Happy Health Care Services Private Limited is one of the best in the field of medical and health services across the country. The company has been under scrutiny for its remuneration policies for Key Managerial Personnel

Section 197 of the Companies Act, 2013, imposes certain restrictions on the remuneration payable to managerial personnel of a public company. The primary objective of this provision is to prevent excessive remuneration at the cost of shareholders' interests. The total managerial remuneration payable by a public company to its directors (including managing director and whole-time director) and its manager in respect of any financial year shall not exceed eleven percent of the net profits of the company for that financial year. Fees payable to directors under Section 197(5) are excluded from this limit. Net Profits Calculation: The method for calculating net profits is prescribed under Section 198 of the Act. Restrictions within the overall ceiling: Within the overall ceiling of 11% of net profits the internal ceiling on the remuneration of the Manager, MD and WTD have been prescribed as below: In case of one MD, WTD or manager - 5% of the net profits of the company. More than one Managing Director/ Whole time Director/Manager-10% of the net profits of the company together. Directors who are neither MD/WTD or Manager-1% of the net profits of the company, if there is a MD/WTD or Manager and 3% if there is no MD/WTD or Manager. Shareholder Approval: If a company wishes to pay remuneration exceeding the 11% limit, or the internal limits so specified as above it requires the approval of its shareholders through a special resolution. 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. Limit on remuneration: If there is no profit or inadequate profit the remuneration to MD/WTD or Manager shall be paid in accordance with the provisions of schedule V of the Companies Act, 2013. Section 197 of the Companies Act, 2013, imposes certain restrictions on the remuneration payable to managerial personnel of a public company. However, these restrictions applies to a public company only. Private companies are free to appoint any person as managerial personnel and pay any amount of remuneration, subject to any restrictions in its Articles of Association. Further, neither the provisions of Section 203 of the Act read with Rule 8 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 relating to appointment of Key Managerial Personnel applies to a private company. Thus, unless otherwise specified in the Articles of Association of the private company, there is no requirement of approvals from shareholders or from creditors for payment of remuneration to Key Managerial Personnel.