Section 197 — Overall maximum managerial remuneration and managerial remuneration in case of

absence or inadequacy of profits.—(1) The total managerial remuneration payable by a public company,
to its directors, including managing director and whole -time director, and its manager in respect of any
financial year shall not exceed eleven per cent. of the net profits of that company for that financial year
computed in the manner laid down in section 198 except that the remuneration of the directors shall not be
deducted from the gross profits:
Provided that the company in general meeting may, 3*** authorise the payment of remuneration
exceeding eleven per cent. of the net profits of the company, subject to the provisions of Schedule V:
Provided further that, except with the approval of the company in general meeting, 4[by a special
resolution,]—
(i) the remuneration payable to any one managing director; or whole-time director or manager shall
not exceed five per cent. of the net profits of the company and if there is more than one such director
remuneration shall not exceed ten per cent. of the net profits to all such directors and manager taken
together;

1. The proviso ins. by Act 1 of 2018, s. 66 (w.e.f. 12-9-2018).
2. Subs. by s. 66, ibid., for “specified in that Schedule” (w.e.f. 12-9-2018).
3. The words “with the approval of the Central Government,” omitted by Act 1 of 2018, s. 67 (w.e.f. 12-9-2018).
4. Ins. by s. 67, ibid. (w.e.f. 12-9-2018).

(ii) the remuneration payable to directors who are neither managing directors nor whole -time
directors shall not exceed,—
(A) one per cent. of the net profits of the company, if there is a managing or whole-time director
or manager;
(B) three per cent. of the net profits in any other case.
1[Provided also that, where the company has defaulted in payment of dues to any bank or public
financial institution or non-convertible debenture holders or any other secured creditor, the prior approval
of the bank or public financial institution concerned or the non -convertible debenture holders or other
secured creditor, as the case may be, shall be obtained by the company before obtaining the approval in the
general meeting.]
(2) The percentages aforesaid shall be exclusive of any fees payable to directors under sub-section (5).
(3) Notwithstanding anything contained in sub -sections (1) and ( 2), but subject to the provisions of
Schedule V, if, in any financial year, a comp any has no profits or its profits are inadequate, the company
shall not pay to its directors, including any managing or whole -time director or manager, 2[or any other
non-executive director, including an independent director] by way of remuneration any sum exclusive of
any fees payable to directors under sub -section (5) hereunder except in accordance with the provisions of
Schedule V 3***.
(4) The remuneration payable to the directors of a company, including any managing or whole -time
director or manager, shall be determined, in accordance with and subject to the provisions of this section,
either by the articles of the company, or by a resolution or, if the articles so require, by a special resolution,
passed by the company in general meeting and the remuneration payable to a director determined aforesaid
shall be inclusive of the remuneration payable to him for the services rendered by him in any other capacity:
Provided that any remuneration for services rendered by any such director in other capacity shal l not
be so included if—
(a) the services rendered are of a professional nature; and
(b) in the opinion of the Nomination and Remuneration Committee, if the company is covered
under sub-section (1) of section 178, or the Board of Directors in other cases, the director possesses the
requisite qualification for the practice of the profession.
(5) A director may receive remuneration by way of fee for attending meetings of the Board or
Committee thereof or for any other purpose whatsoever as may be decided by the Board:
Provided that the amount of such fees shall not exceed the amount as may be prescribed:
Provided further that different fees for different classes of companies and fees in respect of independent
director may be such as may be prescribed.
(6) A di rector or manager may be paid remuneration either by way of a monthly payment or at a
specified percentage of the net profits of the company or partly by one way and partly by the other.
4* * * * * *
(8) The net profits for the purposes of this section shall be computed in the manner referred to in section
198.
5[(9) If any director draws or receives, directly or indirectly, by way of remuneration any such sums in
excess of the limit prescribed by this section or without approval required under this section, he shall refund
such sums to the company, within two years or such lesser period as may be allowed by the company, and
until such sum is refunded, hold it in trust for the company.]

1. The proviso ins. by Act 1 of 2018, s. 67 (w.e.f. 12-9-2018).
2. Ins. by Act 29 of 2020, s. 40 (w.e.f. 18-3-2021).
3. The words “and if it is not able to comply with such provisions, with the previous approval of the Central Government”
omitted by s. 67, ibid. (w.e.f.12-9-2018).
4. Sub-section (7) omitted by Act 22 of 2019, s. 29 (w.e.f. 2-11-2018).
5. Subs. by Act 1 of 2018, s. 67 (w.e.f. 12-9-2018).

(10) The company shall not waive the recovery of any sum refundable to it under sub-section (9) unless
1[approved by the company by special resolution within two years from the date the sum becomes
refundable].
2[Provided that where the company has defaulted in payment of dues to any bank or public financial
institution or non-convertible debenture holders or any other secured creditor, the prior approval of the bank
or public financial institution concerned or the non-convertible debenture holders or other secured creditor,
as the case may be, shall be obtained by the company before obtaining approval of such waiver.]
(11) In cases where Schedule V is applicable on grounds of no profits or inadequate profits, any
provision relating to the remuneration of any director which purports to increase or has the effect of
increasing the amount thereof, whether the provision be contained in the company’s memorandum or
articles, or in an agreement entered into by it, or in any resolution passed by the company in general meeting
or its Board, shall not have any effect unless such increase is in accordance with the conditions specified in
that Schedule 3***.
(12) Every listed company shall disclose in the Board’s report, the ratio of the remuneration of each
director to the median employee’s remuneration and such other details as may be prescribed.
(13) Where any insurance is taken by a company on behalf of its managing director, whole -time
director, manager, Chief Executive Officer, Chief Financial Officer or Company Secretary for indemnifying
any of them against any liability in respect of any negligence, default, misfeasance, breach of duty or breach
of trust for which they may be guilty in relation to the company, the premium paid on such insurance shall
not be treated as part of the remuneration payable to any such personnel:
Provided that if such person is proved to be guilty, the premium paid on such insurance shall be treated
as part of the remuneration.
(14) Subject to the provisions of this section, any director who is in receipt of any commission from the
company and who is a managing or whole -time director of the company shall not be disqualified from
receiving any remuneration or commission from any holding company or subsidiary company of such
company subject to its disclosure by the company in the Board’s report.
4[(15) If any person makes any default in complying with the provisions of this section, he shall be
liable to a penalty of one lakh rupees and where any default has been made by a company, the company
shall be liable to a penalty of five lakh rupees.]
5[(16) The auditor of the company shall, in his report under section 143, make a statement as to whether
the remuneration paid by the company to its directors is in accordance with the provisions of this section,
whether remuneration paid to any director is in exces s of the limit laid down under this section and give
such other details as may be prescribed.
(17) On and from the commencement of the Companies (Amendment) Act, 2017, any application made