The Hindu Business Line : `Cos not obliged to have nominee directors on remuneration panel'

Troubled with some ambiguity arising out of the provisions in the Companies Act vis-à-vis Clause 49 of the Listing Agreement, India Inc sought a clarification from the department on the nomination of nominee directors on a Remuneration Committee.

Currently, the Companies Act and Listing Agreement provides for remuneration of managerial personnel to be approved by a Remuneration Committee of the Board.

As per the Companies Act "... Remuneration Committee consists of at least three non-executive independent directors... . including nominee directors, if any."

Putting to rest the doubts raised by the Federation of Indian Chambers of Commerce and Industry (FICCI) regarding constitution of Remuneration Committee, the DCA has stated, "The Act requires a company to constitute a Remuneration Committee consisting of at least three independent directors.

"For this purpose nominee directors can also be treated as independent directors. There is no obligation at all on the part of the company to necessarily include nominee directors on the Remuneration Committee (either one or more)."

"Under Clause 49 of the Listing Agreement, there is sufficient flexibility in the constitution of the said committee to allow it to be formed on a practical lines. However, Schedule XIII of the Companies Act and further clarifications issued thereupon merely add to the confusion without adding anything to the content," a FICCI official told Business Line.

Arguing further, industry sources stated, "Supposing a company has three or four or five nominee directors - does the explanation in Schedule XIII, therefore, prescribe that `all' nominee directors `must' be nominated as the members of the remuneration committee or does it mean that at least some members of the remuneration committee must compulsorily be one or more nominee directors?"

In some cases, it has been seen that one or more of the nominee directors are already members of 10 committees across all companies in which they are directors. Hence, law automatically precludes the nominee director from joining an 11th committee.

"There is a general feeling that if the remaining nominee directors, or one or more of them, are appointed to the Remuneration Committee, the requirements of law would be deemed to have been met. However, due to the existing drafting in Schedule XIII, legal opinions vary on either side," sources said.

"In our view, the requirements of the law would be adequately met in such instances but to avoid any undue litigation, it is important that the drafting of the Schedule XIII should be changed and reworded so as to clarify the position," FICCI said.