COMPLIANCE MANAGEMENT AND DUE DILIGENCE

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PP-SACM & DD
Sub-section (3) applies to cases where the Articles of Association of the company has not been registered.
Sub-section (5) and (6) deal with cases of default in compliance of provisions of sub-section (1), (2) and (3).
Sub-section (7) of Section 192 of the Act, specifically states that the liquidator of the company should be
deemed to be a officer of a company.
Appointment of Managerial Persons (Sections 198, 269, 309, 316, 317, 386, 387, 388 and
Schedule XIII)
Section 198 provides that the total managerial remuneration shall not exceed 11% of the net profits of the
company. Sub-section (3) of Section 198 of the Act states that within the said ceiling, a company may pay a
monthly remuneration to its managing or whole-time directors as per Section 309 of the Act or to its manager
as per Section 387 of the Act. Sub-section (4) of Section 198 underlines the need for government approval, if
the remuneration were to be not in accordance with Schedule XIII, if a company has no profits or when its
profits are inadequate.
Section 309 of the Act provides that the total remuneration payable to a director who is in the whole-time
employment in the company or a managing director shall not exceed 5% where there is one such director or
10% if there is more than one such director for all of them together.
Section 269 of the Act provides that the appointment of managerial person is compulsory and if the
appointment is made in accordance with Schedule XIII, approval of Central Government is not required.
Schedule XIII to the Act contains two parts. Part I contains ceiling on remuneration where the profits are
adequate. Part II contains ceiling on remuneration if profits are not adequate or there is no profit.
Section 316 of the Act provides the ceiling on number of companies of which one person may be appointed
managing director and ceiling on tenure of office of managing director. Similarly, Section 386 of the Act
provides the ceiling on number of companies of which one person may be appointed manager.
In the light of what has been above, the following questions have to be addressed:
1. Procedural aspects relating to appointment of managing director or whole-time director or manager
including the filing of the necessary return and approval requirements if necessary.
2. Total remuneration payable to directors/whole-time directors/managing directors/managers.
In the process the company has to ensure that the provisions of Sections 198, 269, 309, 316, 317, 386, 387,
388 and Schedule XIII to the Act in the appointment of/ remuneration to its managing director/whole-time
director/manager have been complied with.
Provisions relating to declaration and payment of Dividend (sections 205, 205A, 205B, 205C,
206, 206A and 207 of the Act)
Briefly stated, Section 205 of the Act provides as follows:
– Dividend shall be declared out of profits, after providing for depreciation and losses, if any, to the
extent necessary.
– Board may declare interim dividend.
– Within 5 days of declaration of dividend, amount should be transferred to a separate bank account.
– Companies (Transfer of Profits to Reserves) Rules, 1975 should be complied with.