{"id":5952,"date":"2026-05-13T08:12:28","date_gmt":"2026-05-13T08:12:28","guid":{"rendered":"https:\/\/digiwic.in\/spgindia\/?p=5952"},"modified":"2026-05-13T08:12:28","modified_gmt":"2026-05-13T08:12:28","slug":"executive-remuneration-in-india-edition-8-section-197-vf","status":"publish","type":"post","link":"https:\/\/digiwic.in\/spgindia\/executive-remuneration-in-india-edition-8-section-197-vf\/","title":{"rendered":"Executive Remuneration in India Edition 8 Section 197 VF"},"content":{"rendered":"

Executive remuneration in India <\/strong>reflects a calibrated balance between commercial flexibility, ease of doing business, and governance oversight.<\/p>\n

Under the Companies Act, private companies<\/strong> have historically enjoyed substantial freedom in structuring managerial remuneration, thereby enabling them to determine compensation based on commercial realities and talent requirements without statutory caps<\/strong>. This legislative approach aligns with India\u2019s broader policy objective of promoting ease of doing business and fostering a competitive investment climate, making the Indian jurisdiction attractive for domestic entrepreneurs as well as global businesses establishing operations in India.<\/p>\n

In contrast, public companies<\/strong> operate within a regulated framework. Section 197 of the Companies Act, 2013 links managerial remuneration to net profits and prescribes limits; in cases of no or inadequate profits, payment is permitted only in accordance with Schedule V or with requisite approvals, along with mandatory disclosures in the Board\u2019s Report.<\/p>\n

For listed entities<\/strong>, Regulation 17(6) of the SEBI (LODR) Regulations, 2015 further mandates special resolution approval beyond prescribed thresholds, supported by Nomination & Remuneration Committee oversight (Regulation 19) and enhanced disclosures under Regulation 34 read with Schedule V.<\/p>\n

Essential Managerial Remuneration Compliance Checkpoints<\/u><\/h3>\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
Section<\/strong><\/td>\nCompliance Mandate<\/strong><\/td>\n<\/tr>\n
197(1)<\/strong><\/p>\n

 <\/p>\n

Limits on Managerial Remuneration<\/strong><\/p>\n

\u00a0<\/strong><\/td>\n

Total managerial remuneration payable by a public company to its Directors in respect of any FY shall not exceed 11% of net profits<\/strong>, computed under Section 198.<\/p>\n

 <\/p>\n

Remuneration beyond 11%<\/u><\/strong><\/p>\n

 <\/p>\n

May be paid with approval in general meeting<\/strong>, subject to Schedule V<\/strong>.<\/p>\n

 <\/p>\n

Individual & Category-wise Limits <\/u><\/strong><\/p>\n

 <\/p>\n

\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Single MD\/WTD\/Manager<\/strong> \u2013 Maximum 5% of net profits<\/strong>.<\/p>\n

\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 More than one MD\/WTD\/Manager<\/strong> \u2013 Maximum 10% in aggregate<\/strong>.<\/p>\n

\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Directors who are neither MD nor WTD<\/strong>:<\/p>\n

o\u00a0\u00a0 1%<\/strong> where there is an MD\/WTD\/Manager.<\/p>\n

o\u00a0\u00a0 3%<\/strong> if there is no MD\/ WTD\/ Manager.<\/p>\n

 <\/p>\n

Remuneration beyond the above limits can be paid by Special Resolution.<\/p>\n

 <\/p>\n

In case of Default in payment of dues<\/strong><\/p>\n

 <\/p>\n

\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Prior approval of bank \/ public financial institution \/ NCD holders \/ secured creditor<\/strong> is mandatory before obtaining shareholders\u2019 approval.<\/td>\n<\/tr>\n

197(2)<\/strong><\/td>\nThe percentages aforesaid shall be exclusive of any fees for attending meetings\/ or any other purpose as may be decided by Board.<\/td>\n<\/tr>\n
197(3)<\/strong><\/td>\nIn case of no profits or inadequate profits<\/strong>, remuneration allowed only as per Schedule V<\/strong>.<\/td>\n<\/tr>\n
197(4)<\/strong><\/td>\nThe\u00a0remuneration<\/a>\u00a0payable to the Directors of a companyshall be determined subject to the provisions of this section, either by the\u00a0articles<\/a>\u00a0of the company, or by a resolution or, if the\u00a0articles<\/a>\u00a0so require, by a special resolution, passed by the\u00a0company<\/a>\u00a0in general meeting. The remuneration<\/a>\u00a0payable to a\u00a0director<\/a>\u00a0determined aforesaid shall be inclusive of the\u00a0remuneration<\/a>\u00a0payable to him for the services rendered by him in any other capacity:<\/p>\n

 <\/p>\n

Any\u00a0remuneration<\/a>\u00a0for services rendered any director<\/a>\u00a0in other capacity shall not be so included if\u2014<\/p>\n

 <\/p>\n

a.\u00a0\u00a0\u00a0\u00a0 the services rendered are of a professional nature; and<\/p>\n

b.\u00a0\u00a0\u00a0\u00a0 in the opinion of the Nomination and Remuneration Committee or the\u00a0Board of Directors<\/a>, the\u00a0director<\/a>\u00a0possesses the requisite qualification for the practice of the profession.<\/p>\n

 <\/td>\n<\/tr>\n

197(6)<\/strong><\/td>\nA director or manager may be paid remuneration either by way of a monthly payment or at a specified percentage of the net profits of the company or partly by one way and partly by the other.<\/td>\n<\/tr>\n
197(9)<\/strong><\/td>\nIf any director draws or receives<\/strong>, directly or indirectly, by way of remuneration any such sums in excess of the limit prescribed<\/strong> by this section or without approval required under this section, he shall refund such sums to the company, within two years or such lesser period<\/strong> as may be allowed by the company, and until such sum is refunded, hold it in trust for the company.<\/td>\n<\/tr>\n
197(10)<\/strong><\/td>\nThe company shall not waive the recovery of any sum refundable<\/strong> to it unless approved by the company by special resolution within two years from the date the sum becomes refundable<\/strong>.<\/p>\n

 <\/p>\n

Provided that 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, their prior approval shall be obtained by the company before obtaining approval of such waiver.<\/td>\n<\/tr>\n

197(11)<\/strong><\/td>\nAny increase in remuneration in case of inadequate profits valid only if \u00a0compliant with Schedule V<\/strong>.<\/td>\n<\/tr>\n
197(12)<\/strong><\/td>\nEvery listed company shall disclose in the Board\u2019s report, the ratio of the remuneration of each director to the median employee\u2019s remuneration<\/strong> and such other details as may be prescribed.<\/td>\n<\/tr>\n
197(13)<\/strong><\/td>\nWhere any insurance is taken by a company on behalf of its MD, Whole-time director, Manager, CEO, CFO or CS for indemnifying any of them against any liability in respect of any negligence, default, misfeasance, breach of duty or breach of trust for which they may be guilty in relation to the company, the premium paid on such insurance shall not be treated as part of the remuneration payable to any such personnel.<\/p>\n

 <\/td>\n<\/tr>\n

197(14)<\/strong><\/td>\nSubject to the provisions of this section, any director who is in receipt of any commission from the company and who is a managing or whole-time director of the company shall not be disqualified from receiving any remuneration or commission from any holding company or subsidiary company of such company subject to its disclosure by the company in the Board\u2019s report.<\/td>\n<\/tr>\n
197(15)<\/strong><\/td>\nContravention attracts fine<\/strong> which shall not be less than one lakh rupees but which may extend to five lakh rupees.<\/strong><\/td>\n<\/tr>\n
197(16)<\/strong><\/td>\nThe auditor of the company shall, in his report u\/s 143, make a statement<\/strong> as to whether the remuneration paid by the company to its Directors is in compliance with Section 197 and its limits and give such other details as may be prescribed.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

 <\/p>\n

SCHEDULE V OF THE COMPANIES ACT, 2013<\/strong><\/p>\n\n\n\n
Schedule V provides the framework governing appointment and remuneration of managerial personnel (MD\/WTD\/Manager), particularly when a company has no profits or inadequate profits.<\/strong><\/p>\n

\u00a0<\/strong><\/p>\n

Part II allows payment of remuneration within specified limits based on the company\u2019s effective capital, subject to Board and shareholder approvals.<\/strong><\/p>\n

\u00a0<\/strong><\/p>\n

Schedule V ensures that companies can remunerate managerial personnel even during periods of no or inadequate profits, while maintaining transparency, approvals and governance oversight.<\/strong><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

 <\/p>\n

SEBI (LODR) REGULATIONS, 2015<\/strong><\/p>\n\n\n\n\n\n\n\n
Regulation<\/strong><\/td>\nCompliance Mandate<\/strong><\/td>\n<\/tr>\n
17 (6)(a)<\/strong><\/td>\nThe board of directors shall recommend all fees or compensation, if any, paid to non-executive directors, including independent directors and shall require approval of shareholders in general meeting.<\/p>\n

 <\/p>\n

The approval of shareholders shall specify the limits for the maximum number of stock options that may be granted to non-executive directors, in any financial year and in aggregate.<\/p>\n

 <\/p>\n

The approval of shareholders by special resolution shall be obtained every financial year, in which the annual remuneration payable to a single non-executive director exceeds 50% of the total annual remuneration payable to all non-executive directors, giving details of the remuneration thereof.<\/p>\n

 <\/td>\n<\/tr>\n

17(6)(d)<\/strong><\/td>\nIndependent directors shall not be entitled to any stock option.<\/p>\n

 <\/td>\n<\/tr>\n

17(6)(e)<\/strong><\/td>\nThe fees or compensation payable to executive directors who are promoters or members of the promoter group, shall be subject to the approval of the shareholders by special resolution in general meeting, if-<\/p>\n

 <\/p>\n

i.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 the annual remuneration payable to such executive director exceeds rupees 5 crore<\/strong> or 2.5 per cent<\/strong> of the net profits of the listed entity, whichever is higher; or<\/p>\n

ii.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 where there is more than one such director, the aggregate annual remuneration to such directors exceeds 5 per cent of the net profits of the listed entity:<\/p>\n

 <\/p>\n

The approval of the shareholders under this provision shall be valid only till the expiry of the term of such director.<\/td>\n<\/tr>\n

19 r\/w Part D of schedule II<\/strong><\/td>\nMandates constitution of NRC to recommend policy on remuneration of directors and KMP. Specifies that the NRC shall formulate criteria for determining qualifications, independence and remuneration of directors.<\/strong><\/p>\n

 <\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

\u00a0<\/strong><\/p>\n

ADJUDICATION ORDERS (ROC\/ RD\/ SEBI)<\/strong><\/p>\n

Regulatory authorities such as ROC, RD and SEBI have increasingly scrutinized compliance relating to executive remuneration, particularly with respect to approvals, limits and disclosures. A brief summary of select adjudication orders is presented below.<\/p>\n\n\n\n\n\n\n\n\n\n\n\n
Company<\/strong><\/td>\nDate of Order<\/strong><\/td>\nAuthority<\/strong><\/td>\nProvision Violated<\/strong><\/td>\nNature of Non-Compliance<\/strong><\/td>\nPenalty (includes penalty for other violations)<\/strong><\/td>\n<\/tr>\n
M\/s Seva Parmodharmah Samajik Nidhi Limited<\/strong><\/p>\n

\u00a0<\/strong><\/p>\n

\u00a0<\/strong><\/p>\n

\u00a0<\/strong><\/p>\n

\u00a0<\/strong><\/p>\n

\u00a0<\/strong><\/p>\n

\u00a0<\/strong><\/td>\n

Jan 31, 2024<\/p>\n

 <\/p>\n

 <\/p>\n

 <\/p>\n

 <\/p>\n

 <\/p>\n

 <\/p>\n

 <\/p>\n

 <\/p>\n

 <\/p>\n

 <\/td>\n

ROC, Patna<\/td>\nSection 197(1)<\/p>\n

 <\/p>\n

 <\/p>\n

 <\/p>\n

 <\/p>\n

 <\/p>\n

 <\/p>\n

 <\/td>\n

Paid managerial remuneration exceeding 11% of the net profits of the Company for FY 2018\u201319 and FY 2019\u201320<\/p>\n

 <\/p>\n

It has been observed that no form MGT 14 has been filed, which implies that company has not passes any Special Resolution w.r.t. Managerial Remuneration.<\/p>\n

 <\/td>\n

Aggregate penalty of \u20b910,00,000 imposed on the company for two years.<\/p>\n

 <\/p>\n

Penalty of \u20b91,00,000 imposed on each director for two years.<\/td>\n<\/tr>\n

M\/s Zuari Agro Chemicals Limited<\/strong><\/td>\nAugust 16, 2024<\/td>\nROC, Goa, Daman & Diu<\/td>\nSection 197(9) & (10)<\/td>\nThe Company defaulted in payment of term loan during the FY 2019 – 20, therefore, it was necessary for the Company to obtain prior approval of the banks\/ financial institutions for payment of remuneration to MD for the FY 2019 \u2013 20. But no such prior approval was taken.<\/p>\n

 <\/p>\n

The Company also failed to obtain shareholders\u2019 approval for waiver within two years.<\/td>\n

Penalty of \u20b95,00,000 Lakhs imposed on the Company, and<\/p>\n

 <\/p>\n

\u20b91,00,000 Lakh on Managing Director.<\/td>\n<\/tr>\n

M\/s Essar Shipping Limited<\/strong><\/td>\nMay 17, 2023<\/td>\nROC,<\/p>\n

Gujarat, Dadra & Nagar Haveli<\/td>\n

Section 197<\/td>\nExcess managerial remuneration was paid without obtaining requisite approvals mandated under section 197 and Schedule V.<\/td>\nPenalty of \u20b95,00,000 imposed on the company,<\/p>\n

 <\/p>\n

Also, \u20b91,00,000 on CEO, and \u20b91,00,000 on Whole Time Director.<\/td>\n<\/tr>\n

M\/s Hari Machines Limited<\/strong><\/td>\nAugust 28, 2025<\/td>\nROC, Cuttack<\/td>\nSection 197(3) read with Section 197(15) of Companies Act, 2013<\/td>\nCompany paid managerial remuneration despite incurring losses and defaulting in repayment of bank loans, without obtaining requisite approval.<\/td>\nPenalty imposed on Company and its Directors.<\/p>\n

 <\/td>\n<\/tr>\n

M\/s Magnum Sea Foods Limited<\/strong><\/td>\nOctober 17, 2025<\/td>\nROC (Calcutta)<\/td>\nSection 197 read with Section 197(15) of Companies Act, 2013<\/td>\nIt was observed from form MGT \u2013 7 filed by the Company that the Company paid director remuneration exceeding statutory limits.<\/td>\nPenalties were imposed on the Company and the Directors.<\/td>\n<\/tr>\n
M\/s Majestic Auto Limited<\/strong><\/td>\nJune 11, 2021<\/td>\nSEBI \u2013 Whole Time Member<\/td>\nRegulation 19 and Corporate Governance provisions of SEBI LODR<\/td>\nAppointment of Independent Directors bypassed the Nomination & Remuneration Committee and Board process prescribed under LODR.<\/td>\nSEBI passed an Ad-Interim Ex-Parte Order directing that the appointment of the Independent Directors shall not be acted upon and kept in abeyance.<\/td>\n<\/tr>\n
M\/s Infosys Limited<\/strong><\/td>\nFebruary 15, 2019<\/td>\nSEBI \u2013 Whole Time Members (Settlement Order)<\/td>\n–\u00a0 Reg 19(4) & 23(2) and Regulation 30 of SEBI LODR Regulations, 2015.<\/td>\nSeverance payment to ex-CFO made without NRC approval, without Audit Committee approval for related party transaction, and without proper disclosures.<\/td>\nSettlement amount of \u20b934,35,000 paid by the company.<\/p>\n

 <\/td>\n<\/tr>\n

M\/s DIC India Limited<\/strong><\/td>\nMarch 21, 2025<\/td>\nSEBI \u2013 Whole Time Members (Settlement Order)<\/td>\nRegulation 19(4); Regulation 30; Regulation 23(9)<\/td>\nFailure to obtain NRC recommendation for appointment of senior management and failure to disclose KMP remuneration in related party disclosures.<\/td>\nSettlement amount of \u20b934,32,000 paid by the company.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Insight <\/strong><\/p>\n

The above orders indicate increasing regulatory scrutiny on executive remuneration in India. Most actions arise from excess remuneration, absence of required approvals, and inadequate disclosures<\/strong> under the Companies Act, 2013 and SEBI LODR. These cases underscore the importance of strict compliance with statutory limits, approvals and governance processes<\/strong>.<\/p>\n

CS Suresh Pandey<\/strong>
\nPractising Company Secretary<\/strong><\/p>\n

SPG & Associates<\/strong>
\n9968300649
\n<\/strong>suresh@spgindia.co.in<\/a><\/p>\n

Coming Up in Edition 9<\/strong>: Declaration & Payment of Dividend \u2013 Key Compliance Checks for Secretarial Auditors<\/em><\/strong><\/p>\n

\n

Disclaimer: This content is intended solely for research and knowledge-sharing purposes among professionals, based on information available in the public domain. It is not intended to malign any individual or entity, nor should it be construed as a solicitation or used for any commercial or promotional purpose. The views expressed do not constitute a legal opinion or professional advice. While utmost care has been taken to ensure the accuracy of the content, no responsibility is accepted for any errors or omissions. Readers are advised to verify the information independently from official and original sources before taking any action based on the same.<\/em><\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

Executive remuneration in India reflects a calibrated balance between commercial flexibility, ease of doing business, and governance oversight. Under the Companies Act, private companies have historically enjoyed substantial freedom in structuring managerial remuneration, thereby enabling them to determine compensation based on commercial realities and talent requirements without statutory caps. This legislative approach aligns with India\u2019s […]<\/p>\n","protected":false},"author":1,"featured_media":4390,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[34],"tags":[],"year_tax":[],"month_tax":[],"class_list":["post-5952","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-audit"],"acf":[],"featured_image_src":{"landsacpe":["https:\/\/digiwic.in\/spgindia\/wp-content\/uploads\/2025\/01\/accounting-process-4.jpg",443,260,false],"list":["https:\/\/digiwic.in\/spgindia\/wp-content\/uploads\/2025\/01\/accounting-process-4.jpg",443,260,false],"medium":["https:\/\/digiwic.in\/spgindia\/wp-content\/uploads\/2025\/01\/accounting-process-4-300x176.jpg",300,176,true],"full":["https:\/\/digiwic.in\/spgindia\/wp-content\/uploads\/2025\/01\/accounting-process-4.jpg",443,260,false]},"_links":{"self":[{"href":"https:\/\/digiwic.in\/spgindia\/wp-json\/wp\/v2\/posts\/5952","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/digiwic.in\/spgindia\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/digiwic.in\/spgindia\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/digiwic.in\/spgindia\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/digiwic.in\/spgindia\/wp-json\/wp\/v2\/comments?post=5952"}],"version-history":[{"count":1,"href":"https:\/\/digiwic.in\/spgindia\/wp-json\/wp\/v2\/posts\/5952\/revisions"}],"predecessor-version":[{"id":5953,"href":"https:\/\/digiwic.in\/spgindia\/wp-json\/wp\/v2\/posts\/5952\/revisions\/5953"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/digiwic.in\/spgindia\/wp-json\/wp\/v2\/media\/4390"}],"wp:attachment":[{"href":"https:\/\/digiwic.in\/spgindia\/wp-json\/wp\/v2\/media?parent=5952"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/digiwic.in\/spgindia\/wp-json\/wp\/v2\/categories?post=5952"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/digiwic.in\/spgindia\/wp-json\/wp\/v2\/tags?post=5952"},{"taxonomy":"year_tax","embeddable":true,"href":"https:\/\/digiwic.in\/spgindia\/wp-json\/wp\/v2\/year_tax?post=5952"},{"taxonomy":"month_tax","embeddable":true,"href":"https:\/\/digiwic.in\/spgindia\/wp-json\/wp\/v2\/month_tax?post=5952"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}