PROVISIONS OF
COMPANIES ACT 1956 (herein referred to as“Act”) WITH RESPECT TO CORPORATE
GOVERNANCE
Disclosures on
Remuneration of Directors: The
specific disclosures on the remuneration of directors regarding all elements of
remuneration package of all the directors should be made as a part of Corporate
Governance. Section 299of the Act requires every director of a company
to make disclosure, at the Board meeting, of the nature of his concern or
interest in a contract or arrangement (present or proposed) entered by or on
behalf of the company. The company is also required to record such transactions
in the Register of Contract under section 301 of the Act.
Requirements of
the Audit Committee: Audit
Committee has a critical role to play in ensuring the integrity of financial
management of the company. This Committee add assurance to the shareholders
that the auditors, who act on their behalf, are in a position to safeguard
their interests. Besides the requirements of Clause 49, section 292Aof
the Act requires every public having paid up capital of Rs 5 crores or more
shall constitute a committee of the board to be known as Audit Committee. As
per the Act, the committee shall consist of at least three directors, two-third
of the total strength shall be directors other than managing or whole time
directors. The Annual Report of the company shall disclose the composition of
the Audit Committee. The recommendations of the committee on any matter
relating to financial management including Audit Report, shall be binding on
the board. In case board does not accept the recommendations so made, the
committee shall record the reasons thereof, which should be communicated to the
shareholders, probably through the Corporate Governance Report. The committee
shall act in accordance with the terms of reference to be specified in writing
by the board. The committee should have periodic discussions with the auditors about
the Internal Control Systems and the scope of audit including the observations
of the auditors. If the default is made in complying with the said provision of
the Act, then the company and every officer in default shall be punishable with
imprisonment for a term extending to a year or with fine up to Rs 50000 or
both.
Director’s
remuneration: Section
309(1) of the Act requires that the remuneration payable both to the executive
as well as non-executive directors is required to be determined by the board in
accordance with and subject to the provisions of section 198 either by the
articles of the company or by resolution or if the articles so require, by a
special resolution, passed by the company in a general meeting. Further,
Schedule VI of the Act requires disclosure of Director’s remuneration and
computation of net profits for that purpose.
Corporate
Democracy: Wider
participation by the shareholders in the decision making process is a
pre-condition for democratizing corporate bodies. Due to geographical distance
or other practical problems, a substantially large number of shareholders
cannot attend the general meetings. To overcome these obstacles and pave way
for introduction of real corporate democracy, section 192Aof the Act and
the Companies (Passing of Resolution by Postal Ballot), Rules provides
for certain resolutions to be approved and passed by the shareholders through
postal ballots.
Some Acts
1[198. 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 or a private company which
is a subsidiary of a public company, to its directors and its 2[***]
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 sections 349 3[and 350], except that the
remuneration of the directors shall not be deducted from the gross profits.
4[***]
(2) The
percentage aforesaid shall be exclusive of any fees payable to directors under
sub-section (2) of section 309.
(3) Within the
limits of the maximum remuneration specified in sub-section (1), a company may
pay a monthly remuneration to its managing or whole-time director in accordance
with the provisions of section 309 or to its manager in accordance with the
provisions of section 387.
5[(4) Notwithstanding anything
contained in sub-sections (1) to (3), but subject to the provisions of section
269, read with Schedule XIII, if, in any financial year, a company has no
profits or its profits are inadequate, the company shall not pay to its
directors, including any managing or whole-time director or manager, by way of
remuneration any sum exclusive of any fees payable to directors under sub-section
(2) of section 309, except with the previous approval of the Central
Government.]
Explanation.—For
the purposes of this section and sections 309, 310, 311, 6[***]
381 and 387, “remuneration” shall include,—
(a) any
expenditure incurred by the company in providing any rent-free accommodation,
or any other benefit or amenity in respect of accommodation free of charge, to
any of the persons specified in sub-section (1);
(b) any
expenditure incurred by the company in providing any other benefit or amenity
free of charge or at a concessional rate to any of the persons aforesaid;
(c) any
expenditure incurred by the company in respect of any obligation or service
which, but for such expenditure by the company, would have been incurred by any
of the persons aforesaid; and
(d) any
expenditure incurred by the company to effect any insurance on the life of, or
to provide any pension, annuity or gratuity for, any of the persons aforesaid
or his spouse or child.]
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1. Subs. by Act 65 of 1960, sec. 56, for section 198 (w.e.f. 28-12-1960).
2. The words “managing agent, secretaries and treasurers or” omitted by
Act 53 of 2000, sec. 85 (w.e.f. 13-12-2000).
3. Subs. by Act 53 of 2000, sec. 85, for “, 350 and 351” (w.e.f.
13-12-2000).
4. Proviso omitted by Act 53 of 2000, sec. 85 (w.e.f. 13-12-2000).
5. Subs. by Act 31 of 1988, sec. 25, for sub-section (4) (w.e.f.
15-6-1988).
6. The figuress “348, 352” omitted by Act 53 of 2000, sec. 85 (w.e.f.
13-12-2000).You can have more reading on below docs.
1. https://docs.google.com/document/d/1R2zDpRMvBAqfifF2CQi52HNjiv0qAaPwlVeRnmMxKy4/edit
2. https://docs.google.com/document/d/1-x1G_y-fkMVRZ-thJA2PYohMieNInRoJeNPhUt3rD_o/edit
