A Welcome Move?

A Welcome Move?


Feb 09


Posted by: CS Shilpi Thapar

The Press Release issued by Ministry of Corporate Affairs
” Government of India
Ministry of Corporate Affairs
Press Note No. 4/2011 dated 8.2.2011
Managerial Remuneration in unlisted companies having no profits/ inadequate profits
1.Companies are divided into private limited and public limited companies. Public limited companies are of two types – listed companies (whose shares are listed on a stock exchange) and unlisted companies. Normally, the general public does not hold shares in unlisted companies. Private limited companies are not subject to any limits on managerial remuneration. Public limited companies (listed and unlisted) with no profits/ inadequate profits are currently required to approach the Ministry for approval in those cases where the remuneration of Directors/ equivalent managerial personnel exceeds certain limits.
2.The matter has been re-examined in the light of the evolving economic and regulatory environment. The primary purpose of regulations over managerial remuneration is to protect stakeholders, particularly shareholders and creditors. Unlisted companies are in several respects similar to private limited companies. A substantial number of the applications coming to the Ministry fall under this category and the Ministry’s limited manpower is disproportionately involved in this exercise. In the case of unlisted companies so long as the conditions specified in Schedule XIII, including special resolution of shareholders and absence of default on payment to creditors, are fulfilled approval will not be needed hereafter.
3.Accordingly, Schedule XIII of the Companies Act 1956 is being amended to provide that unlisted companies (which are not subsidiaries of listed companies) shall not require Government approval for managerial remuneration in cases where they have no profits/ inadequate profits, provided they meet the other conditions stipulated in the Schedule.”
Now , here very important questions arises:
1. The press release says that as long as resolution of remuneration is approved by shareholders by special resolution and there is no default on payment of creditors, Unlisted Public Limited Company deosnot requires approval of Central Government for increase in managerial remuneration beyond the limits prescribed in sch.XIII of the Act. Now, here the important issue that arises is  mostly unlisted public limited companies are family owned companies and majority of shareholding is held by Promoters and their family members.So what about the protection of interest of Minority Shareholders in this case? Remuneration will be approved by majority of shareholders i.e mostly promoters and promoters group.
2. Secondly, Ministry in order to resolve its limited manpower issue and in order to lessen its burden of disposing off such applications is the main reason for giving such exemption?
3. Thirdly, is it not a big hit to principles of Corporate Governance, transparency? With more and more exemptions from Central Government on such important sections, will promoters and directors not misutilise the liberty to  much possible extent?
Please share your views.

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