Quality Limited, a listed entity, with a paid up capital of ₹ 400 crore proposes to pay the following remuneration :(i) Commission @ 5% of net profit to Karan, Managing Director;(ii) Directors under than Managing Directo

Quality Ltd, a listed company, being managed by a managing director proposes to pay the following managerial remuneration: (i) Commission @5% of net profits to its managing director Mr. Karan: Part I of second proviso to section 197 provides that except with the approval of the company in general meeting remuneration payable to anyone managing director or WTD or manager shall not exceed 5% of 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 taken together. In the present scenario, Quality Ltd. can pay commission @ 5% to Mr. Karan, Managing Director provided he is not withdrawing any other remuneration. The said remuneration including commission to Mr. Karan can paid up to 5% of the net profit with out obtaining the approval of the Central Government, however, pursuant to the Section 196(4) of the Act, such remuneration shall be approved by the members in the next general meeting. (ii) Directors other than the MD are proposed to be paid monthly remuneration of ₹ 50,000 and also commission @ 1% of net profits of the company subject to the condition that overall remuneration payable to ordinary directors including monthly remuneration payable to each of them shall not exceed 2% of net profits of the company: Para (ii) of the second proviso to section 197 provides that except with the approval of the company in general meeting remuneration payable to directors who are neither managing directors nor whole time directors shall not exceed- 1% of net profits of the company if there is a managing director or whole-time director or manager; 3% of net profits, in any other case; In the present case, maximum remuneration allowed for directors other than managing or whole-time director is 1% of the net profits of the company because the company is having managing director also. Hence, if Quality Limited wants to fix their remuneration at not more than 2% of net profits of the company, the approval of the company in general meeting along with Central Government is required. (In Question 5 (a) (ii), there is printing error that "Directors other than Managing Director should have been used instead of Directors under than Managing Director) (iii) Quality Limited also proposes to pay suitable additional remuneration to Mr. Diligent, a director for professional services rendered as lawyer whenever such services are utilised. Pursuant to the provisions of Section 197(4) of the Companies Act, 2013, remuneration payable to the directors of a company including any managing director or whole-time director or manager shall be determined in accordance with and subject to the provisions of this section either- By articles or By resolution or If articles so require by special resolution passed by company in general meeting and Remuneration payable to a director determined aforesaid shall be inclusive of the remuneration payable to him for services rendered by him in any other capacity. Any remuneration for services rendered by au such director in other capacity shall not be so included if- Services are of a professional nature; and In the opinion of the Nomination and Remuneration Committee of the company is covered under Section 178(1) or the Board of Directors in other cases the Director possesses the requisite qualification for the practice of the profession. Hence, in the instant case additional remuneration to Mr Diligent, a director for profession services rendered as a lawyer will not be included in the maximum managerial remuneration and is allowed provided Nomination and Remuneration Committee/the Board of Directors, as the case may be, opines that Mr. Diligent possess the requisite qualification as a lawyer. It may be noted that the compliances of Section 177 and Section 188 shall be adhered to by the Company.