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CA Final · Integrated Business Solutions (Multidisciplinary Case Study with Strategic Management) · Corporate and Economic Laws

Case: Meridian Textiles Ltd, a listed company, has a board of 9 directors. Its Managing Director Mr Arvind Rao is appointed for 5 years. The company's net profit for the year is Rs 50 crore, computed under section 198 of the Companies Act, 2013. The company wants to pay the MD only, with no other whole-time director or manager. By the general ceiling in the Act, up to what amount can remuneration payable to this MD (as a single managing director) be paid as a percentage of net profit without Central Government approval?

Rs 2.5 crore. Where a company has a single managing director, section 197 allows remuneration up to 5% of net profit, computed under section 198, without Central Government approval. Five per cent of Rs 50 crore equals Rs 2.5 crore, while the 11% limit covers all directors together.

  1. ARs 2.5 crore (5% of Rs 50 crore)Correct
  2. BRs 5 crore (10% of Rs 50 crore)
  3. CRs 1 crore (2% of Rs 50 crore)
  4. DRs 3.5 crore (7% of Rs 50 crore)

Explanation

Under section 197, total managerial remuneration to all directors and the managing director cannot exceed 11% of net profit. Where there is one managing director, the ceiling for the MD is 5% of net profit. 5% of Rs 50 crore is Rs 2.5 crore. 10% is the wrong overall figure, not the 5% applicable to the MD alone.

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