MCA eases disclosures under Managerial Remuneration Rules

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Customer Care No. 91-11-45562222
MCA eases disclosures under Managerial
Remuneration Rules
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• MCA vide its notification dated June 30, 2016
  amends the Companies (Appointment and
  Remuneration of Managerial Remuneration) Rules,
  2014 (hereinafter referred to as the "Rules") by
  issuing Companies (Appointment and Remuneration
  of Managerial Remuneration) Amendment Rules, 2016
  (Amendment Rules) (hereinafter referred to as the
  "Notification") giving relaxation to the
  companies in terms of filing and disclosure
  requirements related to appointment and
  remuneration of directors and key managerial
  personnel in a company. The said Notification has
  been made effective from the date of its issuance
  i.e. June 30, 2016 The text of the proposed
  amendments in the aforesaid rules is given as
  Annexure 1.
• This article discussed the recent amendments made
  in the aforesaid Rules.

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• 2. Major Amendments
• 2.1 Return of appointment requirement for CEO,
  CFO and CS has been omitted
• Section 196(4) provides that any appointment of a
  managerial personnel being a managing director,
  manager or whole-time director is to be filed in
  return as may be prescribed with the Registrar.
  Rule 3 of the Companies (Appointment and
  Managerial Personnel) Rules, 2014 pursuant to
  such requirement u/s 196(4) required filing of MR
  1. However, the rules prescribed filing of MR 1
  not only for the managerial personnel as
  prescribed u/s 196 but also included filing w.r.t
  appointment of (a) Company Secretary (CS) (b)
  Chief Financial Officer (CFO) (c) Chief Executive
  Officer (CEO). This requirement did create a lot
  of confusion as this created multiple filing
  requirements in case of a CS and new requirement
  of filing w.r.t appointment of CEO and CFO- few
  companies did go ahead with the filing while many
  companies had a different interpretation and did
  not chose to file considering that the scope of
  section 196 does not extend to CS/CFO/CEO.
• After a gap of almost 2 years, MCA amends the
  rules to do away with the requirement of filing
  return of appointment in Form No. MR 1 for
  appointment of a CS, CFO and CEO. However, this
  will surely apply for appointments made post the
  Notification becoming effective and may not hold
  good for appointments already made and are yet
  due for filing. One may but take a clue from the
  amendment that the intent was always to not have
  such filing requirement and therefore one may
  even chose not to file for appointments made
  prior to the effective date of Notification. Form
  MR-1 has been changed accordingly to reflect the
  above amendment.

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• Disclosure requirements in Board's Report
• 2.2 Section 197 read with the Rules requires
  listed companies to make disclosure about the
  ratio of remuneration of each director to the
  median employee's remuneration in its Board's
  Report. The list of matters required to be
  disclosed in the Board's Report by listed
  companies is given in the Rules. The list of
  disclosures required to be made by a listed
  company has been reduced by deleting the
  following matters which were earlier required to
  be disclosed in the report
• (ii)the explanation on the relationship between
  average increase in remuneration and company
  performance
• (ii)comparison of the remuneration of the Key
  Managerial Personnel against the performance of
  the company
• (iii)variations in the market capitalisation of
  the company, price earnings ratio as at the
  closing date of the current financial year and
  previous financial year and percentage increase
  over decrease in the market quotations of the
  shares of the company in comparison to the rate
  at which the company came out with the last
  public offer in case of listed companies, and in
  case of unlisted companies, the variations in the
  net worth of the company as at the close of the
  current financial year and previous financial
  year
• (iv)comparison of the each remuneration of the
  Key Managerial Personnel against the performance
  of the company
• (v)the key parameters for any variable component
  of remuneration availed by the directors
• (vi)the ratio of the remuneration of the highest
  paid director to that of the employees who are
  not directors but receive remuneration in excess
  of the highest paid director during the year.

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• The concept of director's remuneration report was
  taken from UK Companies Act, 2006. When the
  similar concept was introduced under the
  Companies Act, 2013, it helps in ensuring
  transparency and fair disclosure by the companies
  to enable the stakeholders at large to know the
  remuneration policy and scale within a company.
• Deletion of the above clauses will certainly be
  an easier task, however two things remain
  inexplicable- (a) rationale for deletion- is it
  because of practical difficulty? Does it serve
  any purpose? (b) why did this change had to come
  after the finalisation and approval of the
  board's report of many companies as by now all
  concerned companies would have already approved
  their director's report. Therefore, effectively
  this change will be put into implementation only
  next year.

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