3.15 Query
Limit on the remuneration of an Individual Director under Section 309(3) of the Companies Act, 1956 Under Section 309(3) of the Companies Act, 1956, a managing director or whole-time director may be paid remuneration at a specified percentage on net profits provided that except with the approval of the Central Government such remuneration shall not exceed 5% of the net profits for one such director and if there is more that one such director, 10% for all of them together. Now the question arises whether the 5% limit of one such director is applicable when there is only one director or is it applicable also when the number of directors exceeds one. The Section is not clear in this respect. When the number of such directors exceeds one it lays down a limit of 10% for “all of them together”. This may be interpreted to mean that in case of two such directors while one director gets 6% the other may get 4% to make up the overall 10%. Is the 5% limit for one director to be applied even in such a case where there is more than one director?
Opinion July 21, 1969
In the Case of a Company which has only one director who is ‘in the whole-time employment of the company’ or a ‘managing director’, Section 309(3) places a limit of 5% on the remuneration which may normally be paid to him. In the case of a company, which has more than one such director, the limit applicable is a composite ceiling of 10% for all such directors taken together, without a further limit of 5% in respect of such director individually. ______________________ |