Non -Executive Directors
are those on the board of a company and he/she also an managing director and whole-time director or a director employed in his professional capacity. These non-executive directors normally receive sitting fees for every meeting of the board and committee attended by them.
Provision in the articles of association
The article shall contain a provision authorizing payment of sitting fees to directors. Where the articles provide that sitting fees to directors may be paid in conformity with the provisions of the companies act 1956 as may be applicable from time to time, then the board of the said company could increase the sitting fees on the basis of the provision in the said rules from time to time.
Payment of travelling, boarding and lodging expenses
The articles shall contain a provision for payment of travelling, boarding and lodging expenses to directors in connection with the business of a company. In this context the clarification vide circular no.5/75, dated 1-2-1975 given by the department of company affairs may be seen for information :
Whether the condition restricting travelling and daily allowances, which may be paid to the directors of the company for performing journeys on the business of the company.
The companies having in complying with the same condition, the central government have decided that no such condition could be imposed. The companies may, however, be advised to ensure that the payment will be on the basis of actual expenditure and expenditure kept to the minimum.
Approval of the members
Besides the approval of the central government, no payment to non-executive directors would be possible without the company.
Absence of provision in the articles
If there is no provision in the articles for directors and their action shall first be taken to include a provision by a special resolution at a general meeting.
Excess remuneration if any paid to directors
If any director draws remuneration in excess of the limits provided in section 309 or without the approval of the government, where required, he shall refund such excess to the company unless on an application made by the company the government waives the recovery for good and sufficient reasons. The application may be made in the form of a letter after it is approved by the board, Such waiver of excess remuneration also requires the approval of members.
Application to the central government
The application for payment of remuneration to non-executive directors shall be made in revised form No.25 A. Before making the application, the company shall publish a notice to the members of the company indicating the nature of the application proposed to be made in their newspaper in the principal language.
Expenses incurred by a company for maintaining an office for chairman of the company
Where a company directly incurs expenditure for maintaining office facilities for the chairman of the company by taking accommodation for hire and employing its staff etc., there is no need for any approval. But where the accommodation and the other facilities are arranged by the chairman himself and he claims the expenses incurred by him from the company.
Directors commission vis-a-vis independent directors
The definition of an independent director in the clause in corporate governance states that an director is the one who does not have any relationship with the company. The term “Directors remuneration has not been defined.
Resolution of the board of directors recommending a special resolution for the approval of the members for inclusion of a provision of a provision in the articles for payment of remuneration to non-executive directors
“Resolved that the following resolution to be placed for the consideration and approval of members as a special resolution at the next AGM/GM”.
“Resolved that the articles of association of the company may be altered for their registration in a new article being numbered 115 A after the existing article 115 thereof.
“115A subject to the provisions of section 309 and the other applicable provisions of the act, the directors of the company may be paid in addition to fees.
If any, paid to them for meetings of the board/committee attended by them. If the company in general meeting by a special resolution authorizes such payment provided that such directors shall not exceed 3 per cent of the company where there is no managing director and/or wholetime director or manager in the company and 1 per cent of the net profits of the company.
If the company in general meeting by special resolution so resolves, the said net profits having to be computed in the manner laid down in sub-section (5) of section 309 of the act as may be applicable from time to time and that such remuneration shall be paid to all directors for the time being in office or to one or more of them in such proportion as the board may by resolution decide or equally amongst all such directors where the board does not so decide”.