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Managerial pay: Stricter norms for defaulting companies, says govt

The provision is part of the amendments to the Companies Act which were cleared by Parliament last month

Press Trust of India  |  New Delhi 

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Companies which have defaulted on payment of dues to banks will require their approval for managerial remuneration beyond a certain threshold, according to the government.

The approval will also be needed in case of defaults to public financial institution, non-convertible debenture (NCD) holders and other secured creditors.

The provision is part of the amendments to the Companies Act which were cleared by Parliament last month.

A few provisions of the amended Act, which were notified on January 3, have important bearing on the working of the Insolvency and Bankruptcy Code, 2016, an official release said today.

The Code provides for a market-determined and time-bound resolution of insolvency proceedings. Many cases of stressed assets have already been referred for resolution under the Code, which became operational in December 2016.

Under Section 197 of the Companies Act, 2013, firms are required to get approval at their general meetings for payment of managerial remuneration in excess of 11 per cent of the net profit.

Now, if a company has defaulted in payment of dues to any or public financial institution or non-convertible debenture holders or any other secured creditor, then the concerned entity's prior approval would be needed "for such payment of managerial remuneration", the release said.

The nod of the lenders concerned should be taken before obtaining the approval for such payments at the company's general meeting.

According to the release, the amended Act allows companies to issue shares at a discount to its creditors when the debt is converted into shares in pursuance of any statutory resolution plan. These include resolution plan under the Code and debt restructuring scheme.

Prior to the changes, issuance of shares at discount was prohibited under Section 53 of the Act.

Another amendment prohibits "a registered valuer from undertaking valuation of any asset in which he has direct or indirect interest or becomes so interested at any time during three years prior to his appointment as valuer or three years after valuation of assets was conducted by him", the release said.

Section 247 of the Act had barred a registered valuer from undertaking valuation of any assets in which he has a direct or indirect interest or becomes interested at any time during or after the valuation of assets.

The bill to amend the to strengthen corporate governance standards, initiate strict action against defaulting companies and help improve ease of doing business in the country was passed by Parliament last month.

On December 19, the Rajya Sabha passed the Companies (Amendment) Bill, 2017 by a voice vote. It was adopted by the Lok Sabha in July 2017.

First Published: Mon, January 08 2018. 18:12 IST