Currently under Section 197(3) of the Companies Act, 2013 (2013 Act), in case of no profits or inadequacy of profits, a company is not allowed to pay any remuneration (other than sitting fee) to its directors, including managing director, whole-time director or manager, except as provided under Schedule V to the 2013 Act.
The Companies (Amendment) Act, 2020 (2020 Amendment Act) introduced amendments to Section 149 and 197 of the 2013 Act, to provide remuneration for non-executive directors, including independent directors, in case of inadequacy of profits in a manner similar to executive directors. The 2020 Amendment Act received the assent of the President of India on 28 September 2020. Many sections of the 2020 Amendment Act were notified on 21 December 2020, 22 January 2021 and 11 February 2021 by the Ministry of Corporate Affairs (MCA).
On 18 March 2021, the Central Government notified amendments to Sections 149 and 197 of the 2013 Act introduced through 2020 Amendment Act relating to remuneration payable by companies having no profit or inadequate profit. Further, MCA notified amendments to Part II of the Schedule V of the 2013 Act. The notification is effective from the date of its publication in the Gazette i.e. 18 March 2021.
Additionally, on 24 March 2021, the Central Government also notified amendments to Sections 124 and 247 of the 2013 Act relating to decriminalisation of offences.
This issue of First Notes aims to provide an overview of the recently notified sections of the 2020 Amendment Act and changes to Schedule V of the 2013 Act.
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