reference to the recent amendment introduced to Schedule V of the Companies Act.

Limits on the remuneration to directors

According to the provisions of Section 197 of the Act, the total managerial remuneration payable by a public company, to its directors (including managing director, whole-time director, non-executive directors whether independent or not), and its manager in respect of any financial year shall not exceed 11% of the net profits of that company for that financial year. The net profits shall be computed in the manner laid down in Section 198 of the Act.

The company in general meeting may, authorise the payment of remuneration 11% of the net profit of the company. Earlier this required the approval of the Central Government. But now, the approval of Central Government is not required by the amendment introduced by Companies (Amendment) Act, 2017. By this provision, the company can take an approval of the shareholders in general meeting and authorise payment of remuneration up to 30% (an example) of the net profit of the company.

Limits on the remuneration to non-executive directors under the Companies Act

According to Section 197 of the Act, except with the approval of the company in general meeting by passing a special resolution, the company can pay remuneration to its non-executive directors as follows:

(a) 1% of the net profit of the company, if there is an existing managing or whole-time director or manager. Here “1% of the net profit” means for all non-executive directors of the company (whether independent or not).

(b) 3% of the net profit in any other case i.e. where there is no managing or whole-time director or manager. In situation is very rare, where all the directors are non-executive directors. Here “3% of the net profit” means for all non-executive directors of the company (whether independent or not).

With the amendments introduced by the Companies (Amendment) Act, 2017, with the approval of shareholders in general meeting by special resolution, the above percentages can be changed. However, in such case, the company would be required to obtain few more approvals. Where the company has defaulted in payment of dues to any bank or public financial institution or non-convertible debenture holders or any other secured creditor, the prior approval of the bank or public financial institution concerned or the non-convertible debenture holders or other secured creditor, as the case may be, shall be obtained by the company before obtaining the approval in the general meeting.

The above percentages do not include sitting fees. Such payment is excluded from the calculation of the remuneration to directors.

Section 197(6) of the Act provides that a director (i.e. any director–executive director or non-executive director) or manager may be paid remuneration either by way of a monthly payment (i.e. salary) or at a specified percentage of the net profit of the company (i.e. commission) or partly by one way and partly by the other (i.e. combination of both).

Remuneration to non-executive directors in a loss-making company

Till the Companies (Amendment) Bill, 2020 [now, Companies (Amendment) Act, 2020], there was no specific provision in the Act to pay non-executive directors by way of commission, in the event of loss or inadequate profits of the public company.  Section 197(3) of the Act was amended by the Companies (Amendment) Act, 2020, wherein a company having no profits or inadequate profits, can pay to all its directors (executive and non-executive directors) by way of remuneration any sum in accordance with the provisions of Schedule V to the Act.

It is important to note here that even in the case of inadequate profits or losses, the sitting fees paid by the company is not a part of the remuneration to directors.

The Ministry of Corporate Affairs (MCA) has amended[1] Schedule V of the Companies Act, 2013, in Part II, under the heading—“Remuneration” and allowed companies to pay remuneration to non-executive directors or independent directors. The limit of yearly remuneration payable to such directors shall not exceed prescribed amount. The maximum amount of remuneration depends upon the effective capital of the company. Where in any financial year during the currency of tenure of non-executive directors or independent directors, a company has no profits or its profits are inadequate, it may, pay remuneration to such director not exceeding, the limits given below:

Sl. No. Where the effective capital

(in rupees) is

Limit of yearly remuneration payable shall not exceed (in rupees) in case of non-executive directors or independent directors
1 Negative or less than 5 crores. 12 lakhs
2 5 crores and above but less

than 100 crores.

17 lakhs
3 100 crores and above but less

than 250 crores.

24 lakhs
4 250 crores and above. 24 lakhs plus 0.01% of the effective capital in excess of Rs 250 crores.

Relevant provisions of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (SEBI Listing Regulations)

Regulation 17 of the SEBI Listing Regulations relates to “Board of Directors”. It provides for composition, Board meetings, appointment of non-executive directors, succession planning, code of conduct, remuneration, Board evaluation, etc.

Following are the key points relating to the remuneration to directors under SEBI Listing Regulations:

(a) The Board of Directors shall recommend all fees or compensation, if any, paid to non-executive directors, including independent directors and shall require approval of shareholders in general meeting. Therefore, approval of shareholders in mandatory for remuneration to non-executive directors, irrespective of the provisions of the Companies Act.

(b) The requirement of obtaining approval of shareholders in general meeting shall not apply to payment of sitting fees to non-executive directors, if made within the limits prescribed under the Companies Act, 2013 for payment of sitting fees without approval of the Central Government. Therefore, shareholders approval is not required for payment of sitting fees to non-executive directors. Similar provisions are provided in the Companies Act. According to Rule 4 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, a company may pay a sitting fee to a director for attending meetings of the Board or Committees thereof, such sum as may be decided by the Board of Directors thereof which shall not exceed Rs 1 lakh per meeting of the Board of Directors or Committee thereof. However, for independent directors and women directors, the sitting fee shall not be less than the sitting fee payable to other directors.

(c) The approval of shareholders shall specify the limits for the maximum number of stock options that may be granted to non-executive directors, in any financial year and in aggregate. However, independent directors shall not be entitled to any stock option;

(d) The SEBI Listing Regulations introduce a very interesting provision for payment of remuneration to non-executive directors. According to the relevant provisions approval of shareholders by special resolution shall be obtained every year, in which the annual remuneration payable to a single non-executive director exceeds 50% of the total annual remuneration payable to all non-executive directors, giving details of the remuneration thereof. It is necessary to understand this provision in light of 2 situations:

(i) Company having adequate profits: In this case, a company can pay up to 1% or 3% of the net profit for that financial year. Here, it would be necessary to calculate the profits of the company and then confirm the share of any specific non-executive director(s) in the profit in the form of remuneration.

(ii) Company having inadequate profits: In this case, to calculate the effective capital and the remuneration paid to any non-executive director of the company. It is important to note here that specific approval would be rarely applicable as the remuneration of a non-executive director is compared to the remuneration of all non-executive directors and not all executive directors (under SEBI Listing Regulations).

In both the above cases, the remuneration shall not include sitting fees paid to the directors in accordance with the provisions of the Companies Act.

In these challenging times of Covid-19, its impact on the economy and companies, the amendment to Schedule V of the Companies Act will be very helpful for companies to pay all its directors.

Practising Company Secretary, Pune

[1]      MCA Notification dated 18-3-2021, S.O. 1256(E) [F. No. 1/5/2013-CL-V].

Case BriefsHigh Courts

Madhya Pradesh High Court: Vandana Kasrekar, J., allowed a writ petition and extended the benefit of 5th pay scale to the petitioner.

The facts of the case are that the petitioner was initially appointed on the post of Chowkidar on 01-01-1993 in the Department. His services were terminated along with other daily wage employees w.e.f. 28-03-2000, but thereafter, he was taken back in service in the year 2004 and since then, the petitioner is working on the post of Driver.

The petitioner has stated that he has completed more than 29 years of services and is qualified for appointment on the post of Driver. He further stated that respondents have granted the benefit of 5th & 6th pay-scale from the date of its application i.e. 01-01-1996 to the similarly situated persons, however, the same benefit has not been granted to the petitioner. The petitioner, therefore, filed a Writ Petition No. 463/2016 before this Court and the said writ petition was disposed of vide order dated 18-01-2016 directing the respondent/s to pay the 5th and 6th pay scale in light of the case of Kishorilal Prajapati v. State of M.P. (WP No. 5332/2010(s) passed on 03-07-2012). In pursuance to the orders issued by this Court, the matter was sent to Council of Ministers along with other cases for grant of a minimum of pay-scale along with arrears in 5th & 6th Pay-scale to the employees of the NVDA. The Council of Ministers in its meeting had approved the grant of minimum pay-scale along with its arrears. Accordingly, the order dated 18/10/2016 was issued by the respondents/department, thereby extending the said benefit to the petitioner and other employees, however, thereafter, the Executive Engineer has issued the order dated 27/10/2016, thereby extending the benefit of only 6th pay-scale to the petitioner w.e.f. 01-01-2016, but has not granted the benefit of 5th pay scale.

In view of the above, the Court allowed the writ petition, stating that the petitioner is also similarly situated employee, therefore, the respondents are duty-bound to comply with the order passed by this Court in favour of the petitioner also and directed to extend the benefit of 5th pay-scale to the petitioner from the date of its applicability i.e. 01-01-1996 along with all arrears, within a period of four months.[Dilip v. State of M.P., 2019 SCC OnLine MP 2370, decided on 30-08-2019]

Uttarakhand High Court
Case BriefsHigh Courts

Uttaranchal High Court: A Single Judge Bench comprising of Sudhanshu Dhulia, J. directed the State to follow the rule of equity while granting payment to its employees.

The petitioners were Junior Residents working in a Government Medical College also pursuing a post graduation course along with it. The issue that arose was with respect to the remuneration received by them, which was less than what was being given to junior residents not undergoing any post graduation course with due consideration to the fact that work and duties performed by them were same in nature. Also, the benefit of the 7th pay commission was not been given to them.

The Court thereby highlighting the principle of equal pay and equal work, directed the respondent on the principle of equity to grant the benefit of the 7th pay commission to both the categories of junior residents irrespective of them undergoing any post graduation or not. Accordingly, the writ petition was disposed of. [Ravi Saini (Dr.) v. State of Uttarakhand, 2017 SCC OnLine Utt 1784,  order dated 06-10-2017]

Case BriefsForeign Courts

Supreme Court of Zambia: A 3-Judge Bench comprising of CJ Mambilima and Kaoma and Kajimanga, JJS., allowed appeal where remuneration for overtime work was claimed.

Facts leading to this appeal was that appellant was the employer of respondent governed by Quicksave Limited Conditions of Service. Employment of respondent was terminated resulting in the filing of complaint to Industrial Relations Court where she prayed for payment of her accrued overtime amount. Appellant reply asserted her to be employed as a sales lady getting commission on sales. The Court favoured the respondent for payment of overtime. Appellant had preferred this appeal against the above order in favour of respondent on the ground that Court erred in deciding that respondent was entitled to get paid for overtime.

Appellant submitted that the issue of overtime work and payment by Minimum Wages and Conditions of Employment Act, were applicable to protected employees and since she was in management the Act was not applicable. Whereas respondent firmly admitted her prayer for overtime payment from her date of engagement, as sales lady to the point when she was appointed as depot manager and thus the Act mentioned above was applicable to her.

Supreme Court was satisfied with the evidence presented by appellant of payment of overtime in name of a bonus as provided in Clause 12 of the Terms of Service i.e. commission of 1% on the total sales. Hence, respondent was entitled to receive a bonus for overtime work which the respondent was already receiving, therefore, the order of Industrial Relations Court was declared wrong and was set aside. [Quicksave Limited v. Sarah Mubambe, Appeal No. 30 of 2016, dated 10-10-2018]

Case BriefsHigh Courts

Madhya Pradesh High Court: While allowing an appeal, the Division Bench of S.K. Seth J., and Nandita Dubey J., decided a writ in which the appellant- wife sought information in regard to the salary of respondent 1- husband in reference to obtaining maintenance amount.

The brief facts of the case state that Respondent 1-husband held a very high officer position in the Telecommunication Department and was also earning an amount of Rs. 2,25,000 per month, whereas the appellant, an advocate though not in practice, was attaining an amount of Rs. 7000 as maintenance from her husband.

For the stated amount of maintenance, the appellant had filed an application under Section 91 of CrPC to obtain a direction in which the respondent was asked to submit his payslip so that correct maintenance amount could be calculated accordingly, but the trial court had rejected her application. Further an application under the Right to Information Act, 2005 was submitted in quest of the same details as mentioned above, which eventually was taken to Central Information Commission. CIC had then asked the CPIO, BSNL to provide the said details.

Challenging the order of CIC, the only claim that was raised upon from the side of the respondent was that he was not given an “opportunity of hearing” which is the violation of principles of natural justice, for which the learned Single Judge had given an opportunity to hear and directions were issued to CIC for fresh appeal. In the second round of writ petition, the order of CIC to provide the information asked was challenged both by Respondent 1 and BSNL.

However, in accordance to Section 8(1) (j) of the said Act, “the information which has no relation to any public activity or interest, or which would cause unwarranted invasion of privacy”, is exempted from being disclosed, the Court allowed the appeal by stating the fact that appellant is the wife of Respondent 1 which gave her the right and entitlement to know the remuneration of her husband. [Sunita Jain v. Pawan Kumar Jain, 2018 SCC OnLine MP 373, dated 15-05-2018]

Business NewsNews

The concept of fixed term employment defines the tenure of employment as well as other associated conditions of service and remunerations, which are provided to regular employees under various labour laws. The government has extended the facility of hiring workers on fixed term employment to all sectors for improving the ease of doing business for players intending to hire people for completing specified projects, tasks or orders. The facility of fixed term employment was introduced in apparel manufacturing sector in Industrial Employment (Standing Order ) Act in October, 2016.

[Key highlights] As per a notification issued by the labour ministry to amend the Order :-

  • The words “fixed term employment in apparel manufacturing sector” will be replaced by “fixed term employment” meaning that facility would be available/extended to all sectors.
  • The worker employed for short period will get better working and service conditions as compared to a contract worker.
  • No notice of termination of employment shall be necessary in case of temporary and badli workmen.
  • The fixed term employment is defined as a workman employed on a contract basis for a fixed period. Thus the services of the workman will be automatically terminated as a result of non-renewal of contract between the employer and the workman concerned.
  • A fixed term worker would not be entitled to any notice or pay in lieu of that, if his services are terminated or in case of non-renewal of contract or expiry of term of employment.
  • Also a temporary workmen who has completed 3 months of continuous service, shall be given 2 weeks notice of the intention to terminate his employment if such termination is not in accordance with the terms of the contract. In case he has not completed 3 months of continuous service, he shall be informed for the reasons for termination in writing.
  • Any services of temporary nature shall not be terminated as punishment unless the employee has been given an opportunity of explaining the charges of misconduct alleged against him.
  • A separation of service of the workman as a result of non-renewal of the contract of employment between the employer and workman concerned shall not be construed as termination of employment. This facility will aid the industry to employ worker in sectors which are of seasonal nature and witness fluctuation of demand and hence requires flexibility in employing workers.
  • Under the fixed term employment the working conditions in terms of working hours, wages, allowances and other statutory dues would be at par with a permanent workmen and no less than that.
  • A fixed term worker will also be eligible for all statutory benefits available to a permanent workman proportionately according to the period of service rendered by him even though his period of employment does not extend to the qualifying period of employment required in the statute.
  • The employer can directly hire a worker for a fixed term without mediation of any contractor.

[Source: The Economic Times]

Photo Courtesy: Financial Tribune, https://financialtribune.com/sites/default/files/field/image/