Greenstone Cements Ltd. is an unlisted company (the company). The company achieved the turnover of ₹300 crore during the year 2024-25. Malavika, the CFO of the company has put forward the following case scenarios for you
CS Executive · Company Law and Practice · PYQS · December 2025
Greenstone Cements Ltd. is an unlisted company (the company). The company achieved the turnover of ₹300 crore during the year 2024-25. Malavika, the CFO of the company has put forward the following case scenarios for your perusal, consideration and solution being a practicing company secretary. Case I: The Board of Directors made the following appointments at its meeting held on 1st July, 2025: (i) Anil, a director of its subsidiary company, Ruby Cements Ltd. was appointed as General Manager on a consolidated salary of ₹1,80,000 per month with effect from 1st July, 2025. (ii) Parimal, a relative of Kamal was appointed as director of Greenstone Cements Ltd. on 1st July, 2025. Further, the Managing Director appointed Kamal as Assistant Production Manager on a consolidated salary of ₹1,55,000 per month with effect from above date. Case II: The company is desirous of paying the following managerial remuneration: (i) Commission @ five percent of the net profits to its Managing Director. (ii) Directors other than the Managing Director are proposed to be paid a monthly remuneration of ₹2,50,000 and also commission @ one percent of the net profits subject to the condition that overall remuneration payable to ordinary directors including monthly remuneration payable to each of them shall not exceed two percent of the net profits. There will be equal distribution of commission among all the directors. Case III: The Board of Directors has decided to appoint an independent woman director and other independent directors, if so required at the upcoming Annual General Meeting (AGM). Case IV: The company has to convene its Annual General Meeting (AGM) on 25th September 2025. The notice for the AGM was issued by post on 1st September 2025. The managing director seeks clarification on certain issues relating to issuing notice of the AGM. Based on the above information and referring to the provisions of Companies Act, 2013 answer the following: Analyse the validity of the proposal of paying managerial remuneration to the managing director and other directors.
Answer & Explanation:
Greenstone Cements Ltd. being managed by a Managing director proposes to pay the following managerial remuneration: Commission @ 5% of net profits to its Managing Director Clause 1 of second proviso to section 197(1) provides that except with the approval of the company in general meeting by a special resolution, remuneration payable to any one managing director or whole-time director or manager shall not exceed 5% of the net profits of the company and if there is more than one such director then remuneration shall not exceed 10% of the net profits to all such directors and manager together. In the present case since the company is managed by a managing director, commission proposed to be paid @5% of net profits to the managing director is permissible and no approval of company in general meeting is required, subject to any restrictions or compliance requirements in the Articles of Association. The said proposal is valid. Remuneration to Other Directors: Clause ii of second proviso to section 197(1) provides that except with the approval of the company in general meeting by a special resolution, remuneration payable to directors who are neither managing directors nor whole time directors shall not exceed - a) 1% of net profits of the company if there is managing or whole-time director or manager b) 3% of net profits in any other case In the present case maximum remuneration allowed to directors other than managing or whole-time director is 1% of net profits of the company because the company is managed by a managing director. Hence, if the company wants to fix directors remuneration for more than 1% of the net profits of the company, approval of the company in general meeting is required by passing a special resolution. Therefore, the said proposal is not valid and can be said to be valid only if made in compliance with the said requirement.
Topics: Appointment and Remuneration of Managerial Personnel
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