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Government Relaxes Requirements Related to Payment of Managerial Remuneration
With the intention of liberalising some of the stringent requirements of the past decades, the Ministry of Corporate Affairs ("MCA") has issued Circular No 2 of 2011 dated 8 February 2011 relaxing the provisions of section 212 of the Companies Act, 1956 ("the Act") and issued Press Note No 4 of 2011 amending Schedule XIII of the Act relating to payment of managerial remuneration by unlisted companies. Taxand India discusses the requirements of the Act, subsequent amendments and relief this provides to businesses as a result.
The recent trend in the corporate world is to form Sub Co as a special purpose vehicle ("SPV") for projects and dealing with different strategic partners. Several large groups have multiple Sub Co and in some cases, several layers of Sub Co. The Act, enacted many decades ago, is yet to keep pace with the changes in the business models. Certain provisions like section 212 of the Act have increased the cost of compliance and several companies were applying to avail of the exemption under the Act. The requirement for the approval of the Government for paying managerial remuneration in excess of the prescribed limit was proving to be a bottleneck for companies in hiring the talent at the top management level. The relaxation of the rigors of law would provide relief to companies and also ease the regime of approvals without diluting the transparency standards expected by the stakeholders.